[Federal Register: January 27, 2003 (Volume 68, Number 17)]
[Notices]
[Page 3912-3915]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27ja03-110]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47210; File No. SR-NASD-2003-02]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Inc. To Extend the Pilot Period for Nasdaq PostData
and the Fees Assessed Under NASD Rule 7010(s)
January 17, 2003.
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 January 9, 2003, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association''), 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 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.\5\ 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).
\4\ 17 CFR 240.19b-4(f)(6).
\5\ The NASD provided the Commission with notice of its intent
to file the proposed rule change on December 30, 2002. See Rule 19b-
4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii). Nasdaq asked the
Commission waive the 30-day operative delay.
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[[Page 3913]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to extend through February 28, 2003, the pilot
period for Nasdaq PostData and the associated fees assessed under NASD
rule 7010(s). In addition, Nasdaq proposes certain enhancements to
PostData that will be available to direct and indirect users of
PostData at no additional charge on a non-discriminatory basis. The
text of the proposed rule change is below. Proposed additions are in
italics; proposed deletions are in brackets.
Rule 7010 System Services.
(a)-(r) No changes.
(s) NasdaqTrader.com Volume and Issue Data Package Fee.
The charge to be paid by the subscriber for each entitled user
receiving the Nasdaq Volume and Issue Data Package via NasdaqTrader.com
shall be $70 per month. The charge to be paid by market data vendors
for this information shall be $35 per month for each end user receiving
the information through the data vendor. The availability of this
service through NasdaqTrader.com shall be limited to NASD members,
Qualified Institutional Buyers[*] (as defined in rule 144A of the
Securities Act of 1933) and data vendors. The Volume and Issue Data
package includes:
(1) Daily Share Volume reports.
(2) Daily Issue Data.
(3) Monthly Volume Summaries.
(4) Buy Volume Report.
(5) Sell Volume Report.
(6) Crossed Volume Report.
(7) Consolidated Activity Volume Report.
[* For purposes of this rule, see definition of ``Qualified
Institutional Buyer'' found in Section 144A of the Securities Act of
1933.]
* * * * *
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 its proposal and discussed any
comments it received regarding the proposal. 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
On January 11, 2002, the Commission approved, as a 12-month pilot,
the creation of Nasdaq PostData, a voluntary trading data distribution
facility, accessible to NASD members, buy-side institutions and market
data vendors through the NasdaqTrader.com Website.\6\ PostData was
launched on March 18, 2002. Nasdaq hereby proposes to extend the pilot
period for PostData through February 28, 2003. Nasdaq also proposes to
enhance PostData as described below.
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\6\ See Securities Exchange Act Release No. 45270 (January 11,
2002), 67 FR 2712 (January 18, 2002)(SR-NASD-99-12).
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Background. PostData originally consisted of three reports provided
in a single package: (1) Daily Share Volume Report, which provides
subscribers with T+1 daily share volume in each Nasdaq security,
listing the volume by any NASD member firm that voluntarily permits the
dissemination of this information; (2) Daily Issue Data, which contains
a summary of the previous day's activity for every Nasdaq issue; and
(3) Monthly Summaries, which provides monthly trading volume statistics
for the top 50 market participants sorted by industry sector, security,
or type of trading (e.g., block or total).
On August 5, 2002, Nasdaq expanded the information made available
to PostData subscribers to include four additional reports: Buy Volume
Report, Sell Volume Report, Crossed Volume Report, and Consolidated
Activity Volume Report.\7\ Each report offers information regarding
total Nasdaq reported buy (or sell, or cross, or consolidated) volume
in the security, as well as rankings of registered market maker based
upon various aspects of their activity in Nasdaq. The reports also
provide recipients with information about the number and character of
each market maker's trades. Finally, the reports provide the
information described above with respect to block volume, be it buy,
sell, cross or consolidated interest.
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\7\ See Securities Exchange Act Release No. 46316 (August 8,
2002), 67 FR 52504 (August 12, 2002) (SR-NASD-2002-90).
