[Federal Register Volume 70, Number 50 (Wednesday, March 16, 2005)]
[Notices]
[Pages 12921-12924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1129]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51336; File No. SR-NASD-2005-026]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change Relating to 
TRACE Market Data Fees

March 9, 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 11, 2005, the National Association of Securities Dealers, 
Inc. (``NASD'') 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 NASD. 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing to amend NASD Rule 7010(k) relating to 
Transaction Reporting and Compliance Engine (``TRACE'') transaction 
data to: (i) Terminate the Bond Trade Dissemination Service (``BTDS'') 
Internal Usage Authorization Fee and the BTDS External Usage 
Authorization Fee and, in lieu of both fees, establish a Vendor Real-
Time Data Feed Fee; (ii) define the term ``Tax Exempt Organization,'' 
and amend the defined term ``Non-Professional'' for purposes of NASD 
Rule 7010(k)(3); and (iii) make other minor, technical amendments. The 
text of the proposed rule change is available on NASD's Web site 
(http://www.nasd.com), at NASD's principal office, 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, NASD included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it had received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. NASD 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
    NASD seeks to amend NASD Rule 7010(k) to streamline market data 
services and fees for TRACE transaction data. Specifically, NASD 
proposes to replace two fees currently charged to receive delayed-time 
and real-time TRACE transaction data--the BTDS Internal Usage 
Authorization Fee of $500 per month per application and the BTDS 
External Usage Authorization Fee of $1,000 per month per application--
with the Vendor Real-Time Data Feed Fee, a single monthly fee of $1,500 
(subject to certain exceptions) for a feed of real-time TRACE 
transaction data that the recipient may use in multiple applications. 
In addition, NASD proposes to amend NASD Rule 7010(k) to define the 
term ``Tax-Exempt Organization'' for purposes of identifying the tax-
exempt organizations that would qualify to receive a real-time TRACE 
transaction data feed for a reduced fee of $400 per month. Also, NASD 
proposes to amend the defined term ``Non-Professional'' in NASD Rule 
7010(k) to make explicit NASD's current interpretation that a natural 
person who is a financial professional, or an employee of a financial 
services entity as specified in the rule, is considered a Non-
Professional in those instances where the person accesses the TRACE 
transaction data to use it solely for personal, non-commercial uses 
(e.g., a registered associated person of a broker-dealer accesses the 
free TRACE data at home to obtain information about bonds held in his 
personal account). Finally, NASD is proposing other minor, technical 
amendments to NASD Rule 7010(k).

[[Page 12922]]

