[Federal Register: April 15, 2003 (Volume 68, Number 72)]
[Notices]
[Page 18315-18316]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15ap03-130]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47635; File No. SR-NASD-2003-63]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by
the National Association of Securities Dealers, Inc. To Modify the
Transaction Credit Program for Exchange-Listed Securities
April 4, 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 March 31, 2003, 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'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by Nasdaq.
On April 3, 2003, Nasdaq submitted Amendment No. 1 to the proposed rule
change.\3\ The NASD filed the proposed rule change pursuant to section
19(b)(3)(A)(ii) of the Act \4\ and Rule 19b-4(f)(2) thereunder,\5\
which renders the proposed rule change effective upon filing with the
Commission.\6\ 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\ See letter from Jeffrey S. Davis, Associate General Counsel,
Nasdaq, to Katherine A. England, Assistant Director, Division of
Market Regulation, Commission dated April 2, 2003 (``Amendment No.
1). In Amendment No. 1, Nasdaq made technical corrections to the
proposed rule change.
\4\ 15 U.S.C. 78s(b)(3)(A)(ii).
\5\ 17 CFR 240.196-19b-4(f)(2).
\6\ For purposes of determining the effective date of the filing
and calculating the 60-day abrogation date, the Commission considers
the period to commence on April 3, 2003, the date 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 is filing with the Commission a proposed rule change to NASD
Rule 7010(c)(2). The proposed rule change responds to the decision of
the Consolidated Tape Association to change the way participants in the
CT/CQ Plans are charged for the capacity expense attributable to each
participant. Nasdaq proposes to amend NASD Rule 7010(c) in order to
maintain the same distribution of transaction credits that exists today
for InterMarket trading. Nasdaq will make the rule change effective
upon the distribution of revenue for the first quarter of 2003.\7\
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\7\ Nasdaq expects that the Consolidated Tape Association will
distribute revenue in the first week of May 2003.
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The text of the proposed rule change, as amended, is below.
Proposed new language is italicized.
* * * * *
7010. System Services
(a)-(b) No change.
(c) (1) No change.
(2) Exchange-Listed Securities Transaction Credit
NASD members that trade securities listed on the NYSE (``Tape A'')
and Amex (``Tape B'') in over-the-counter transactions may receive from
the NASD transaction credits based on the number of transactions
attributed to them. A transaction is attributed to a member if (i) the
transaction is executed through CAES or ITS and the member acts as
liquidity provider (i.e., the member sells in response to a buy order
or buys in response to a sell order) or (ii) the transaction is not
executed through CAES or ITS and the member is identified as the
executing party in a trade report submitted to the NASD that the NASD
submits to the Consolidated Tape Association. An NASD member may earn
credits from one or both pools maintained by the NASD, each pool
representing 50% of the revenue paid by the Consolidated Tape
Association to the NASD for each of Tape A and Tape B transactions
after deducting the amount that the NASD pays to the Consolidated Tape
Association for capacity usage. An NASD member may earn credits from
the pools according to the member's pro rata share of all over-the-
counter transactions attributed to NASD members in each of Tape A and
Tape B for each calendar quarter.
(d)-(s) 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 IV below. Nasdaq has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
[[Page 18316]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Nasdaq's InterMarket is a quotation, communication, and execution
venue that allows NASD members to quote and trade stocks listed on the
New York Stock Exchange, Inc. (``NYSE'') and the American Stock
Exchange LLC (``Amex''). The InterMarket competes with regional
exchanges like the Chicago Stock Exchange, Inc., the Boston Stock
Exchange, Inc., and the Cincinnati Stock Exchange, Inc. for retail
order flow in stocks listed on the NYSE and the Amex. Through the
InterMarket, Nasdaq operates the Computer Assisted Execution System
(``CAES''), a system that facilitates the execution of trades in listed
securities between NASD members that participate in InterMarket, and
the InterMarket Trading System (``ITS''), a national market plan system
that permits trades between NASD members and specialists on the floors
of national securities exchanges that trade listed securities.\8\
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\8\ See CAES/ITS User Guide, p. 5, at
www.intermarket.nasdaqtrader.com.
