[Federal Register: November 22, 2002 (Volume 67, Number 226)]
[Notices]
[Page 70471-70473]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22no02-126]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-46843; File No. SR-NASD-2002-33]
Self Regulatory Organizations; Order Approving Proposed Rule
Change and Notice of Filing and Order Granting Accelerated Approval to
Amendment No. 5 to the Proposed Rule Change by the National Association
of Securities Dealers, Inc., Relating to Fees for Nasdaq Data
Entitlement Packages
November 18, 2002.
I. Introduction
On March 7, 2002, the National Association of Securities Dealers,
Inc. (``NASD'') through its subsidiary, The Nasdaq Stock Market, Inc.
(``Nasdaq'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act''),\1\ and rule 19b-4 thereunder,\2\ a
proposed rule change to establish fees for new Nasdaq market data
products. On April 25, 2002, Nasdaq filed Amendment No. 1 that entirely
replaced the original rule filing.\3\ On July 29, 2002, Nasdaq filed
Amendment No. 2 that entirely replaced the original rule filing and
Amendment No. 1.\4\ On August 23, 2002, Nasdaq filed Amendment No. 3
that entirely replaced the original rule filing and Amendment Nos. 1
and 2.\5\ On September 13, 2002, the Nasdaq submitted Amendment No. 4
that entirely replaced the original rule filing and Amendment Nos. 1,
2, and 3.\6\ The proposed rule change, as amended, was published for
comment in the Federal Register on September 27, 2002.\7\ The
Commission did not receive any comments on the proposed rule change. On
October 3, 2002, Nasdaq filed Amendment No. 5 to the proposed rule
change.\8\ This order approves the proposed rule change, as amended,
and notices and grants accelerated approval to Amendment No. 5.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Mary M. Dunbar, Deputy General Counsel,
Nasdaq, to Katherine A. England, Assistant Director, Division of
Market Regulation (``Division''), Commission, dated April 25, 2002.
\4\ See Letter from Mary M. Dunbar, Deputy General Counsel,
Nasdaq, to Katherine A. England, Assistant Director, Division,
Commission, dated July 26, 2002.
\5\ See Letter from Mary M. Dunbar, Deputy General Counsel,
Nasdaq, to Katherine A. England, Assistant Director, Division,
Commission, dated August 22, 2002.
\6\ See Letter from Mary M. Dunbar, Deputy General Counsel,
Nasdaq, to Katherine A. England, Assistant Director, Division,
Commission, dated September 13, 2002.
\7\ See Securities Exchange Act Release No. 46521 (September 20,
2002), 67 FR 61179 (``notice'').
\8\ See Letter from Mary M. Dunbar, Deputy General Counsel,
Nasdaq, to Katherine A. England, Assistant Director, Division,
Commission, dated October 3, 2002 (``Amendment No. 5''). In
Amendment No. 5, Nasdaq corrected grammatical errors in the rule
language text of the proposed rule change; amended a footnote to the
rule language text to state that Nasdaq itself is a distributor of
its data feed(s); and added a footnote to rule 7010(q)(2)(A) stating
that Nasdaq is a distributor of its data feed(s) and will execute a
Nasdaq distributor agreement and pay the distributor charge.
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II. Description of the Proposal
Nasdaq proposes to amend NASD rule 7010 to establish fees for new
Nasdaq data entitlement packages. In its rule filings regarding
SuperMontage,\9\ Nasdaq described its new data feeds and products: the
Nasdaq Prime data feed, which will provide the new data for a Nasdaq
entitlement package called ``TotalView,'' and the Aggregate Depth at
Price (``ADAP'') data feed, which will provide the new data entitlement
packages called ``DepthView'' and ``PowerView''.\10\
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\9\ These rule filings were approved by the Commission in
Securities Exchange Act Release Nos. 43863 (January 19, 2001), 66 FR
8020 (January 26, 2001) and 45790 (April 19, 2002), 67 FR 21007
(April 29, 2002).
\10\ As described further below, PowerView includes data from
ADAP and the NQDS data feed.
