[Federal Register Volume 71, Number 121 (Friday, June 23, 2006)]
[Notices]
[Pages 36141-36143]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-9929]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54003; File No. SR-NASD-2006-056]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change and Amendment No. 1 To Establish a Package of Real-Time and 
Near-Real-Time Data Products Called the Market Analytics Data Package

June 16, 2006.
    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 April 24, 2006, 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. On June 8, 
2006, Nasdaq filed Amendment No. 1. Nasdaq has designated the proposed 
rule change as constituting a ``non-controversial'' rule change 
pursuant to section 19(b)(3)(A)(iii) 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)(iii).
    \4\ 17 CFR 240.19-b4(f)(6). Nasdaq gave the Commission written 
notice of its intent to file the proposed rule change on March 24, 
2006. For purposes of calculating the 60-day abrogation period, the 
Commission considers the period to have commenced on June 8, 2006, 
the day Nasdaq filed Amendment No. 1.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to establish a package of real-time and near-real-
time data products that provide a new level of transparency to trading 
activity on Nasdaq trading systems to interested subscribers on a 
purely voluntary basis. The text of the proposed rule change is 
available at NASD, at the Commission, and at http://www.nasdaq.com/about/ RuleFilings/Filings2006.stm.

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
    Nasdaq proposes to establish a package of real-time and near-real-
time data products that provide a new level of transparency to trading 
activity on Nasdaq trading systems to interested subscribers on a 
purely voluntary basis. The Market Analytics Data Package will consist 
of one or more of the following products:
    Market Velocity--Market Velocity is akin to the audible noise and 
visible activity that traders use on a physical trading floor to detect 
changes in market direction, momentum, or liquidity. Nasdaq measures 
the frequency and size of orders submitted to the trading system, 
including under certain conditions shares not visible in the quote 
montage. Market Velocity can be expressed as a number of shares, for 
example, the current number of shares in market and aggressive limit 
orders that have arrived in the Nasdaq Market Center execution system. 
Market Velocity can also be expressed as a ratio of the current number 
of shares relative to what is expected in each stock for that time of 
day. Market Velocity may also be expressed as an alert when the 
underlying data exceeds a threshold.
    Market Forces--Market Forces uses the same order and share volume 
information used in Market Velocity, but categorizes the orders by 
whether they are buys or sells. Market Forces provides an indication of 
market direction and is expressed as a number of shares or a percentage 
of shares in buy versus sell orders. Market Forces may also be 
expressed as an alert when the underlying data exceeds a threshold.

[[Page 36142]]

