[Federal Register Volume 70, Number 37 (Friday, February 25, 2005)]
[Notices]
[Pages 9406-9408]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-772]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51224; File No. SR-NASD-2005-019]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. To Modify Pricing for NASD Members Using the 
Nasdaq Market Center and Nasdaq's Brut Facility

February 17, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on February 1, 2004, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by Nasdaq. Nasdaq has 
designated this proposal in part as one establishing or changing a due, 
fee or other charge imposed by the self-regulatory organization under 
Section 19(b)(3)(A)(ii) \3\ of the Act and Rule 19b-4(f)(2) 
thereunder,\4\ and in part as one concerned with the administration of 
a self-regulatory organization under Section 19(b)(3)(A)(iii) \5\ of 
the Act and Rule 19b-4(f)(3) thereunder,\6\ which renders the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
    \5\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \6\ 17 CFR 240.19b-4(f)(3).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to modify the pricing for NASD members using the 
Nasdaq Market Center and Nasdaq's Brut Facility. Nasdaq states that it 
will implement the proposed rule change on February 1, 2005. The text 
of the proposed rule change is available on the NASD's Web site (http://www.nasd.com), at the NASD's Office of the Secretary, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. Nasdaq has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Consolidation of Fee Schedule for Nasdaq Market Center and Brut 
Facility. In November 2004, Nasdaq established a uniform fee schedule 
for transactions in Nasdaq-listed securities through the Nasdaq Market 
Center and Nasdaq's Brut Facility.\7\ Nasdaq is now proposing a uniform 
fee schedule for transactions in exchange-listed securities. Nasdaq 
states that, as is currently true for the Nasdaq Market Center, there 
will be no charge or credit associated with orders to buy or sell 
exchange-listed securities other than exchange-traded funds listed on 
the American Stock Exchange (``Amex-listed ETFs''), although Nasdaq is 
introducing a fee of $0.004 per share executed for orders that are 
routed by Brut using an exchange's proprietary

[[Page 9407]]