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A. TotalView
TotalView will provide, on a real-time basis: (1) All individual
attributable quote/order information at the five best price levels
displayed by the Nasdaq SuperMontage system; (2) the aggregate size of
all unattributed quotes or orders at each of the top five price levels,
on both sides of the market, that are in the SuperMontage system; (3)
the aggregate attributable and unattributable quotes and orders at each
of the top five price levels, on both sides of the market, that are in
the SuperMontage system; (4) the quote and order data found in the
Nasdaq Quotation Dissemination Service (``NQDS'')\11\ data feed,
including the best attributed quotation from each Nasdaq participant,
and (5) the Nasdaq Inside Price. Nasdaq proposes to charge distributors
\12\ of TotalView $7500.00 per month. In addition, Nasdaq proposes to
charge $150.00 per month per controlled device.\13\ According to
Nasdaq, TotalView will use significantly more bandwidth than any Nasdaq
data entitlement to date. In addition, Nasdaq believes that this data
product is highly specialized and thus has not proposed a non-
professional fee at this time.
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\11\ The NQDS data feed currently consists of: (1) Real-time
quotes for each Market Maker and Electronic Communication Network
(``ECN'') in NASDAQ National Market and SmallCap issues; (2) real-
time best bid or offer (``BBO'') quotes for each regional UTP
exchange that quotes in NASDAQ-listed issues; and (3) real-time
National BBO quote appendages for NASDAQ National Market and
SmallCap issues. Telephone conversation between Eleni Constantine,
Associate General Counsel, Office of General Counsel, Nasdaq and
Susie Cho, Special Counsel, Division, Commission, September 19,
2002.
\12\ Nasdaq proposes that a ``distributor'' be defined as any
firm that receives a Nasdaq data feed directly from Nasdaq or
indirectly through another vendor and then distributes it either
internally or externally. Further, Nasdaq proposes that all
distributors execute a Nasdaq distributor agreement. Nasdaq itself
is a distributor if its data feeds. Accordingly it must execute an
agreement and pay the distributor fee.
\13\ Nasdaq proposes that a ``controlled device'' be defined as
any device that a distributor of the Nasdaq Data Entitlement
Package(s) permits to: (a) Access the information in the Nasdaq Data
Entitlement Package(s); or (b) communicate with the distributor so
as to cause the distributor to access the information in the Nasdaq
Data Entitlement Package. If a controlled device is part of an
electronic network between computers used for investment, trading or
order routing activities, the burden will be on the distributor to
demonstrate that the particular controlled device should not have to
pay for an entitlement. For example, in some display systems the
distributor gives the end user a choice to see the data or not'a
user that chooses not to see it would not be charged. Similarly, in
a non-display system, users of controlled devices may have a choice
of basic or advanced computerized trading or order routing services,
where only the advanced version uses the information. Customers of
the basic service would be excluded from the entitlement
requirement.
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B. DepthView
DepthView will provide the aggregated size at each of the top five
price levels, both on the bid and the ask, within the Nasdaq
SuperMontage system. Nasdaq proposes to charge $50.00 per month for
each controlled device and $25.00 per month for each controlled device
of a non-professional.\14\ According to Nasdaq,
[[Page 70472]]
DepthView requires more processing capacity to calculate its five
aggregated price levels on each side of the market. Nasdaq represented
that the price for DepthView was based on the increased processing
capacity needed and a review of the prices charged by other major
exchanges for aggregated order data.
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\14\ Nasdaq proposes that a ``non-professional'' be defined as a
natural person who is neither: (a) 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; (b) engaged as an ``investment advisor'' as that term
is defined in section 201(11) of the Investment Advisors Act of 1940
(whether or not registered or qualified under that Act); nor (c)
employed by a bank or other organization exempt from registration
under federal or state securities law to perform functions that
would require registration or qualification if such functions were
performed for an organization not so exempt.
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C. PowerView
PowerView will include both the data available through DepthView
and the data available in the NQDS data feed,\15\ including the best-
attributed quotation from each Nasdaq participant in each Nasdaq
National Market and Small Cap Market stock. Nasdaq proposes to charge
$75.00 per month per controlled device and $29.00 per month per
controlled device of non-professionals.
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\15\ See note 11, supra.