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Nasdaq proposes to modify the InterMarket Transaction Credit
Program (the ``Program''). Under the Program, Nasdaq shares a portion
of the tape revenues that it receives (through the NASD) from the
Consolidated Tape Association (``CTA''), by providing a transaction
credit to members who engage in over the counter (``OTC'') trading
activity in CTA-eligible securities. Nasdaq calculates two separate
pools of revenue from which credits can be earned: one representing 50%
of the revenues received from the CTA for providing trade reports in
NYSE-listed securities executed in the InterMarket for dissemination by
the CTA, the other representing 50% of the revenue received from the
CTA for reporting Amex trades.
On November 22, 2002, the CTA met and unanimously approved a
modification to its capacity planning and payment process. As a result
of this modification, Nasdaq and other CTA participants will incur CTA
expenses based on predicted capacity rather than on an ex-post basis.
Further, participants will be billed this cost directly as opposed to
CTA deducting all operating costs from the Consolidated Tape (``CT'')
and Consolidated Quotation (``CQ'') revenues collected. This is a
change from the prior CTA practice of deducting operational system
costs directly from the CT and CQ gross income available for
distribution prior to the disbursement of transaction credits to plan
participants.
Nasdaq proposes to amend its transaction credit formula in order to
adjust to this CTA billing change. Specifically, prior to Nasdaq
distributing 50% of data revenues it receives from CTA, Nasdaq will
deduct the capacity expense allocated to Nasdaq by the CTA. Nasdaq will
allocate this capacity expense to Tape A and Tape B according to each
tape's percentage of total trades executed on Nasdaq.\9\ Deducting the
capacity expense prior to distributing tape revenue effectively
preserves the current arrangements, whereby Nasdaq and its InterMarket
members share these capacity costs.
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\9\ For example, if Nasdaq incurs $100,000 in capacity expenses,
and its members execute 700 transactions in Tape A securities and
300 transactions in Tape B securities, Nasdaq will allocate $70,000
of capacity expense to Tape A and $30,000 to Tape B.
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2. Statutory Basis
Nasdaq believes that the proposed rule change, as amended, is
consistent with the Act, including section 15A(b)(5) of the Act,\10\
which requires that the rules of the NASD 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
NASD operates or controls. Nasdaq represents that the proposed rule
change, as amended, will maintain the current cost of conducting
business through InterMarket for members that provide liquidity through
ITS or CAES. Nasdaq believes that continuing to encourage members to
provide liquidity will enhance the efficiency of InterMarket and
benefit investors whose trades are routed to InterMarket by increasing
the likelihood that they will be promptly executed.
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\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, as amended,
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
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The forgoing rule change has become effective on April 3, 2003,
upon filing of Amendment No. 1 to the proposed rule change pursuant to
section 19(b)(3)(A)(ii) of the Act \11\ and subparagraph (f)(2) of Rule
19b-4 thereunder \12\ in that it establishes or changes a due, fee, or
other charge imposed by the Nasdaq. At any time within 60 days of the
filing of a rule change pursuant to section 19(b)(3)(A) of the Act, the
Commission may summarily abrogate the rule change, as amended, 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.\13\
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\11\ 15 U.S.C. 78s(b)(3)(A)(iii).
\12\ 17 CFR 240.19b-4(f)(2).
\13\ For purposes of determining the effective date of the
filing and calculating the 60-day abrogation date, the Commission
considers the period to commence on April 3, 2003, the date Nasdaq
filed Amendment No. 1.
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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 proposed rule
change, as amended, 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, as
amended, 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 the File No. SR-NASD-2003-63 and should be
submitted by May 6, 2003.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-9108 Filed 4-14-03; 8:45 am]
BILLING CODE 8010-01-P