[Federal Register: April 19, 2006 (Volume 71, Number 75)]
[Notices]
[Page 20149-20151]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19ap06-147]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53644; File No. SR-NASD-2006-048]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment
No. 1 Thereto to Modify Order Delivery Charges for Orders Delivered to
Nasdaq Market Center Participants
April 13, 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 7, 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 April 12,
2006, Nasdaq filed Amendment No. 1 to the proposed rule change.\3\ 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\ In Amendment No. 1, Nasdaq made non-substantive technical
changes to clarify its Statement on Burden on Competition and to
conform certain language of the proposed rule text to the current
NASD Rule 7010.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq proposes to modify the imposition of fees for orders
delivered to Nasdaq Market Center participants that elect to have
orders delivered to their Quotes/Orders through the Nasdaq Market
Center. Nasdaq plans to implement the proposed rule change, as amended,
immediately upon approval by the Commission, if the Commission grants
approval. The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in [brackets].
* * * * *
7010. System Services
(a)--(h) No Change
(i) Nasdaq Market Center, Brut, and Inet Order Execution and
Routing
(1) The following charges shall apply to the use of the order
execution and routing services of the Nasdaq Market Center, Brut, and
Inet (the ``Nasdaq Facilities'') by members for all Nasdaq-listed
securities subject to the Nasdaq UTP Plan and for Exchange-Traded Funds
that are not listed on Nasdaq. The term ``Exchange-Traded Funds'' shall
mean Portfolio Depository Receipts, Index Fund Shares, and Trust Issued
Receipts as such terms are defined in Rule 4420(i), (j), and (l),
respectively.
Order Execution
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Order that accesses the Quote/Order of
a market participant that does not
charge an access fee to market
participants accessing its Quotes/
Orders through the Nasdaq Facilities:
Charge to member entering order:
Members with an average daily $0.0028 per share executed (or,
volume through the Nasdaq in the case of executions
Facilities in all securities against Quotes/Orders at less
during the month of (i) more than than $1.00 per share, 0.1% of
30 million shares of liquidity the total transaction cost).
provided, and (ii) more than 50
million shares of liquidity
accessed and/or routed.
Other members.......................... $0.0030 per share executed (or,
in the case of executions
against Quotes/Orders at less
than $1.00 per share, 0.1% of
the total transaction cost).
Credit to member providing liquidity:
Members with an average daily volume $0.0025 per share executed (or
through the Nasdaq Facilities in all $0, in the case of executions
securities during the month of more against Quotes/Orders at less
than 30 million shares of liquidity than $1.00 per share).
provided.
Other members.......................... $0.0020 per share executed (or
$0, in the case of executions
against Quotes/Orders at less
than $1.00 per share).
Order that [accesses ]is delivered to
the Quote/Order of a market
participant [that charges an access
fee to market participants accessing
its Quotes/ Orders] through the Nasdaq
Facilities:
Charge to member [entering]receiving
order:
All members [Members with an average $0.001 per share executed [(but
daily volume through the Nasdaq no more than $10,000 per
Facilities in all securities during month)]
the month of more than 500,000 shares
of liquidity provided].
[Other members......................... $0.001 per share executed]
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* * * * *
The text of the proposed rule change, as amended, is also available
on Nasdaq's Internet Web site (http://www.nasdaq.com), at Nasdaq's
principal office, and at the Commission's Public Reference Room.
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 change the way fees are imposed for orders
delivered to the Quotes/Orders of Nasdaq Market Center participants
through the Nasdaq Market Center. Currently, Nasdaq
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imposes a $0.001 per share executed delivery fee on Nasdaq Market
Center users who enter orders that are delivered to other Nasdaq Market
Center participants that charge an access fee. Nasdaq proposes to
modify this fee structure so as to impose a $0.001 delivery fee on
participants that receive orders (order delivery participants) from the
Nasdaq Market Center and eliminate the $0.001 delivery fee currently
charged against the user who entered the order.
Nasdaq's order delivery service is a service provided to
participants that wish to participate in the Nasdaq Market Center
liquidity pool and control their execution decision external to Nasdaq
systems. Order delivery is not a functionality or service that is
required to be offered to participants, and it involves additional
direct and indirect costs to operate. Specifically, order delivery
consumes excess processing and networking capacity and requires unique
specifications, requirements, and system development. These costs are
directly related to the firms using order delivery, and the benefits of
order delivery accrue directly to the firms participating in the system
as order delivery participants.
Nasdaq believes that the proposed fee change more fairly and
accurately aligns fees for order delivery within the Nasdaq Market
Center by charging the firm that chooses to use order delivery
functionality rather than the firm that has its order delivered. This
fee modification better reflects the value of the benefits that accrue
to order delivery recipients in the system. Furthermore, by no longer
assessing a charge to the order entering firm, firms accessing
liquidity within the Nasdaq Market Center can be more certain of their
cost of using the system.