order delivery system (such as the New York Stock Exchange's SuperDOT 
system). Moreover, as of February 1, 2005, Amex-listed ETFs will be 
subject to the same tiered fee schedule as Nasdaq-listed securities. As 
a result, market participants' combined volume in Nasdaq-listed 
securities and Amex-listed ETFs in both the Nasdaq Market Center and 
Brut will be considered when determining each market participants' fees 
for orders in Nasdaq-listed securities and Amex-listed ETFs. In 
conjunction with this change, the fee schedule is also being clarified 
by moving transaction charges for exchange-listed securities from NASD 
Rule 7010(d) to NASD Rule 7010(i) and by clarifying that the fee 
schedule in NASD Rule 7010(i)(1) applies to Nasdaq-listed securities 
subject to the Nasdaq UTP Plan. Thus, as provided by NASD Rule IM-4400, 
the fees associated with dually listed securities that are subject to 
the Consolidated Quotation Service and Consolidated Tape Association 
national market system plans are the fees for exchange-listed 
securities, rather than Nasdaq-listed securities.
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    \7\ See Securities Exchange Act Release No. 50670 (November 16, 
2004), 69 FR 67979 (November 22, 2004) (SR-NASD-2004-167); 
Securities Exchange Act Release No. 50787 (December 2, 2004), 69 FR 
71459 (December 9, 2004) (SR-NASD-2004-170).
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    According to Nasdaq, the proposed rule change also provides that 
transactions executed through Nasdaq's Brut Facility will be considered 
when determining the amount of revenue shared with members under NASD 
Rule 7010(c)(2), Nasdaq's market data revenue sharing program for 
exchange-listed securities. Because such transactions are reported 
through Nasdaq, Nasdaq states that they now result in the receipt of 
market data revenue by Nasdaq that can be shared with members under the 
program. Moreover, the proposed rule change provides that executions in 
exchange-listed securities against a market participants' own quote or 
order are subject to the same fees as other transactions; currently, 
all such executions are free in the Nasdaq Market Center.
    Preferenced Order Fees and Routing Fees. Nasdaq is proposing to 
eliminate the current $0.02 per order fee for entry of preferenced 
orders into the Nasdaq Market Center. Nasdaq is also proposing to 
modify the fees for orders that are routed from the Nasdaq Brut 
Facility to other market centers. Fees are based upon multiple volume-
based usage tiers that take account of the combined Nasdaq Market 
Center and Brut volume of a market participant. According to Nasdaq, in 
the past, a market participant's volume of liquidity provision in 
Nasdaq-listed securities determined the tier to which such market 
participant was assigned. As discussed above, volume in Amex-listed 
ETFs will now also be considered in making this volume determination. 
Moreover, Nasdaq is proposing several modifications to the routing fee 
schedule. First, the tiers to which a market participant is assigned 
will now be based in part upon the volume of shares on the Nasdaq 
Market Center and Brut books that are accessed during a month and the 
volume of shares routed, as well as the volume of liquidity provided. 
Moreover, a new tier with a routing charge of $0.0025 per share 
executed will be established. Second, orders that are routed outside of 
both the Nasdaq Market Center and Brut without first attempting to 
execute against the Brut book (i.e., ``Thru Brut orders'') will not be 
counted in determining the routing tier for which a market participant 
qualifies, and will be assessed a routing charge of $0.004 per share 
executed.\8\ For other orders, the routing charges will be as follows: 
(i) If a market participant provides a daily average of 500,000 or 
fewer shares of liquidity during a month, its routing charge is $0.003 
per share executed; (ii) if a market participant provides a daily 
average of more than 500,000 but fewer than 10,000,001 shares of 
liquidity during a month, its routing charge is $0.0028 per share 
executed; (iii) if a market participant provides a daily average of 
more than 10,000,000 but fewer than 20,000,001 shares of liquidity 
during a month, or provides a daily average of more than 20,000,000 
shares of liquidity during a month but accesses and/or routes a daily 
average of 50,000,000 or fewer shares during the month, its routing 
charge is $0.0027 per share routed; and (iv) if a market participant 
provides a daily average of more than 20,000,000 shares of liquidity 
during a month and accesses and/or routes a daily average of more than 
50,000,000 shares during the month, its routing charge will be $0.0025 
per share executed.
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    \8\ Orders routed by Brut to the Nasdaq Market Center would not 
be assessed the routing charge, but would be assessed Nasdaq's 
normal execution charge, if executed. Telephone conversation between 
John Yetter, Associate General Counsel, Nasdaq, and Marc McKayle, 
Special Counsel, Division of Market Regulation (``Division''), 
Commission, and David Liu, Attorney, Division, Commission, on 
February 17, 2005.
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    Although the newly reduced routing charge is available at only high 
levels of volume, Nasdaq believes that the change is necessary as a 
response to a recent decision by a Nasdaq competitor to offer market 
participants with comparably high volumes reduced fees for accessing 
liquidity.\9\ According to Nasdaq, by lowering its routing fee in a 
comparable manner, Nasdaq seeks to provide an overall level of 
transaction fees that allows it to compete for order flow from market 
participants that are in a position to benefit from its competitor's 
pricing change. Moreover, Nasdaq notes that routing fees are only one 
component of the fees that market participants pay, and the credits 
that they receive, to execute orders during a month. According to 
Nasdaq, because a market participant qualifying for the reduced routing 
fee must access and/or route high volumes of liquidity, its average 
cost of order execution is likely to be higher than the average cost of 
order execution of a large number of market participants that provide 
significant liquidity but access and/or route to a lesser extent.
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    \9\ See http://www.inetats.com/prodserv/bd/fee/fee.asp.
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    Additional Clarifications. The fees currently in NASD Rule 7010(i) 
are applicable to members and also to non-members that use Nasdaq's 
Brut Facility.\10\ Nasdaq states that it expects that it will continue 
to seek to apply the same fee schedule to members and non-members that 
use Brut. Nasdaq is submitting a separate filing to make the proposed 
rule changes contained in this filing applicable to non-members.\11\ In 
order to facilitate that filing, however, Nasdaq is removing references 
to non-members from NASD Rule 7010 and adopting a new paragraph that 
provides that the fees applicable to non-members using Brut are the 
fees established for members by SR-NASD-2004-167, and made applicable 
to non-members by SR-NASD-2004-170. Nasdaq states that, because this 
change does not alter any of the fees currently applicable to non-
members, it is being filed as a proposed rule change concerned solely 
with the administration of a self-regulatory organization under Section 
19(b)(3)(A)(iii) of the Act.\12\ In SR-NASD-2005-020, Nasdaq is, in 
turn, proposing to amend this new rule language to provide that the 
fees applicable to non-members are same as the fees applicable to 
members established by this rule filing, SR-NASD-2005-019. This 
procedure will ensure that Nasdaq can file member fee changes on an 
immediately effective basis, while allowing corresponding fee changes 
applicable to non-members to be filed either for Commission approval 
under Section 19(b)(2) of the Act \13\ or as

