[Federal Register Volume 70, Number 108 (Tuesday, June 7, 2005)]
[Notices]
[Pages 33234-33236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2890]



[[Page 33234]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51757; File No. SR-NASD-2005-037]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Order Granting Accelerated Approval 
of Proposed Rule Change and Amendment No. 1 Thereto To Modify Certain 
Fees for Connecting to the Nasdaq Market Center and Nasdaq's Brut 
Facility for Non-Members

May 27, 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 March 24, 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. On May 10, 2005, 
Nasdaq submitted Amendment No. 1 to the proposed rule change.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons and to grant 
accelerated approval to the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Form 19b-4, dated May 10, 2005 (``Amendment No. 1''). 
Amendment No. 1 replaced the original rule filing in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to amend NASD Rule 7010 to modify certain fees for 
connecting to the Nasdaq Market Center (``NMC'') and Nasdaq's Brut 
Facility (``Brut''). The text of the proposed change to NASD Rule 7010 
is below. Additions are in italics and deletions are in brackets.
* * * * *

7000. Charges for Services and Equipment

7010. System Services

    (a)--(e) No change
    (f) Access Services.
    The following charges are assessed by Nasdaq for connectivity to 
the Nasdaq Market Center (NMC) and, where indicated, to Nasdaq's Brut 
Facility (Brut).
    (1) and (2) No change.
    (3) Computer to computer interface (CTCI) and Financial Information 
Exchange (FIX)

------------------------------------------------------------------------
                   Options                               Price
------------------------------------------------------------------------
Option 1: Dual 56kb lines (one for             $1275/month.
 redundancy), single hub and router, and
 optional single FIX port.
Option 2: Dual 56kb lines (one for             $1600/month.
 redundancy), dual hubs (one for redundancy),
 dual routers (one for redundancy), and
 optional single FIX port.
Option 3: Dual T1 lines (one for redundancy),  $8000/month (CTCI or CTCI/
 dual hubs (one for redundancy), dual routers   FIX lines) $4000/month
 (one for redundancy), and optional single      (FIX-only lines).
 FIX port. Includes base bandwidth of 128kb.
FIX Trading Port (NMC and Brut) [Charge].....  $[300] 400/port/month.
FIX Port for Services Other than Trading.....  $500/port/month.
Dedicated FIX server.........................  $1,000/server/month.
Dedicated FIX server (Brut)..................  3,000/server/month;
                                                initial term of not less
                                                than 12 months is
                                                required.
Option 1, 2, or 3 with Message Queue software  Fee for Option 1, 2, or 3
 enhancement Bandwidth 20%.                     (including any
                                                Enhancement Fee) plus.
Disaster Recovery Option: Single 56kb line     $975/month.
 with single hub and router and optional
 single FIX port. (For remote disaster
 recovery sites only.).
Bandwidth Enhancement Fee (for T1 subscribers  $600/month per 64kb
 only).                                         increase above 128kb T1
                                                base.
Installation Fee.............................  $2000 per site for dual
                                                hubs and routers.
                                               $1000 per site for single
                                                hub and router.
Relocation Fee (for the movement of TCP/IP-    $1700 per relocation.
 capable lines within a single location).
------------------------------------------------------------------------

    FIX connectivity through Options 1, 2, or 3 or the Disaster 
Recovery Option will not be available to new subscribers that are (i) 
NASD members after January 1, 2004, or (ii) not NASD members after the 
effective date of SR-NASD-2003-196.
    (4) No change. (g)--(v) No change.
* * * * *

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 III 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The proposed rule change would apply to non-members certain rule 
changes that were immediately effective with respect to NASD 
members.\4\ According to Nasdaq, an important objective of this 
proposal is to ensure uniform treatment under the rules of members and 
non-members alike. As further described below, these changes modify 
certain fees and establish new options for connecting to the NMC and 
Brut.
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    \4\ See SR-NASD-2005-036.
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    Today, Nasdaq offers participants Financial Information Exchange 
(``FIX'') protocol connectivity for entering orders to buy and sell 
securities into the NMC and Brut. Effective April 1, 2005, the port 
charge for such a connection will be set at $400 per month for both the 
NMC and Brut. For NMC users, this represents a $100 per month increase 
from the current $300 monthly charge; for Brut users, this is a new 
charge,\5\ which is being instituted in order to harmonize NMC and Brut 
charges for similar services.
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    \5\ To assure service quality, a Brut FIX port has been 
provisioned as a port pair, in which a redundant second port is 
included for use as backup. Nasdaq does not intend to change this 
practice at this time. Therefore, a Brut user will receive both 
ports in the pair for a single payment of $400/month.