2. Statutory Basis
Nasdaq believes that the proposed rule change is consistent with
the provisions of Section 15A of the Act,\4\ in general, and with
Section 15A(b)(5) of the Act,\5\ in particular, 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. In particular, Nasdaq
believes that the proposed rule change more fairly and accurately
aligns its fees for delivering orders to Nasdaq Market Center
participants with the benefits accruing to entities that receive such
order flow. In addition, to the extent that Nasdaq's proposal correctly
assigns costs of order delivery to the small number of order delivery
recipients that benefit from that functionality, the proposal also is a
tangible benefit to the large number of market participants, including
public investors, that will no longer be required to subsidize it.
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\4\ 15 U.S.C. 78o-3.
\5\ 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 would impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Assessment of the competitive
impact of any proposal must begin with a proper understanding of the
notion of competition among market centers. Such understanding must be
informed by the Act itself and by the commonly accepted principles of
U.S. competition law generally (e.g., the Sherman Antitrust Act and the
Clayton Act), as applied by the courts and by the Antitrust Division of
the U.S. Department of Justice.
The objective of assuring competition among markets is cited in
Section 11A of the Act \6\ alongside, inter alia, the objectives of
achieving ``economically efficient execution of securities
transactions'' and of creating ``the opportunity for more efficient and
effective market operations.'' \7\ Not surprisingly, in antitrust law,
the notion of competition is also always seen through the prism of
economic efficiency. The law views competition as a force that
encourages greater efficiency of operations, lower prices, and better
service to market participants. Market behavior that promotes
efficiency, lower fees, and better service is what both the Act and the
antitrust laws seek to encourage.
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\6\ 15 U.S.C. 78k-1 et seq.
\7\ 15 U.S.C. 78k-1(a)(1).
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As the Commission is aware, Nasdaq operates in the intensely
competitive global exchange marketplace for listings, financial
products, and market services. Nasdaq's ability to compete in this
environment is based on a number of factors including technological
quality, fairness and market transparency, price of services, quality
of our markets (including spreads and depth of market), customer
service, total transaction costs, and speed of our execution services.
Relying on its array of services and benefits, Nasdaq competes with
exchanges, Electronic Communication Networks (``ECNs''), and other
Alternative Trading Systems (``ATSs'') for the privilege of providing
market and listing services to broker-dealers and issuers. Moreover,
within Nasdaq's own systems, ECNs and other ATSs compete with market
makers and agency broker-dealers for retail and institutional order
flow. It is in both arenas that Nasdaq's current method of imposing
fees for order delivery services negatively impacts the overall
competitive environment. First, Nasdaq's current imposition of fees for
order delivery on parties entering orders into the Nasdaq Market Center
creates disincentives for order flow providers to send orders to Nasdaq
for processing and thereby harms Nasdaq's ability to compete with other
markets operated by self-regulatory organizations--none of which
provide order delivery, and consequently do not charge for it. For the
same reasons, the present non-alignment of order delivery costs with
those market participants that actually benefit from this functionality
results in an improper subsidization of order delivery ECNs within
Nasdaq's own system to the detriment of competing market makers and
agency brokers that compete with those order delivery ECNs for retail
and institutional order flow.
These negative competitive impacts are mitigated by Nasdaq's fee
proposal. By imposing a portion of order delivery costs on firms that
take advantage of Nasdaq's order delivery functionality, the proposal
promotes efficiency, transparency, and lower prices, and is therefore
pro-competitive. This is in contrast to the existing regime where order
delivery ECNs are able to free-ride on Nasdaq's neutral execution
algorithms that deliver orders to the ECNs without cost and provide
them with little incentive to enhance their product or services.
Nasdaq's proposal would ensure that ECNs more fully support the costs
of Nasdaq's distribution of their services. In return, the overwhelming
majority of Nasdaq's users would benefit from lower execution prices
(and equally important, from the predictability of trade execution
charges), while ECNs would have increased financial incentives to
operate more efficiently. Finally, to the extent that the pricing
change enhances Nasdaq's ability to attract order flow, the overall
competitive environment among market centers would be enhanced. All
results, by definition, are pro-competitive.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve such proposed rule change, as amended, or
(B) institute proceedings to determine whether the proposed rule
change, as amended, should be disapproved.
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. 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 rule-comments@sec.gov. Please include
File Number SR-NASD-2006-048 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASD-2006-048. 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 Section, 100 F Street,
NE., Washington, DC 20549. Copies of such filing also will be available
for inspection and copying at the principal offices of the Exchange.
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 File Number SR-NASD-2006-048
and should be submitted on or before May 10, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-5855 Filed 4-18-06; 8:45 am]
BILLING CODE 8010-01-P