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III. Discussion
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 national securities
association,\16\ and in particular, the requirements of section
15A(b)(5) of the Act,\17\ which requires that the rules of an
association provide for the equitable allocation of reasonable fees,
dues and other charges among members and issuers and other persons
using any facility or system which the association operates or
controls. Specifically, the Commission believes that the NASD's
proposed charges for these new data products are reasonable when
compared to similar types of services provided by other markets.\18\
Further, Nasdaq has represented that these new data products will
provide more market data than currently provided and will require
significantly more bandwidth and systems capacity.
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\16\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78o-3(b)(5).
\18\ For example, the New York Stock Exchange's OpenBook service
has a monthly charge of $5000.00 for receipt of the data feed and
$50.00 for each end-user terminal. See Securities Exchange Act
Release No. 45138 (December 7, 2001), 66 FR 64895 (December 14,
2001).
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Nasdaq has proposed lower fee charges for non-professionals for
DepthView and PowerView. The Commission believes that should provide an
opportunity for many investors to have access to the enhanced data
provided by these services, which should help to increase transparency.
Nasdaq represented that it may consider a non-professional fee for
TotalView in the future.
Nasdaq has proposed a new definition for controlled devices. With
this new definition, Nasdaq will impose charges on all devices that
have the capacity to either access or to utilize a particular data
feed, whether the controlled device displays the data, ``receives'' the
data, or has the ability to utilize the data even though the data
remains on another device. A distributor is required to pay the
controlled device fee for all such devices that are part of a network
that receives a particular data feed. Nasdaq has proposed, however,
that distributors that can demonstrate that a particular controlled
device in fact has no capacity to access or use the data will not be
charged the controlled device fee. The Commission believes that the
proposed definition of controlled device is consistent with the
requirements of the Act, which permits an association to impose
reasonable fees on persons who are using a facility or system of such
association.
In its notice, Nasdaq represented that it will not impose any
restrictions on redistribution of the data products to qualified
vendors and broker-dealers that have entered into Distributor
Agreements with Nasdaq. According to Nasdaq, its display requirements
are covered by the Distributor Agreements. The Commission notes that
this order only approves the fees proposed by Nasdaq for the data
products and therefore, the Commission is not approving or disapproving
the terms of Nasdaq's Distributor Agreements.
Finally, the Commission notes that Nasdaq has acknowledged that
persons who subscribe to receive the new data products, to the extent
that they act as a vendor, must comply with the requirements of the
Vendor Display rule.\19\ Specifically, the Vendor Display rule
establishes minimum requirements governing the manner in which
transaction, quotation, and other market information is displayed in
certain exchange-listed and Nasdaq-listed securities (``subject
securities''). Generally, under the rule, vendors that provide
quotation information with respect to subject securities must provide a
consolidated display of quotation information from all reporting market
centers for that security. Because DepthView, PowerView, and TotalView
do not, individually, satisfy the consolidated display requirement of
the rule, vendors, including Nasdaq itself to the extent it acts as a
vendor, will need to disseminate additional quotation information along
with these data products to comply with the rule. In this connection,
the Commission notes that Nasdaq has put statements to this effect on
its website description of these services and it its subscription
contracts.
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\19\ 17 CFR 240.11Ac1-2. Vendors purchasing data feeds from
Nasdaq are likewise responsible for their compliance with the Vendor
Display rule. See also notice, supra note 7.
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The Commission finds good cause for approving Amendment No. 5 to
the proposed rule change prior to the thirtieth day after the date of
publication of notice thereof in the Federal Register. Amendment No. 5
merely provides technical corrections and clarification to the proposed
rule text, which was reflected in the notice of the proposed rule
change. The Commission, therefore, believes that granting accelerated
approval of Amendment No. 5 is appropriate and consistent with section
15A(b)(6) \20\ and section 19(b) \21\ of the Act.
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\20\ 15 U.S.C. 78o-3(b)(6).
\21\ 15 U.S.C. 78s(b).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 5, including whether it 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 at 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 No. SR-NASD-2002-33 and should be
submitted by December 13, 2002.
V. Conclusion
For the reasons discussed above, the Commission finds that the
proposal, as amended, is consistent with the Act and the rules and
regulations thereunder. It is therefore ordered, pursuant to section
[[Page 70473]]
19(b)(2) of the Act,\22\ that the proposed rule change (SR-NASD-2002-
33), as amended, be and hereby is approved.
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\22\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-29761 Filed 11-21-02; 8:45 am]
BILLING CODE 8010-01-P