[Federal Register: August 14, 2003 (Volume 68, Number 157)]
[Notices]
[Page 48654-48656]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14au03-100]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48303; File No. SR-NASD-2003-120]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by the National Association of
Securities Dealers, Inc. to Establish a Revenue Sharing Program
August 8, 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 August 1, 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)(ii) of the
Act,\3\ and Rule 19b-4(f)(2) thereunder \4\ as one establishing or
changing a due, fee or other charge imposed by the self-regulatory
organization, which renders the proposal effective upon filing with the
Commission. 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)(2).
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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 revenue sharing program. Nasdaq will
implement the proposed rule change on August 1, 2003.
The text of the proposed rule change is below. Proposed new
language is in italics.\5\
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\5\ Note that subsection (t) of Rule 7010 has been reserved for
the rule change proposed in SR-NASD-2003-114 (July 22, 2003), which
has been submitted for Commission approval pursuant to Section
19(b)(2) of the Act, 15 U.S.C. 78s(b)(2).
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7000. CHARGES FOR SERVICES AND EQUIPMENT
7010. System Services
(a)-(t) No change
(u) Nasdaq Revenue Sharing Program.
After Nasdaq earns total operating revenue sufficient to offset
actual expenses and working capital needs, a percentage of all Market
Participant Operating Revenue (``MPOR'') shall be
[[Page 48655]]
eligible for sharing with Nasdaq Quoting Market Participants (as
defined in Rule 4701). MPOR is defined as operating revenue that is
generated by Nasdaq Quoting Market Participants. MPOR consists of
transaction fees, technology fees, and market data revenue that is
attributable to Nasdaq Quoting Market Participant activity in Nasdaq
National Market and SmallCap Market securities. MPOR shall not include
any investment income or regulatory monies. The sharing of MPOR shall
be based on each Nasdaq Quoting Market Participant's pro rata
contribution to MPOR. In no event shall the amount of revenue shared
with Nasdaq Quoting Market Participants exceed MPOR. To the extent
market data revenue is subject to year-end adjustment, MPOR revenue may
be adjusted accordingly.
* * * * *
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
As part of an ongoing effort to reduce the costs incurred by market
participants to use Nasdaq services, Nasdaq is implementing a general
revenue sharing program based on The Cincinnati Stock Exchange's
revenue sharing program, as adopted in 1999 and subsequently
amended.\6\ The purpose of the proposed rule change is to provide an
incentive for growth in member activity. To compete more effectively,
Nasdaq proposes to reduce significantly the cost of doing business for
Nasdaq Quoting Market Participants (as defined in Rule 4701) by means
of a quarterly revenue sharing program, without diminishing the quality
of the market, including regulatory quality.\7\
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\6\ Securities Exchange Act Release No. 41082 (February 22,
1999), 64 FR 10035 (March 1, 1999) (SR-CSE-99-02) (notice);
Securities Exchange Act Release No. 41286 (April 14, 1999), 64 FR
19843 (April 22, 1999) (SR-CSE-99-02) (approval order); Securities
Exchange Act Release No. 46688 (October 18, 2002), 67 FR 65816
(October 28, 2002) (SR-CSE-2002-14) (notice of filing and immediate
effectiveness).
\7\ See infra note 8.
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The proposed rule change contemplates Nasdaq sharing with Nasdaq
Quoting Market Participants (i.e., market makers and ECNs that
participate in SuperMontage) all or a portion of Nasdaq's Market
Participant Operating Revenue (``MPOR'') after operating expenses and
working capital needs have been met. MPOR is defined as all operating
revenue that is generated by Nasdaq Quoting Market Participants. MPOR
consists of transaction fees, technology fees, and market data revenue
that is attributable to Nasdaq Quoting Market Participant activity in
Nasdaq National Market and SmallCap Market securities. All regulatory
monies and investment income are excluded from MPOR.
Under the proposal, Nasdaq's Board of Directors (acting through its
Finance Committee or as a whole) would have the authority to determine
on an ongoing basis the appropriate amount of MPOR to be shared with
Nasdaq Quoting Market Participants. In making this determination, the
Board would be guided by the need to balance the objective of sharing
meaningful portions of MPOR with the objective of maintaining Nasdaq's
financial integrity.\8\ To simplify the administration of the revenue
sharing program and smooth out monthly expense fluctuations, the
program will operate on a quarterly basis. In addition, to the extent
that Nasdaq market data revenue is subject to a year-end adjustment,
revenues distributed to Nasdaq Quoting Market Participants are subject
to adjustment accordingly, to ensure that member receipts of market
data revenue are consistent with the year-end true up procedures
applied under the Nasdaq UTP Plan.
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\8\ In particular, Nasdaq will not compromise its regulatory
responsibilities by sharing revenue that would more appropriately be
used to fund regulatory responsibilities. Nasdaq will be mindful of
its regulatory responsibilities when determining its working capital
needs. See, Securities Exchange Act Release No. 41286 (April 14,
1999), 64 FR 19843, 19844 (April 22, 1999) (SR-CSE-99-02).
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MPOR will be shared with Nasdaq Quoting Market Participants on a
pro rata basis. After Nasdaq has accounted for operating expenses and
working capital contributions, each Nasdaq Quoting Market Participant
will receive a percentage of the MPOR to be shared that is equal to
that firm's percentage contribution to MPOR. In no event will the
amount of revenue shared with Nasdaq Quoting Market Participants exceed
MPOR.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of section 15A of the Act,\9\ in general, and with
section 15A(b)(6) of the Act,\10\ in particular, in that it is designed
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest. Nasdaq believes that the proposed change will create
an incentive for members to use Nasdaq systems, thereby increasing
competition, which, in turn, will enhance the National Market System.
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\9\ 15 U.S.C. 78o-3.
\10\ 15 U.S.C. 78o-3(b)(6).
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In addition, Nasdaq believes that the proposed rule change is
consistent with section 15A(b)(5) of the Act,\11\ 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. Specifically, the proposal
provides for revenue sharing with Nasdaq Quoting Market Participants,
who are primarily responsible for Nasdaq's financial viability and
growth.
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\11\ 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 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
The proposed rule change has become effective pursuant to section
19(b)(3)(A)(ii) of the Act \12\ and subparagraph (f)(2) of Rule 19b-4
thereunder,\13\ because it establishes or changes a due, fee, or other
charge imposed by the Association. 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
[[Page 48656]]
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)(ii).
\13\ 17 CFR 240.19b-4(f)(2).
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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 Association. All
submissions should refer to file number SR-NASD-2003-120 and should be
submitted by September 4, 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).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-20767 Filed 8-13-03; 8:45 am]
BILLING CODE 8010-01-P