Current TRACE Market Data Services and Fees
    Currently, under NASD Rule 7010(k)(3)(A)(iii), NASD charges a BTDS 
Internal Usage Authorization Fee of $500 per month per application or 
service. For this fee, a party is entitled to receive and use real-time 
and/or delayed-time TRACE transaction data,\3\ for internal 
dissemination and use.\4\ Under NASD Rule 7010(k)(3)(A)(iv), a party 
paying a BTDS External Usage Authorization Fee of $1,000 per month per 
application or service is entitled to use real-time and/or delayed time 
TRACE transaction data and repackage it for delivery and dissemination 
externally (i.e., outside the contracting party's organization), such 
as delivering indices or other products derived from the TRACE data.
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    \3\ NASD recently filed a rule change eliminating the fee it 
charges for use solely of delayed-time TRACE transaction data, the 
BTDS Professional Delayed-Time Data Display Fee pilot program (i.e., 
a $15 fee per month per terminal). The BTDS Professional Delayed-
Time Data Display Fee pilot program will end on June 1, 2005. See 
Securities Exchange Act Release No. 50977 (January 6, 2005), 70 FR 
2202 (January 12, 2005) (SR-NASD-2004-189) (notice of rule change 
for immediate effectiveness filed on December 28, 2004). See also 
NASD Notice to Members 05-05 (January 2005). In the current proposed 
rule change, NASD is proposing to eliminate the two remaining fees 
that are based partially on the receipt of delayed-time TRACE 
transaction data, and proposing a new fee, the Vendor Real-Time Data 
Feed Fee, that is based upon the receipt of real-time TRACE 
transaction data only.
    \4\ Permitted internal uses include, but are not limited to, 
internal operational and processing systems, internal monitoring and 
surveillance systems, internal price validation, internal portfolio 
valuation services, internal analytical programs leading to 
purchase/sale or other trading decisions, and other related 
activities.
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Proposed Vendor Real-Time Data Feed Fee
    NASD proposes to eliminate the two current fees, the $500 BTDS 
Internal Usage Authorization Fee and the $1,000 BTDS External Usage 
Authorization Fee, and replace them with one consolidated fee, the 
Vendor Real-Time Data Feed Fee. The Vendor Real-Time Data Feed Fee 
would be $1,500 for most TRACE data recipients and $400 for certain 
qualifying Tax-Exempt Organizations that intend to use the data solely 
to provide access to TRACE data to Non-Professional users, such as 
individual investors, at no charge, as discussed in greater detail 
below.
    NASD would charge each person or organization that receives real-
time TRACE data via any data feed (except certain qualifying Tax-Exempt 
Organizations) the Vendor Real-Time Data Feed Fee of $1,500 in proposed 
NASD Rule 7010(k)(3)(A)(ii), whether the data is received directly from 
NASD or from a vendor that redistributes TRACE transaction data in real 
time. As is currently the case, each organization or person receiving 
such data, whether from NASD or a vendor, would enter into an agreement 
with NASD. The data recipient would be entitled to use the TRACE 
transaction data in an unlimited number of internal and external 
applications, as described in proposed NASD Rule 7010(k)(3)(A)(ii), in 
contrast to the single-use or single-application limits that are in 
effect currently under either the $500 BTDS Internal Usage 
Authorization Fee or the $1,000 BTDS External Usage Authorization Fee. 
However, the Vendor Real-Time Data Feed Fee of $1,500 would not include 
NASD's monthly charge for each desktop or other interrogation display 
device receiving the real-time data.\5\
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    \5\ Similarly, neither the BTDS Internal Usage Authorization Fee 
nor the BTDS External Usage Authorization Fee currently in effect 
includes the monthly charge for each desktop or interrogation 
display device receiving real-time data.
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    NASD believes that introducing a single fee for any party that 
desires to be a vendor (or a third-party recipient) taking a real-time 
TRACE transaction data feed would better reflect NASD's administrative 
costs, allocate such costs appropriately among real-time TRACE 
transaction data recipients based upon use and misappropriation risk, 
and simplify the fee structure. Under the current BTDS TRACE 
transaction data fee structure, a vendor taking a real-time TRACE 
transaction data feed that uses the data only on a next-day basis does 
not pay NASD a fee. However, for such vendors, NASD is exposed to the 
same risk--the risk of misappropriation of TRACE data--that it bears in 
connection with vendors or third-party data recipients that pay to 
receive and use such data real-time.
    Currently, any vendor taking a real-time TRACE transaction data 
feed has the technical capability to use the real-time data wrongfully 
in violation of the terms of its service and fee agreement with NASD, 
such as redistributing real-time TRACE transaction data without 
appropriate authorization or failing to maintain proper controls or to 
adequately track data usage. To prevent or limit such misuse and 
misappropriation, NASD requires direct contractual relationships with 
anyone receiving a feed of real-time TRACE transaction data. These 
agreements, and the usage tracking that go along with them, result in 
NASD bearing the administrative cost for contract creation, management, 
and the monitoring of the usage of TRACE data through audits. NASD 
believes that the proposal to apply a single fee to any party desiring 
to receive a real-time TRACE transaction data feed would better reflect 
and allocate NASD's administrative costs.
    NASD believes that the single fee for all recipients of a real-time 
TRACE transaction data feed also simplifies the fee structure and 
eliminates many of the questions regarding permitted uses by vendors 
and other TRACE transaction data recipients. For example, the new 
Vendor Real-Time Data Feed Fee is based on per-organization usage, 
rather than per-application, and vendors of real-time TRACE transaction 
data (or recipients of such data through a vendor) would be better able 
to use the TRACE data in multiple internal or external applications 
without bearing additional costs.
Reduced Vendor Real-Time Data Feed Fee for Tax-Exempt Organizations
    NASD is proposing in NASD Rule 7010(k)(3)(A)(iii) that the Vendor 
Real-Time Data Feed Fee be reduced to $400 per month for qualifying 
Tax-Exempt Organizations. By reducing the fee, NASD seeks to 
accommodate such organizations that intend to use the TRACE transaction 
data solely for distribution to Non-Professionals at no charge.
    In proposed NASD Rule 7010(k)(3)(C)(ii), NASD proposes to define 
``Tax-Exempt Organization'' for purposes of NASD Rule 7010(k)(3) to 
mean ``an organization that is described in Section 501(c) of the 
Internal Revenue Code (26 U.S.C. Sec.  501(c)); has received 
recognition of the exemption from federal income taxes from the 
Internal Revenue Service; and obtains and uses real-time TRACE 
transaction data solely for redistribution to Non-Professionals, as 
defined for purposes of Rule 7010(k)(3), at no charge.'' Tax-exempt 
organizations that wish to obtain a real-time TRACE transaction data 
feed, but do not intend to provide access or redistribute data 
exclusively to Non-Professionals as defined under proposed NASD Rule 
7010(k)(3)(C)(ii) at no charge would be required to pay the Vendor 
Real-Time Data Feed Fee of $1,500 per month. Similarly, tax-exempt 
organizations that intend to obtain a real-time TRACE transaction data 
feed and use it not only for providing access or redistributing the 
TRACE data to Non-Professionals, but also for other uses, would be 
required to pay the $1,500 fee per month.
    NASD believes that the fee reduction for qualifying Tax-Exempt 
Organizations providing TRACE information to Non-Professionals at no 
charge furthers an NASD goal of making TRACE transaction information 
more