    Market Velocity and Market Forces use pre-trade order information 
to signal changes in market liquidity. For example, Market Velocity 
will signal when there is unusually high or low share volume in limit 
orders in the Nasdaq Market Center execution system. Unusually high 
limit order share volume can signal an opportunity to make larger 
trades. Unusually low share volume can alert traders that large market 
orders are likely to have a larger than usual price impact. Market 
Forces complements the Market Velocity alerts by indicating which side 
of the market has the propensity of the limit order share volume.
    Market Velocity and Market Forces may include shares not visible in 
existing quote and order data feeds. For example, Market Velocity and 
Market Forces can signal changes in the share volume in orders routed 
through Nasdaq to other trading centers. Without Market Velocity and 
Market Forces, immediate or cancel orders that do not find the best 
price on the Nasdaq book will be routed to other trading centers 
without any information showing up in existing Nasdaq data feeds. 
Market Velocity and Market Forces will not include reserve or hidden 
orders.
    Market Velocity and Market Forces are real-time data products that 
will be distributed over a new real-time data feed.
    Competitive VWAP Benchmark--Competitive VWAP (CVWAP) Benchmark is a 
complement to the Volume Weighted Average Price (VWAP), a benchmark 
often used by institutional investors to determine whether they 
received a good price for a large trade. CVWAP Benchmark provides the 
best and worst average price performance by actual market makers 
trading on the Nasdaq Market Center execution system. Institutional 
investors can compare the price they received to the CVWAP Benchmark to 
determine how their trade compares with a range of actual trader 
performance. CVWAP Benchmark can also help investors identify stocks 
where broker selection is very important (those with a wide range 
between best and worst CVWAP performance).
    A CVWAP Benchmark is calculated as follows: (1) A buy-side market 
participant would like to benchmark the price received for a large 
purchase of issue ABCD that they sent to their sell-side broker at 10 
a.m. and was completed at 2 p.m.; (2) the buy-side participant enters 
the issue, start time, end time, and minimum dollar volume into a Web 
site or other query facility; (3) Nasdaq receives the query information 
and calculates individual volume weighted average prices for each 
market maker that bought ABCD between 10 a.m. and 2 p.m. using Nasdaq 
trading systems; (4) Nasdaq filters out market makers that purchased 
amounts below the minimum dollar volume chosen (for example, a market 
maker that bought 100 shares during the time period does not provide a 
valid benchmark for a large order); (5) Nasdaq ranks the individual buy 
VWAPs achieved by the market makers that remain and reports the best 
and worst VWAP prices (but not the identities of the market 
participants that achieved those prices); (6) the buy-side market 
participant can then compare the best and worst performance to the 
price they received from their broker.
    CVWAP Benchmark is an intra-day, query-response product that will 
require vendors to send Nasdaq query parameters and Nasdaq to make 
calculations and reply with results. Nasdaq will not identify the 
market participants that achieved the best or worst CVWAP Benchmark for 
any trade or period of time. The only exception would be if Nasdaq 
built an opt-in facility for market participants to choose to advertise 
situations when they achieved the best performance.
    CVWAP Leaders--CVWAP Leaders is a periodic market maker leader 
board that enables institutional investors to identify the firms with 
the most experience trading a particular stock or type of stock. Unlike 
ordinary leader boards that rank market makers by traded volume alone, 
CVWAP Leaders ranks them by share volume weighted by execution quality 
(the difference between the market participant VWAP and the overall 
VWAP).
    The CVWAP Leader board is calculated as follows: (1) Collect all 
Nasdaq Market Center execution system trades reported over a period of 
time, such as five days; (2) divide all trades into buckets of records 
by issue, side (buying or selling), and half hour; (3) for each bucket, 
calculate the overall volume weighted average price for all trades and 
an individual volume weighted average price for each market 
participant; (4) compare each market participant's individual VWAP to 
the overall VWAP and allocate each market participant points equal to 
the difference in pennies between their individual VWAP and the overall 
VWAP multiplied by the number of shares they transacted during that 
period; (5) add up all the points earned by each market participant in 
each issue (across all buckets for that issue); (6) rank market 
participants within that issue by the number of points earned.
    CVWAP Leaders is a delayed list of issues and participants that is 
calculated from all trades over an extended period of time, such as a 
week. Detailed trade by trade information is masked by the price 
weighting that prevents anyone from being able to derive the number of 
shares traded or prices received by any particular participant. CVWAP 
Leaders is distributed periodically as a flat file using a standard 
file transfer protocol.

Proposed Pricing Structure

    Nasdaq will offer a limited introductory period of one month during 
which new Market Analytics subscribers will receive the data for free. 
After the introductory period, organizations that receive Market 
Analytics directly or indirectly (through a retransmission vender) will 
have three options:
    (i) Monthly distributor fee with subscriber fees: Organizations 
will, at least, pay a distributor fee of $2,000/month. They will 
receive 10 free subscriber licenses. Subsequent subscriber licenses 
will cost $1/month for non-professionals and $10/month for 
professionals.
    (ii) Monthly Enterprise License: Organizations may choose to pay an 
enterprise license of $4,000/month. The enterprise license will include 
the distributor fee and unlimited subscriber fees.
    (iii) Annual Enterprise License: Organizations that choose to sign 
on to receive the service for at least 12 months will pay an enterprise 
license of $36,000/year. The annual enterprise license will include the 
distributor fee and unlimited subscriber fees.
    For the new data products, Nasdaq will not distinguish between 
direct and indirect distributors or internal and external distributors 
as it does with its established data products. The decision not to 
distinguish firm types was made to encourage firms to maximize adoption 
of the new, unproven data products without consideration for how it is 
received and to whom it is provided.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
section 15A of the Act,\5\ in general, and furthers the objectives of 
section 15A(b)(6) of the Act,\6\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, remove impediments to a free 
and open market and a national market system, and, in

[[Page 36143]]

general, to protect investors and the public interest.

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, 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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to section 19(b)(3)(A) of the Act \7\ and Rule 19b 
4(f)(6) thereunder.\8\
    At any time within 60 days of the filing of the 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.

IV. Solicitation of Comments
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    \5\ 15 U.S.C. 78o-3.
    \6\ 15 U.S.C. 78o-3(b)(6).
    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6).
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    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-2006-056 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASD-2006-056. 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 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 the File Number SR-NASD-2006-
056 and should be submitted on or before July 14, 2006.

    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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Nancy M. Morris,
Secretary.
 [FR Doc. E6-9929 Filed 6-22-06; 8:45 am]
BILLING CODE 8010-01-P