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[[Page 33235]]

    This charge better reflects the market conditions and the costs 
associated with providing the service. The $100/month increase in the 
charge for an NMC FIX port is necessary in light of the higher-than-
expected infrastructure costs that Nasdaq is currently incurring in 
providing this service. In estimating its costs, Nasdaq considers the 
cost of necessary hardware, software, maintenance and staff.
    In response to subscriber demand, Nasdaq also intends to make FIX 
connectivity available for services other than trading (i.e., other 
than the entry of orders). As such, on April 1, 2005, Nasdaq expects to 
enable FIX connectivity to the NMC for the purpose of accepting trade 
reports from those participants that are eligible to submit such 
reports to the NMC. In the future, it may become possible to use such 
non-trading FIX connection for additional Nasdaq services.
    The proposed port charge for this connection is slightly higher 
than the charge for a trading port, which is a reflection of current 
market conditions and costs. It is based on the expected level of 
demand for this type of service and the expected infrastructure costs 
(including hardware, software and staff costs). Initially, this port 
will be used for the purpose of accepting trade reports from those 
participants that are eligible to submit such reports to the NMC. In 
the future, it may become possible to use this connection for other 
existing or to-be-established services. Of course, Nasdaq will submit 
rule change filings with respect to any new services whenever required 
to do so pursuant to Section 19(b)(1) of the Act \6\ and Rule 19b-4 
thereunder.\7\
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    \6\ 15 U.S.C. 78s(b)(1).
    \7\ 17 CFR 240.19b-4.
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    Nasdaq is currently offering a dedicated-to-a-specific-firm FIX 
server that can be used to connect to the NMC. A dedicated server is 
not necessary for a proper FIX connection to the NMC, but some 
participants may choose it as an option.\8\ In response to participant 
interest, Nasdaq is also making available a dedicated FIX server for 
Brut. The charge for a dedicated Brut FIX server will reflect the costs 
of providing it. In order to further ensure that all initial costs of 
activating a dedicated server are allocated properly, Nasdaq intends to 
require a one-year minimum term for a dedicated Brut FIX server. Users 
will be responsible for the full first year's charges even if they wish 
to terminate their contract early.
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    \8\ See Securities Exchange Act Release No. 51170 (Feb. 9, 
2005), 70 FR 7988 (Feb. 16, 2005) (SR-NASD-2005-002) (explains that 
Nasdaq will carefully monitor message traffic on all dedicated and 
non-dedicated servers to ensure that dedicated servers will not 
provide firms that receive them with any transmission speed 
advantage).
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    The monthly charge for a dedicated FIX server at Brut is higher 
than the charge for a dedicated FIX server at the NMC. This difference 
in charges is in large part a reflection of the differences in the cost 
of necessary hardware, maintenance fees, software licensing fees, and 
staff support costs. A Brut dedicated FIX server also entails higher 
initial costs, and the requirement of a 12-month minimum term is 
designed to reduce Nasdaq's financial exposure in the event that a user 
decides to terminate the arrangement after less than a year (although 
Nasdaq's expectation is that users that choose the dedicated server 
option continue with this option for longer than a year). The initial 
and operating costs of an NMC dedicated FIX server are lower, and in 
the event of an early termination of this option by a user, the 
equipment used to provide such service can be more readily (than the 
Brut equipment) converted to other uses.
    Nasdaq carefully monitors incoming and outgoing message traffic on 
all servers used for Brut access in order to ensure that connectivity 
to and from Brut is not degraded because of insufficient capacity on 
such servers. This process will not change with the implementation of 
dedicated servers. Nasdaq regularly reviews the performance statistics 
for each user connected to Nasdaq's and Brut's servers. If it appears 
that a server is reaching its capacity limits (for example, if a 
particular user is experiencing greater volumes than in the past), 
Nasdaq would reassign servers and users to ensure that there is no 
degradation in the speed of transmission. As a result, the choice a 
user makes between a shared and a dedicated server has no impact on 
transmission speed. Nasdaq will install additional non-dedicated 
servers whenever necessary to provide a high level of support across 
all FIX servers.
    A dedicated FIX server at Brut would also be capable of being 
converted to provide access to the NMC if at any time Nasdaq decided to 
make the appropriate system modifications. The use of such a server for 
connectivity to and from the NMC would not confer any transmission 
speed advantage or disadvantage upon this server's users.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
Section 15A of the Act,\9\ in general, and Section 15A(b)(5) \10\ of 
the Act, in particular, in that it 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.
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    \9\ 15 U.S.C. 78o-3.
    \10\ 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 impose 
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 has neither solicited nor received comments on the proposed 
rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2005-037 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-
037. 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 33236]]

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 offices 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-2005-037 and should be submitted on or before June 28, 2005.

IV. Commission Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a self-regulatory 
organization.\11\ In particular, the Commission believes that the 
proposed rule change is consistent with the requirements of Section 
15A(b)(5) of the Act,\12\ which requires that the rules of the self-
regulatory organization provide for the equitable allocation of 
reasonable dues, fees, and other charges among members and issuers and 
other persons using any facility or system which it operates or 
controls. Specifically, the Commission notes that this proposal would 
permit the schedule for non-NASD members to mirror the schedule 
applicable to NASD members that was effective pursuant to SR-NASD-2005-
036.
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    \11\ The Commission has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78o-3(b)(5).
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    The Commission finds good cause for accelerating approval of the 
proposed rule change, as amended, prior to the thirtieth day after 
publication in the Federal Register. The Commission notes that the 
proposed fees for non-NASD members are identical to those in SR-NASD-
2005-036, which implemented these fees for NASD members and which 
became effective pursuant to Section 19(b)(3)(A) of the Act.\13\ The 
Commission notes that this change will promote consistency in Nasdaq's 
fee schedule by applying the same pricing schedule with the same date 
of effectiveness for both NASD members and non-NASD members. 
Accordingly, the Commission finds good cause, consistent with Section 
19(b)(2) of the Act,\14\ to approve the proposed rule change, as 
amended, on an accelerated basis.
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-NASD-2005-037), as amended, 
is approved.
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    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2890 Filed 6-6-05; 8:45 am]
BILLING CODE 8010-01-P