[Federal Register Volume 66, Number 167 (Tuesday, August 28, 2001)]
[Notices]
[Pages 45347-45348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-21651]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-44734; File No. SR-NASD-2001-42)
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change and Amendment No. 1 To Extend the
Expiration Date of Nasdaq's Transaction Credit Pilot Program
August 22, 2001.
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 June 27, 2001, 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'' or ``SEC'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by Nasdaq. On August 17, 2001, Nasdaq amended the proposal.\3\ Nasdaq
filed the proposal pursuant to Section 19(b)(3)(A) of the Act,\4\ and
Rule 19b-4(f)(2) thereunder,\5\ which renders the proposal 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 August 16, 2001 letter from Mary Dunbar, Vice President,
Nasdaq, to Katherine A. England, Assistant Director, Division of
Market Regulation, SEC, and attachments (``Amendment No. 1'').
Amendment No. 1 completely replaces and supersedes the original
proposal.
\4\ 15 U.S.C. 78s(b)(3)(A).
\5\ 17 CFR 240.19b-4(f)(2).
\6\ For purposes of calculating the 60-day abrogation period,
the Commission considers the abrogation period to have commenced on
August 17, 2001, the date that 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 proposes to amend NASD Rule 7010, System Services, to extend
Nasdaq's transaction credit pilot program (``Program'') for an
additional six months (through September 1, 2001) for Tape A and B
reports. No other substantive changes are proposed to the Program at
this time. The text of the proposed rule change is available at the
Association and at the Commission.
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 extend the Program \7\ for an additional six
months (through September 1, 2001) to provide a transaction credit to
NASD members that exceed certain levels of trading activity in
exchange-listed securities. Nasdaq's InterMarket is a quotation,
communication, and execution system that allows NASD members to trade
stocks listed on the New York Stock Exchange (``NYSE'') and the
American Stock Exchange (``Amex'').\8\ The InterMarket competes with
regional exchanges like the Chicago Stock Exchange (``CHX'') and the
Cincinnati Stock Exchange (``CSE'') for retail order flow in stocks
listed on the NYSE and the Amex. The Association collects trade reports
from broker-dealers trading these securities in the over-the-counter
(``OTC'') market and provides the trade reports to the Consolidated
Tape Association (``CTA'') for inclusion in the Consolidated Tape. As a
participant in the CTA Plan, the NASD is entitled to a portion of the
revenue that the CTA generates by selling this market data information.
NASD's share of the revenues is based on trades that it reports on
behalf of these broker-dealers in NYSE-listed securities (``Tape A'')
and in Amex-listed securities (``Tape B'').
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\7\ The transaction credit can be applied to any and all charges
imposed by NASD or its non-self-regulatory organization affiliates.
Any remaining balance may be paid directly to the member.
\8\ Nasdaq's InterMarket formerly was referred to as Nasdaq's
Third Market, See Securities Exchange Act Release No. 42907 (June 7,
2000), 65 FR 37445 (June 14, 2000) (SR-NASD-00-32).
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The Program began in 1999.\9\ Under the Program, the NASD shares a
portion of these tape revenues by providing a transaction credit to
NASD members who exceed certain levels of OTC trading activity in NYSE
and Amex securities. The Program helps InterMarket makers and investors
lower costs associated with trading listed securities. The Program also
is an important tool for Nasdaq to compete against other exchanges
(particularly the CSE and the CHX) that offer similar programs \10\ and
thereby maintain market share in listed securities.
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\9\ See Securities Exchange Act Release No. 41174 (March 16,
1999), 64 FR 14034 (March 23, 1999) (SR-NASD-99-13). The SEC issued
notice of subsequent extensions of the Program. See Securities
Exchange Act Release Nos. 42095 (November 3, 1999), 64 FR 61680
(November 12, 1999) (SR-NASD-99-59); 42672 (April 12, 2000), 65 FR
21225 (April 20, 2000) (SR-NASD-00-10); 42907 (June 7, 2000), 65 FR
37445 (June 14, 2000) (SR-NASD-00-32); 43831 (January 10, 2001), 66
FR 4882 (January 18, 2001) (SR-NASD-00-72); 44098 (March 23, 2000),
66 FR 17462 (March 30, 2001) (SR-NASD-2001-15).
\10\ See Securities Exchange Act Release Nos. 38237 (February 4,
1997), 62 FR 6592 (February 12, 1997) (SR-CHX-97-01) and 39395
(December 3, 1997), 62 FR 65113 (December 10, 1997) (SR-CSE-97-12).
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The Program works as follows. Nasdaq calculates two separate pools
of revenue from which credits can be earned: one representing 40% of
the gross revenues received by the NASD from the CTA for providing
trade reports in NYSE-listed securities executed in the InterMarket for
dissemination by CTA (Tape A), the other representing 40% of the gross
revenue received from CTA for reporting Amex trades (Tape B).
Eligibility for transaction credits is based on concurrent
quarterly trading activity. For example, an InterMarket participant
that enters the market for Tape A or Tape B securities during a
particular quarter and prints an average of 500 daily trades of Tape A
securities during the time it is in the market, or that averages 500
Tape B prints during such quarter, would be eligible to receive
transaction credits based on its trades during that quarter. Only those
NASD members that continue to average an appropriate daily execution
level are eligible for transaction credits and thus able to receive a
pro-rata portion of the appropriate pool.\11\ These thresholds permit
the NASD to recover appropriate administrative costs related to NASD
members that do not exceed the threshold and to provide an incentive to
[[Page 45348]]
NASD members to actively trade in these securities.
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\11\ As explained in Nasdaq's original pilot filing, the
qualification thresholds were selected based on Nasdaq's belief that
such members represent clear examples of a member's commitment to
operating in the InterMarket and competing for order flow. See
Securities Exchange Act Release No. 41174 (March 16, 1999), 64 FR
14034 (March 23, 1999) (SR-NASD-99-13). Nasdaq continues to believe
that such threshold numbers represent clear examples of a member's
commitment to operating in the InterMarket.
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The current Program expired on June 30, 2001. Because the Program
has helped Nasdaq maintain market share in listed securities. Nasdaq
proposes to extend the current Program for an additional six months,
through September 1, 2001.
2. Statutory Basis
Nasdaq believes the proposed rule change is consistent with Section
15A(b)(6) of the Act,\12\ in that the proposal is designed to promote
just and equitable principles of trade and to remove impediments to and
perfect the mechanism of a national market system, and, in general to
protect investors and the public interest. Nasdaq also believes that
the proposed rule change is consistent with Section 15A(b)(5) of the
Act \13\ 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 Association operates or
controls.
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\12\ 15 U.S.C. 78o-3(b)(6).
\13\ 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)(A)(ii) of the Act \14\ and subparagraph (f)(2) of Rule 10b-4
thereunder,\15\ 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 the
protection of investors, or otherwise in furtherance of the purposes of
the Act.
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, 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 the file number SR-NASD-2001-42 and should
be submitted by [insert date 21 days from the date of publication].
For the Commission, by the Division of Market Regulations, pursuant
to delegated authority.\16\
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\14\ 15 U.S.C. 78s(b)(3)(A)(ii).
\15\ 17 CFR 240.196-4(f)(2).
\16\ 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-21651 Filed 8-27-01; 8:45 am]
BILLING CODE 8010-01-M