[[Page 9408]]

``non-controversial'' filings under Rule 19b-4(f)(6) under the Act.\14\
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    \10\ Under NASD Rule 4710, the fees applicable to UTP Exchanges 
that participate in the Nasdaq Market Center are governed by 
contract.
    \11\ See SR-NASD-2005-020 (February 1, 2005).
    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 17 CFR 240.19b-4(f)(6).
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2. Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\15\ in general, and with 
Section 15A(b)(5) of the Act,\16\ in particular, in that the proposed 
rule change provides for the equitable allocation of reasonable dues, 
fees, and other charges among members and issuers and other persons 
using any facility or system which the NASD operates or controls. 
Nasdaq states that, although the proposed reduction in routing fees is 
applicable only to market participants with high volumes of liquidity 
accessing and liquidity provision activity, the average cost of order 
execution of such market participants is actually higher than the 
average cost of a large number of lower volume market participants. 
Accordingly, Nasdaq believes that the proposed routing fee change is 
consistent with an equitable allocation of fees. Moreover, as with all 
of Nasdaq's tiered fees, Nasdaq states that the change takes account of 
Nasdaq's lower per share costs and enhanced revenue opportunities 
associated with higher volumes of liquidity provision and liquidity 
accessing. Nasdaq believes that the proposed changes with respect to 
exchange-listed securities will introduce greater uniformity and 
clarity in the fee schedule applicable to such securities.
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    \15\ 15 U.S.C. 78o-3.
    \16\ 15 U.S.C. 78o-3(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Nasdaq states that written comments were neither solicited nor 
received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The forgoing rule change is subject in part to Section 
19(b)(3)(A)(ii) of the Act \17\ and subparagraph (f)(2) of Rule 19b-4 
\18\ thereunder because it establishes or changes a due, fee, or other 
charge imposed by the self-regulatory organization and in part to 
Section 19(b)(3)(A)(iii) of the Act \19\ and subparagraph (f)(3) of 
Rule 19b-4 \20\ thereunder because it is concerned with the 
administration of a self-regulatory organization. Accordingly, the 
proposal is effective upon Commission receipt of the filing. At any 
time within 60 days of the filing of such proposed rule change, the 
Commission may summarily abrogate such rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.\21\
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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 17 CFR 240.19b-4(f)(2).
    \19\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \20\ 17 CFR 240.19b-4(f)(3).
    \21\ 15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NASD-2005-019 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NASD-2005-019. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of the 
filing also will be available for inspection and copying at the 
principal office of the NASD. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NASD-2005-019 and should be submitted on or before March 
18, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E5-772 Filed 2-24-05; 8:45 am]
BILLING CODE 8010-01-P