[Federal Register Volume 60, Number 3 (Thursday, January 5, 1995)]
[Notices]
[Pages 1815-1816]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-192]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35157; File No. SR-NASD-94-73]


Self-Regulatory Organizations; Notice and Immediate Effectiveness 
of Proposed Rule Change by National Association of Securities Dealers, 
Inc. Relating to an Increase in the Automated Confirmation Transaction 
Service Fees

December 27, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December 
8, 1994 the National Association of Securities Dealers, Inc. (``NASD'' 
or ``Association'') 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 the NASD. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The NASD is proposing to increase, by 15%, all existing service 
fees paid by NASD members that participate in the Automated 
Confirmation Transaction Service (``ACT'' or ``Service'').\1\ The 
revised fees, which will take effect January 1, 1995, will be set forth 
in Section A(10) of Part VIII of Schedule D to the NASD By-Laws. The 
full text of the proposed rule change reflecting the 15% increase in 
ACT fees is set forth below. (New language is underlined and deletions 
are bracketed).

    \1\The computer facilities that support the provision of ACT are 
operated by The Nasdaq Stock Market, Inc. (``NSMI''), a wholly owned 
subsidiary of the NASD.
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Part VIII--Schedule for NASD Charges for Services and Equipment

    A. System Services
* * * * *
    10. Automated Confirmation Transaction Service
    The following charges shall be paid by the participant for use of 
the Automated Confirmation Transaction Service (ACT):

Transaction related                                                     
 charges:                                                               
    Comparison...........  [$0.0125] $0.0144/side per 100 shares        
                            (minimum 40 shares; maximum 7,500 shares).  
    Late report--T+1.....  [$0.25] $0.288/side.                         
    Browse/query.........  [$0.25] $.288/query.\1\                      
    Terminal fee.........  [$50.00] $57.00/month (ACT only terminals).  
    CTCI fee.............  [$500.00] $575.00/month.                     
    Service desk.........  [$50.00] $57.50/month.\2\                    
    Trade reporting......  [$.025] $0.029/month (applicable only to     
                            reportable transactions not subject to trade
                            comparison through ACT).\3\                 
    Risk Management        [$.03] $0.035/side and [$15] $17.25/month per
     Charges.               correspondent firm.                         
                                                                        
\1\Each Act query incurs the [$0.25] $0.288 fee; however, the first     
  accept or decline processed for a transaction is free, to insure that 
  no more than [$0.25] $0.288 is charged per comparison. Subsequent     
  queries for more data on the same security will also be processed     
  free. Any subsequent query on a different security will incur the     
  [$0.25] $0.288 query charge.                                          
\2\No change.                                                           
\3\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, the NASD 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. The NASD 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

    The purpose of this proposed rule change is to effect a 15% across-
the-board increase in each of the service fees related to usage of ACT. 
This increase, which would take effect on January 1, 1995, constitutes 
the first increase in ACT fees since the Service became operational in 
the fourth quarter of 1989.\2\ The necessity for this fee change traces 
to expanded ACT usage as a result of (i) increased trading volumes in 
The Nasdaq Stock Market (``Nasdaq'') and in the segment of the over-
the-counter (``OTC'') equities market supported by the OTC Bulletin 
Board service (``OTCBB'') and (ii) the NASD mandate of real-time trade 
reporting in Nasdaq SmallCap issues and OTC equities. The 
aforementioned factors have caused ACT processing to consume a much 
larger share of network capacity than was originally projected in 1989.