[[Page 12923]]

accessible to individual investors. Also, NASD believes that the 
proposed $400 Vendor Real-Time Data Feed Fee for qualifying Tax-Exempt 
Organizations would appropriately reduce the costs of obtaining the 
data when the data would be used exclusively for the benefit of Non-
Professionals (primarily, individual investors).
``Non-Professional''
    NASD is proposing to amend NASD Rule 7010(k)(3)(C)(ii) to clarify 
the definition of ``Non-Professional'' and renumber the provision as 
NASD Rule 7010(k)(3)(C)(i). NASD believes that the current definition 
of ``Non-Professional'' is unclear as to whether a natural person who 
is registered in one of several capacities as a securities or 
commodities professional, or performs similar functions but is not 
required to be registered due to an exemption, or is an employee of 
certain financial services businesses,\6\ may be a Non-Professional if 
the natural person uses TRACE transaction information solely for 
personal, non-commercial uses. NASD currently interprets the term Non-
Professional to include any natural person who obtains access to TRACE 
transaction data and uses it for his or her personal, non-commercial 
use, even if such natural person is registered personnel or otherwise 
an employee of a financial services entity (e.g., broker-dealer or 
investment adviser), or is himself or herself registered or qualified 
in some capacity with the Commission, or another federal or state 
agency that regulates and monitors financial services business 
activities and the individuals engaged in such businesses, as specified 
in current NASD Rule 7010(k)(3)(C)(ii), subparagraphs (a) through (c).
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    \6\ See NASD Rule 7010(k)(3)(C)(ii), subparagraph (a), regarding 
a natural person ``registered'' or ``qualified in any capacity with 
the Commission, the Commodity Futures Trading Commission, any state 
securities agency, any securities exchange or association, or any 
commodities or futures contract market or association''; 
subparagraph (b), regarding a natural person ``engaged as an 
`investment adviser' as that term is defined in Section 202(a)(11) 
of the Investment Advisers Act of 1940 (whether or not registered or 
qualified under that Act)''; and subparagraph (c), regarding a 
natural person ``employed by a bank, insurance company or other 
organization exempt from registration under federal or state 
securities laws to perform functions that would require registration 
or qualification if such functions were performed for an 
organization not so exempt.''
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    NASD proposes to make clear that such professionals and other 
employees in the financial services industry may be considered Non-
Professionals when they are accessing and using the TRACE transaction 
data solely for personal, non-commercial uses. For example, under 
proposed NASD Rule 7010(k)(3)(C)(i), subparagraph (c), a natural person 
who is engaged as an investment adviser and accesses TRACE data to 
review transaction pricing in TRACE-eligible bonds in his personal 
account would be considered using the data solely for his personal, 
non-commercial use and during that access and use would be a Non-
Professional. Also, NASD proposes to clarify in subparagraph (d) of 
proposed NASD Rule 7010(k)(3)(C)(i) that, in addition to persons 
employed by a bank, insurance company, or other organization exempt 
from registration under federal or state securities laws to perform 
functions that ordinarily would require registration, other employees 
of such organizations who use TRACE transaction information solely for 
their personal, non-commercial use, would be Non-Professionals. NASD 
also proposes to make other technical, clarifying amendments to the 
definition of ``Non-Professional'' and to NASD Rule 7010(k).
    NASD would announce the effective date of the proposed rule change 
in a Notice to Members to be published no later than 60 days following 
Commission approval if the Commission approves the proposed rule 
change. The effective date would be no later than 45 days following 
publication of the Notice to Members announcing Commission approval.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\7\ which requires, among 
other things, that NASD rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest, and Section 15A(b)(5) of the Act,\8\ which requires, 
among other things, that NASD rules provide for the equitable 
allocation of reasonable dues, fees, and other charges among members 
and issuers and other persons using any facility or system that NASD 
operates or controls.
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    \7\ 15 U.S.C. 78o-3(b)(6).
    \8\ 15 U.S.C. 78o-3(b)(5).
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    NASD believes that providing a reduced TRACE data fee for 
qualifying Tax-Exempt Organizations and clarifying the term Non-
Professional would foster the continued dissemination of TRACE data for 
the protection of investors and in furtherance of the public interest. 
NASD believes that consolidating the two TRACE data fees into one fee 
and providing a reduced TRACE data fee for qualifying Tax-Exempt 
Organizations would equitably allocate fees among subscribers of TRACE 
data that desire TRACE transaction data for commercial use or benefit, 
or redistribution to Non-Professionals, and would not adversely affect 
the use and distribution of TRACE data, for the protection of investors 
and in furtherance of the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD does not believe that the proposed rule change could result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which NASD consents, the Commission will:
    (A) By order approve such proposed rule change; or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2005-026 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-2005-026. This 
file

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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 Section, 450 Fifth Street, 
NW., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of 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 publicly available. All 
submissions should refer to File Number SR-NASD-2005-026 and should be 
submitted on or before April 6, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-1129 Filed 3-15-05; 8:45 am]
BILLING CODE 8010-01-P