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Extension of the Pilot. Nasdaq proposes to extend the PostData
pilot through February 28, 2003, subject only to the enhancements
proposed below. The pilot has been effective, but adoption was slower
than expected. For a variety of reasons, more time was required than
originally anticipated to recruit sell-side firms to sign on to
PostData to provide the critical mass of data necessary to have a
product to sell to those subscribers (buy-side firms or institutional
investors) interested in viewing the data. Nasdaq believes that
adoption was slow because:
[sbull] Volume is attributed to the firm that has the reporting
obligation based on ACT rules. This is also the methodology for the
monthly share volume reports offered on Nasdaq Web sites
(NasdaqTrader.com and NasdaqOn-Line.com). Sell-side firms wanted to get
credit for volume regardless of whether they were the reporting party
or not in a trade.
[sbull] In the time since PostData was initially developed, the
industry has moved to more commission-based or agency (riskless
principal) trading. Firms that conduct predominantly more riskless
principal trading with other sell-side firms are not well represented
in PostData because in riskless principal trading only one leg of the
transaction (the transaction with sell-side firm or market maker) is
reported in ACT and in many cases these firms are not the reporting
party.
[sbull] PostData's value and benefits were not well understood by
firms, especially with firms' attention directed to other Nasdaq
initiatives.
Nasdaq addressed the first two issues by enhancing PostData in
August 2002 to include volume attributed to both parties of a trade
(reporting and the contra-party) and identification of the volume as
being buy, sell or cross. These additional data sets addressed the
issue of which party gets the volume credit and display some volume for
firms that primarily engage in ``riskless principal'' trading. These
enhancements resulted in seven additional sell-side firms participating
in PostData by the end of August.
Therefore, at this time, Nasdaq is unable to effectively study the
fees assessed for PostData, as initially requested in the order
approving PostData.\8\ As demonstrated below, growth in the PostData
subscriber base was slower than anticipated. It was not until September
2002 that the number of subscribing firms first exceeded 25. Currently,
there are 33 subscribing firms paying for PostData, and of those, most
are also firms that post their data. This sample is too small to draw
any meaningful conclusions about the price of the product. In addition,
there is no data with respect to indirect subscribers because to date
there are no vendors
[[Page 3914]]
purchasing PostData for redistribution to their subscribers.
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\8\ See footnote 6, supra.
PostData Subscribers From March to December 2002
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Number of
sell-side Number of
Month firms firms
posting subscribing
their data to postdata
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March......................................... 3 9
April......................................... 5 12
May........................................... 7 14
June.......................................... 10 15
July.......................................... 12 17
August........................................ 19 24
September..................................... 22 26
October....................................... 25 30
November...................................... 28 31
December...................................... 30 33
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Nasdaq was able to start marketing PostData to potential
subscribers such as buy-side firms and data vendors this past fall. It
is from these marketing efforts that additional feedback was received
such as whether more data can be provided. Nasdaq believes that these
actions will increase the likelihood of attracting a meaningful number
of subscribers sooner rather than later. It is difficult to predict
when that will occur, but Nasdaq represents that it will update the
staff regularly, and it will provide a full analysis of the fees as
quickly as possible.
Proposed Enhancements. Based on feedback provided by potential
subscribers, Nasdaq proposes to make the following data elements
available to PostData subscribers at no additional charge:
[sbull] Daily share volume for all market participants per Nasdaq
security on a T+10 basis including the ACT Reported, Buy, Sell, Crossed
and Total Activity reports.
[sbull] Daily share volume aggregates for all market participants
per Nasdaq index on a T+10 basis including the ACT Reported, Buy, Sell,
Crossed and Total Activity reports.
Monthly share volume of all market participants on a per security
basis has been available to Nasdaq broker-dealers for several years.
Initially, the data was provided via computer diskettes sent to the
head of Nasdaq trading at firms. Since October 1997, this data has been
disseminated on the NasdaqTrader.com web site without charge. The
monthly volume reports attribute volume to the reporting party of
media-disseminated trades (trades reported to the ``tape''). Monthly
data is available about 10 business days after the end of the previous
month. The web site provides monthly, quarterly and year-to-date volume
aggregates for up to 12 calendar months.
