[Federal Register Volume 66, Number 97 (Friday, May 18, 2001)]
[Notices]
[Pages 27712-27714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-12545]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44303; File No. SR-NASD-2001-30]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Establishing the Fee Schedule for the Nasdaq 
ReSource<SUP>SM</SUP> Service

May 14, 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 May 8, 2001, 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. 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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) of the Act, and Rule 
19b-4 thereunder, Nasdaq is herewith filing a proposed rule change of 
the NASD to establish the fee schedule Nasdaq's new 
ReSource<SUP>SM</SUP> Service (``Service''). The Service is voluntary 
and is designed to assist NASD members in complying with Rule 11Ac1-5 
under the Act. Below is the text of the proposed rule change; proposed 
additions are italicized.
* * * * *
7000. Charges for Services or Equipment
7010. System Services
(a)-(p) No Changes

(q) Nasdaq ReSource<SUP>SM</SUP> Service

    (1)(A) Subscribers to the Nasdaq ReSource<SUP>SM</SUP> shall be 
charged an Activation Fee and an Annual Subscription Fee, both of which 
generally will vary depending upon a subscriber's trading volume, as 
measured in accordance with paragraphs (B) through (D) below, and 
corresponding tier classification as follows:

------------------------------------------------------------------------
                   Tier                     Average monthly trade volume
------------------------------------------------------------------------
1.........................................  500,000 or greater.
2.........................................  100,000-499,999
3.........................................  10,000-99,999
4.........................................  5,000-9,999
5.........................................  1,000-4,999
6.........................................  500-999
7.........................................  0-499
------------------------------------------------------------------------

    (B) During the first year of the ReSource<SUP>SM</SUP> Service 
(i.e., August 2001 through July 2002) Nasdaq will assign subscribers to 
one of the tiers listed in paragraph (A) above based on their average 
monthly trading volume reported to the tape, for the period from 
September 1, 2000, through February 28, 2001, in Nasdaq National Market 
securities for which the subscriber is registered as a market maker.
    (C) Members that subscribe to the ReSource<SUP>SM</SUP> Service 
other than at the beginning of a ``Subscription Year,'' as the term is 
defined below, will be assigned to one of the tiers listed in paragraph 
(A) above based on their average monthly trading volume reported to the 
tape, during the six month period preceding the date of their 
subscription, in Nasdaq National Market securities for which the 
subscriber is registered as a market maker.
    (D) Beginning in July of 2002, and on an annual basis thereafter, 
Nasdaq will review each subscriber's average monthly trading volume and 
assign the subscriber to one of the tiers listed in paragraph (A) above 
based on their average monthly trading volume reported to the tape, 
during the preceding six month period, in Nasdaq National Market 
securities for which the subscriber is registered as a market maker.
    (2)(A) Activation Fees and Annual Subscription Fees shall be as 
follows:

------------------------------------------------------------------------
                                                              Annual
                  Tier                    Activation fee   subscription
                                                                fee
------------------------------------------------------------------------
1.......................................          $3,000         $35,000
2.......................................           3,000          30,000
3.......................................           2,000          20,000
4.......................................           1,000          10,000
5.......................................           1,000           7,500
6.......................................           1,000           5,000
7.......................................           1,000           2,500
------------------------------------------------------------------------

    (B) The Activation Fee shall be billed after execution of the 
Addendum to Nasdaq Workstation II Subscriber Agreement for Nasdaq 
ReSource<SUP>SM</SUP> (``Agreement'').
    (C) The Annual Subscription Fee shall be charged after execution of 
the Agreement, and at the beginning of each Subscription Year 
thereafter. A ``Subscription Year'' shall mean a 12-month period from 
August 1st to July 31st. The Annual Subscription Fee will be pro-rated 
on a monthly basis for those firms that subscribe to the Service other 
than at the beginning of a Subscription Year. Nasdaq will offer no 
refunds of the Annual Subscription Fee.