    \2\See Securities Exchange Act Release No. 27551 (December 19, 
1989); 54 FR 53408 (December 28, 1989).
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    In this regard, a positive correlation exists between Act usage and 
growth in trade volume as well as the number of securities subject to 
the NASD's trade reporting requirements. Between 1989 and 1993, the 
total share volume of Nasdaq grew from 33.5 to 66.5 billion shares, an 
increase of 98.5%. For the first ten months of 1994, the corresponding 
figure is approximately 62 billion shares. With respect to growth 
[[Page 1816]] in the number of Nasdaq-listed securities, there were 
4,965 Nasdaq listings at year-end 1989 compared with 5,731 in October, 
1994; this represents an increase of 15.5%. Real-trade reporting for 
OTC equities was initiated in December, 1993 with a total of 3,652 
issues in the OTCBB at year-end. By October, 1994, this figure 
increased to 5,168 issues, which represents an increase of 41.5%.\3\ 
Thus, at the present time, NASD members routinely use the Service to 
report and compare trades in nearly 11,000 securities. The foregoing 
information was factored into the calculation of the revised ACT fees.

    \3\Additionally, ACT processes trade reports and effects trade 
comparisons on approximately 1,000 OTC equities that are not quoted 
in the OTCBB. This subset of OTC equities is characterized by 
moderate trade volume and the regular submission of trade reports by 
member firms.
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    Additionally, the proposal is designed to recoup certain network 
costs attributable to provisions of ACT through the Enterprise Wide 
Network (``EWN'').\4\ The EWN is the communications component of 
Nasdaq's system upgrade which will deliver the second generation of 
Nasdaq Workstation service functionality (``NWII'') to market 
participants. NWII is currently being phased-in. While the NWII phase-
in proceeds, ACT functionality must be provided via the EWN as well as 
the older network. Therefore, a portion of the fee increase will recoup 
the network costs associated with providing ACT to member firms using 
the NWII service.\5\

    \4\The EWN will increase the capacity of the communications 
network supporting Nasdaq more than fivefold (9,600 baud to 56,000 
baud). The software driving NWII is windows-based and will contain a 
number of data management features that are not available in the 
original Nasdaq Workstation service that resides in the 9600 baud 
network.
    \5\Section (a)(2) of the Rules of Practice and Procedure for the 
Automated Confirmation Transaction Service defines an ACT 
participant to be a member firm registered with the NASD in a market 
making capacity, or a member firm that functions as an order entry 
firm, a clearing broker-dealer, correspondent executing broker-
dealer, or introducing broker-dealer. Because ACT participation is 
defined in this manner, ACT fees are only assessed against those 
member firms that actually use the Service.
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    The NASD believe that the proposed rule change is consistent with 
the requirements of Section 15A(b)(5) of the Act. Section 15A(b)(5) 
specifies that the rules of a national securities association shall 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among members, issuers, and other persons using any 
facility or system that the association operates or controls. In this 
instance, the increased fees being proposed relate to a package of 
automation services available only to NASD member firms that qualify as 
ACT participants. The proposed fee increase is the first such increase 
since ACT became operational in 1989 and is necessary to offset the 
network costs associated with delivering ACT to approximately 1300 
member firms.\6\ As noted above, the increased network costs which this 
proposal is designed to recoup have occurred as a result of the NASD's 
expanded trade reporting requirements, the growth in trade volume 
experienced by the Nasdaq and OTCBB market segments in recent years, 
and the roll-out of the NWII. In light of these factors, the NASD and 
NSMI submit that the proposed increase in ACT fees is necessary and 
appropriate to achieve an equitable allocation of reasonable fees among 
NASD members using the Service.

    \6\During the second half of 1995, ACT fees and ACT-related 
network costs will be reviewed to determine if the 1995 increase was 
sufficient to recover those costs. That review may reveal that a 
further increase is necessary.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The NASD 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 foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act and subparagraph (e) of Securities Exchange Act 
Rule 19b-4 because the proposal constitutes a change in a due, fee, or 
other charge for a package of automated services provided only to NASD 
member firms. At any time within 60 days of the filing of such 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
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 with also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to the file number in the caption 
above (SR-NASD-94-73) and should be submitted by [insert date 21 days 
from the date of publication].

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\

    \7\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-192 Filed 1-4-95; 8:45 am]
BILLING CODE 8010-01-M