Subscribers and potential subscribers to PostData have requested
the ability to access share volume information in customized timeframes
outside of the daily and monthly information that is made available in
PostData and the public part of NasdaqTrader.com. For example, a
customer may track their firm's share volume activity in securities
that they begin to perform research analysis for, or have raised
capital in a public offering. Most often, these events do not begin at
the beginning of a month. Therefore, they would like to be able to
request data from customized timeframes (e.g., February 15 to March
15). The daily and monthly reports in PostData do not currently meet
this customer base needs.
Additionally, some market participants, primarily buy-side firms,
have requested to view all market participant data on a T+1 basis and
not just those sell-side firms that voluntarily choose to post their
data. Other participants, primarily sell-side firms, have expressed
concerns that T+1 data would reveal their trading positions. Those
firms have not, however, expressed concern about revealing all market
participants' volume information on a T+10 basis because the 10-day
delay prevents the disclosure of meaningful information about firms'
current positions. Therefore, the proposal appropriately balances the
needs and concerns of each customer group and the public interest. As
more time passes, the sensitivity of a specific day's volume of a
market participant decreases. Ten business days is an appropriate
timeframe when the daily volume information of all market participants
can be made available either on a per security basis or by a Nasdaq
index for example.
Nasdaq proposes to make this information available to all PostData
subscribers at no additional charge on a non-discriminatory basis. In
its original proposal to create PostData, Nasdaq represented that it
would make product enhancements available on an equal basis to all
users of the proposed products, whether customers of Nasdaq or of a
participating data vendor. Specifically, if Nasdaq offers a free
product enhancement during the pilot program, it will be free to all
direct and indirect users,\9\ and that such modifications to PostData
during the pilot period would be limited to minor enhancements to the
content of the package. Nasdaq believes that this rule proposal meets
those requirements. In accordance with the conditions of approval of
Nasdaq PostData, Nasdaq represents that the PostData modifications
described in this proposed rule change will be made available at no
charge to all vendors and direct subscribers of Nasdaq. Nasdaq also
represents that it has made modification information available to
market data vendors generally, but that no vendors are currently
accepting the PostData data or redistributing that data to subscribers.
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\9\ Nasdaq also represented that it would seek Commission
approval of any fees to be assessed for such enhancements. Nasdaq
notes that this rule filing is properly made immediately effective
because Nasdaq is not proposing to assess an additional fee for the
enhancements proposed herein.
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2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of section 15A(b)(5)\10\ and 15A(b)(6) of the Act.\11\
Section 15A(b)(5) requires the equitable allocation of reasonable dues,
fees and other charges among members and other users of facilities
operated or controlled by a national securities association. Section
15A(b)(6) requires rules that foster cooperation and coordination with
persons engaged in facilitating transactions in securities and that are
not designed to permit unfair discrimination between customers,
issuers, brokers or dealers. Nasdaq believes that this program involves
a reasonable fee assessed only to users and other persons utilizing the
system, and will provide useful information to all direct and indirect
subscribers on a non-discriminatory basis.
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\10\ 15 U.S.C. 78o-3(b)(5).
\11\ 15 U.S.C. 78o-3(b)(6).
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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 neither solicited nor received written comments with respect
to the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not:
[[Page 3915]]
(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 \12\ and
rule 19b-4(f)(6) thereunder.\13\ 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.
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\12\ 15 U.S.C. 78s(b)(3)(A).
\13\ 17 CFR 240.19b-4(f)(6).
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Nasdaq has requested that the Commission waive the 30-day operative
delay. The Commission believes waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
Acceleration of the operative date will allow Nasdaq to operate the
PostData pilot program without interruption through February 28, 2003.
For these reasons, the Commission designates the proposal to be
effective and operative upon filing with the Commission.\14\
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\14\ 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 proposal is
consistent with the Act. Persons making written submissions should file
six copies thereof with the Secretary, Securities and Exchange
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 such filing will also be available for
inspection and copying at the principal office of the NASD. All
submissions should refer to file number SR-NASD-2003-02 and should be
submitted by February 18, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-1703 Filed 1-24-03; 8:45 am]
BILLING CODE 8010-01-P