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
    On May 2, 2001, the Commission approved the Nasdaq Resource \SM\ 
Service, \3\ which is designed to assist NASD members in complying with 
certain of their obligations pursuant to Rule 11Ac1-5 \4\ (the 
``Rule'') under the

[[Page 27713]]

Act. Generally, the Rule seeks to improve the ability of public 
investors to evaluate how their orders are handled after being 
submitted to a broker-dealer for execution. The Rule requires ``market 
centers'' that trade national market system securities to prepare and 
make publicly available standardized, monthly reports containing 
statistical information concerning the handling and execution of their 
``covered orders.''\5\ A ``market center'' under the Rule is defined as 
``any exchange market maker, OTC market maker, alternative trading 
system, national securities exchange, or national securities 
association.''\6\ To facilitate cross-market comparisons, the Rule 
establishes and defines uniform measures of execution quality, 
including effective spread, rate of price improvement and 
disimprovement, fill rate, and execution speed.
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    \3\ Securities Exchange Act Release No. 44246 (May 2, 2001), 66 
FR 23289.
    \4\ 17 CFR 240.11Ac1-5.
    \5\ The Rule defines ``covered order'' as any market order or 
any limit order (including immediate-or-cancel orders) received by a 
market center during regular trading hours at a time when a 
consolidated best bid and offer is being disseminated, and, if 
executed, is executed during regular trading hours. Excluded from 
the definition of ``covered order'' is any order for which the 
customer requests special handling for execution, including, but not 
limited to, orders to be executed at a market opening or closing 
price, orders submitted with stop prices, orders to be executed only 
at their full size, orders to be executed on a particular type of 
tick or bid, orders submitted on a ``not held'' basis, orders for 
other than regular settlement, and orders to be executed at prices 
unrelated to the market price at the time of execution. 17 CFR 
240.11Ac1-5(a)(8).
    \6\ 17 CFR 240.11Ac1-5(a)(14).
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    Nasdaq's new voluntary service--Nasdaq ReSource <SUP>SM</SUP>--
assists NASD member market centers in meeting their reporting 
obligations under Rule 11Ac1-5. For members that subscribe to the 
Service, Nasdaq will collect, compile, and web-host the reports 
required by the Rule. These reports will be referred to as Execution 
Quality Reports (``XQ Reports''<SUP>SM</SUP>) and will be available on 
a free, publicly accessible web site. Through certain existing systems, 
Nasdaq already can capture a portion of the data required to complete 
XQ Reports. In order to ensure complete XQ Reports, however, firms will 
be required to submit to Nasdaq additional data for certain categories 
of orders. Member firms will be required to provide an electronic file 
containing execution and cancellation information for orders routed to 
Nasdaq execution systems, orders routed to ECNs, orders routed to non-
NASD members, and certain orders executed as riskless principal, 
depending upon which method the subscriber chooses to report riskless 
principal transactions.\7\
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    \7\ See NASD Rule 4632(d)(B) and NASD Notice to Members 00-79.
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    Generally, Nasdaq proposes a tiered fee structure for the ReSource 
\SM\ Service that is based on a subscriber's average monthly trading 
volume reported to the tape, over a certain specified number of months, 
in Nasdaq National Market securities for which the subscriber is 
registered as a market maker. Firms that generate higher trading volume 
will be charged a proportionately higher fee to account for the greater 
computer system and Nasdaq staff resources needed to provide the 
Service to these firms. The seven different fee levels, or tiers, will 
be based on monthly trading volume averaged over a six-month period. 
The six-month period is designed to account for seasonal fluctuations 
in trading volume and significant business changes. The proposed tier 
structure is as follows:

------------------------------------------------------------------------
                Tier                     Average monthly trade volume
------------------------------------------------------------------------
1...................................  500,000 or greater.
2...................................  100,000-499,999
3...................................  10,000-99,999
4...................................  5,000-9,999
5...................................  1,000-4,999
6...................................  500-999
7...................................  0-499
------------------------------------------------------------------------

