[Federal Register Volume 70, Number 37 (Friday, February 25, 2005)]
[Notices]
[Pages 9414-9416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-775]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51225; File No. SR-NASD-2005-020]


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 Non-Members Using 
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, 2005, 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 and 
II below, which Items have been prepared by Nasdaq. Nasdaq has filed 
the proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and Rule 
19b-4(f)(6) thereunder,\4\ which renders the proposal effective upon 
filing with the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as amended, 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).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 non-members using 
Nasdaq's Brut Facility. Nasdaq proposes to 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.\5\ In SR-NASD-2005-019, Nasdaq 
proposed a uniform fee schedule for NASD members executing transactions 
in exchange-listed securities through the Nasdaq Market Center and 
Nasdaq's Brut Facility.\6\ Nasdaq is now proposing to make the uniform 
fee schedule applicable to non-members trading through Nasdaq's Brut 
Facility.
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    \5\ 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).
    \6\ See SR-NASD-2005-019 (February 1, 2005).
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    Nasdaq states that, as is currently true for the Nasdaq Market 
Center, there will be no order specific charges or credits 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 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. 
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.
    Routing Fees. 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 
participants' volume of liquidity provision in Nasdaq-listed securities 
has determined the tiers to which a 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.\7\ For other orders, the

[[Page 9415]]

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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    \7\ 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.\8\ 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.\9\
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    \8\ See http://www.inetats.com/prodserv/bd/fee/fee.asp.
    \9\ Nasdaq is also proposing to eliminate the current $0.02 per 
order fee for entry of preferenced orders in the Nasdaq Market 
Center. Although this change is being made to the unified member fee 
schedule, it would not directly affect non-members because the 
Nasdaq Market Center is not directly accessible by non-members. See 
SR-NASD-2005-019 (February 1, 2005).
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2. Statutory Basis
    Nasdaq believes that the proposed rule change, as amended, is 
consistent with the provisions of Section 15A of the Act,\10\ in 
general, and with Section 15A(b)(5) of the Act,\11\ 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. The proposed rule change applies to non-members that use 
Nasdaq's Brut Facility for certain fee changes that are being 
implemented in SR-NASD-2005-019 for NASD members that use the Nasdaq 
Market Center and/or Nasdaq's Brut Facility.\12\ Accordingly, the 
proposed rule change promotes an equitable allocation of fees between 
members and non-members using Nasdaq's order execution facilities.
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    \10\ 15 U.S.C. 78o-3.
    \11\ 15 U.S.C. 78o-3(b)(5).
    \12\ See SR-NASD-2005-019 (February 1, 2005).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change, as amended, 
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

    Written comments were neither solicited nor received.

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

    The foregoing proposed rule change, as amended, is subject to 
Section 19(b)(3)(A)(iii) of the Act \13\ and Rule 19b-4(f)(6) 
thereunder \14\ because the proposal: (i) Does not significantly affect 
the protection of investors or the public interest; (ii) does not 
impose any significant burden on competition; and (iii) does not become 
operative prior to 30 days after the date of filing or such shorter 
time as the Commission may designate if consistent with the protection 
of investors and the public interest; provided that Nasdaq has given 
the Commission notice of its intent to file the proposed rule change, 
along with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 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.\15\
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    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(6).
    \15\ See Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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    Nasdaq has requested that the Commission waive the five-day pre-
filing notice requirement and the 30-day operative delay. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest 
because such waiver will permit Nasdaq to make Brut's fee structure 
consistent for both NASD members and non-NASD members. In addition, the 
Commission has determined to waive the five-day pre-filing notice 
requirement. For these reasons, the Commission designates the proposal 
to be effective and operative upon filing with the Commission.\16\
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    \16\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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-2005-020 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-2005-020. 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

[[Page 9416]]

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-2005-020 and should be submitted on or before March 18, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E5-775 Filed 2-24-05; 8:45 am]
BILLING CODE 8010-01-P