    For the first year that Nasdaq offers the ReSource \SM\ Service 
(i.e., August 20001 \8\ through July 2002), Nasdaq will assign 
subscribers to one of the above tiers based on their average monthly 
trading volume reported to the tape, for the period from September 1, 
2000, through February 28, 2001, in Nasdaq National Market securities 
for which they are registered as market makers. For members that 
subscribe other than at the beginning of a Subscription Year, as that 
term is defined in the fee schedule and described below, Nasdaq will 
place the subscriber in the appropriate tier based on the subscriber's 
average monthly trading volume during the six month period preceding 
the subscription date. Beginning with the first anniversary of the 
Service in July of 2002, and on an annual basis thereafter, Nasdaq will 
conduct a review of each subscriber's average monthly trading volume 
during the preceding six-month period, and will assign the applicant to 
the appropriate corresponding tier.
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    \8\ The initial compliance date for the reporting of listed 
securities under Rule 11Ac1-5 was May 1, 2001. The Commission has 
temporarily exempted (until July 31, 2001) all orders in Nasdaq 
securities. Letter from Annette L. Nazareth, Director, Division of 
Market Regulation, SEC, to Stuart J. Kaswell, Senior Vice President 
and General Counsel, Securities Indsutry Association, dated April 
12, 2001.
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    Fees for the ReSource \SM\ Service will include an initial, one-
time setup fee (``Activation Fee'') and an Annual Subscription Fee, 
both of which generally will vary depending upon the firm's trading 
volume and corresponding tier classification. The Activation Fee is 
related to the costs associated with assisting member firms in 
establishing the proper hardware and software configuration necessary 
to submit data to Nasdaq, establishing the necessary data feeds, and 
testing with Nasdaq. The Activation Fee will be billed upon receipt of 
an executed Addendum to Nasdaq Workstation II Subscriber Agreement for 
Nasdaq ReSource \SM\ (``Agreement'').
    The Annual Subscription Fee is related to the on-going costs 
associated with compiling, calculating, and web-hosting the statistical 
data required by Rule 11Ac1-5. Member firms will be billed for the 
Annual Subscription Fee after submitting the executed Agreement, and 
thereafter at the beginning of each Subscription Year (i.e., the 12-
month period from August 1st to July 31st). The Annual Subscription Fee 
will be pro-rated on a monthly basis for those firms that subscribe to 
the Service other than at the beginning of a Subscription Year. Nasdaq 
will offer no refunds of the Annual Subscription Fee.
    The proposed Activation Fees and Annual Subscription Fees are as 
follows:

------------------------------------------------------------------------
                                                              Annual
                  Tier                    Activation fee   subscription
                                                                fee
------------------------------------------------------------------------
1.......................................          $3,000         $35,000
2.......................................           3,000          30,000
3.......................................           2,000          20,000
4.......................................           1,000          10,000
5.......................................           1,000           7,500
6.......................................           1,000           5,000
7.......................................           1,000           2,500
------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule changes are consistent with 
Section 15A(b)(5) of the Act,\9\ which requires that the rules of the 
NASD provide 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. Nasdaq 
represents that the proposed fee schedule complies with this statutory 
standard because Nasdaq will charge every member in a particular 
category or tier an amount that is related to the resources expended to 
provide the ReSource<SUP>SM</SUP> Service to such member. For instance, 
the computer system and staff resources required to provide the Service 
to a market center member with relatively high average monthly trading

[[Page 27714]]

volume is greater than that required for a member with relatively low 
average monthly trading volume.
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    \9\ 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 impose 
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

    Nasdaq did not solicit or receive written comments on the proposed 
rule change.

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,\10\ and Rule 19b-4(f)(2) thereunder,\11\ in 
that it establishes or changes a due, fee, or other charge. 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.
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFT 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 proposed rule 
change 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 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 File No. SR-NASD-2001-30 and 
should be submitted by June 8, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 01-12545 Filed 5-17-01; 8:45 am]
BILLING CODE 8010-01-M