[Federal Register Volume 66, Number 101 (Thursday, May 24, 2001)]
[Notices]
[Pages 28767-28768]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-13162]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44321; File No. SR-NASD-2001-31]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the National 
Association of Securities Dealer, Inc. Relating to SelectNet Fees

May 18, 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 4. 2001, the Nation Association of Securities Dealers, Inc. 
(``NASD'' or ``Association''), 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 and II below, which Items have been prepared by 
Nasdaq.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons. For the reasons 
discussed below, the Commission is granting accelerated approval to the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The current proposal replaces File No. SR-NASD-2001-25, 
which NASD filed on April 2, 2001, and withdrew on April 23, 2001. 
See letter from Jeffrey S. Davis, Assistant General Counsel, Nasdaq, 
to Katherine England, Assistant Director, Division of Market 
Regulation (``Division''), Commission, dated April 20, 2001.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq proposes to retroactively extend from April 2, 2001, until 
March 31, 2002, or through the date of implementation (``Implementation 
Date'') of the Nasdaq National Market Execution System (``NNMS''), 
whichever is sooner, the pilot program under NASD Rule 7010(i), 
``SelectNet Service,'' which provides reduced fees for members who 
enter directed SelectNet orders.\4\ The current pilot program expired 
on March 31, 2001.\5\
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    \4\ On January 14, 2000, the Commission approved rule changes 
that: (1) establish the NNMS, a new platform for the trading of 
Nasdaq National Market (``NNM'') securities; (2) modify the rules 
governing the use of SelectNet for trading NNM issues; and (3) leave 
unchanged the trading of Nasdaq SmallCap securities on the Nasdaq's 
Small Order Execution System (``SOES''). See Securities Exchange Act 
Release No. 42344 (January 14, 2000), 65 FR 3987 (January 25, 2000) 
(order approving File No. SR-NASD-99-11). Nasdaq has already 
established the fees to be assessed for use of the NNMS and 
SelectNet after the NNMS begins operating. See Securities Exchange 
Act Release No. 43001 (June 30, 2000), 65 FR 42741 (July 11, 2000) 
(notice of filing and immediate effectiveness of File No. SR-NASD-
00-41) (``June 30 Notice'').
    \5\ See June 30 Notice, supra note 4. In its proposal, Nasdaq 
requests retroactive application of the fees provided under the 
pilot program, dating to the expiration of the pilot on March 31, 
2001.
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II. Self-Regulatory Organization's Statements 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 III 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
    NASD Rule 7010(i) contains a pilot program that provides reduced 
SelectNet fees for members who enter directed orders in SelectNet. The 
pilot program, which went into effect in 1998,\6\ was extended most 
recently through May 31, 2001.\7\ Nasdaq proposes to retroactively 
apply the SelectNet pricing structure provided under the pilot program 
for the period from April 2, 2001, until March 31, 2002, or the 
Implementation Date, whichever is sooner.\8\ Nasdaq notes that it 
explained the reasons for the SelectNet fee structure provided under 
the pilot program in its 1998 Notice. Since then, Nasdaq states that 
SelectNet usage has continued at elevated levels. As such, Nasdaq 
believes that an extension of the reduced SelectNet fees through the 
Implementation Date is warranted.
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    \6\ See Securities Exchange Act Release No. 39641 (February 10, 
1998), 63 FR 8241 (February 18, 1998) (File No. SR-NASD-98-06) 
(``1998 Notice''). The pilot program was originally implemented for 
a 90-day trial period, commencing the day the proposal was published 
in the Federal Register.
    \7\ See June 30 Notice, supra note 4.
    \8\ Nasdaq expects the Implementation Date to occur on July 9, 
2001. Telephone conversation between Jeffrey S. Davis, Assistant 
General Counsel, Office of the General Counsel, Nasdaq, and Yvonne 
Fraticelli, Special Counsel, Division, Commission, on May 9, 2001.
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    Under the proposed extension of the pilot program, SelectNet fees 
will continue to be assessed in the following manner: (1) $1.00 will be 
charged for each of the first 50,000 SelectNet orders entered and 
directed to one particular market participant that is subsequently 
executed in whole or in part, $.70 for the next 50,000 directed orders 
executed that same month, and $.20 for all remaining directed orders 
executed that month; (2) no fee will be charged to a member who 
receives and executes a directed SelectNet order; (3) the existing 
$2.50 fee will remain in effect for both sides of executed SelectNet 
orders that result from broadcast messages; and (4) a $0.25 fee will 
remain in effect for any member who cancels a SelectNet order.
    Beginning on the Implementation Date, Nasdaq will assess SelectNet 
fees in the following manner: \9\ (1) $.90 will be charged for each 
SelectNet order entered and directed to one particular market 
participant that is subsequently executed in whole or in part; (2) no 
fee will be charged to a member who receives and executes a directed 
SelectNet order; (3) the existing $2.50 fee will remain in effect for 
both sides of executed SelectNet orders that result from broadcast 
messages; (4) market participants will be assessed $.70 per order for 
the first 25,000 orders executed monthly, $.50 per order for the next 
25,000 orders executed monthly, and $.10 for each remaining liability 
order executed monthly; and (5) a $0.25 fee will remain in effect for 
any member who cancels a SelectNet order.
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    \9\ As noted above, Nasdaq established these fees in a previous 
proposal. See June 30 Notice, supra note 4.
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    Nasdaq will also charge the same fees for trades of Nasdaq SmallCap 
and NNM securities commencing on the Implementation Date.\10\ To 
accomplish this, Nasdaq will reduce the fees charged for trades of 
SmallCap securities through SOES. Beginning on the Implementation Date, 
fees for NNMS trades of NNM securities and SOES trades of SmallCap 
securities will be assessed in the following manner: (1) A fee of $.50 
per order executed for the first 150,000 orders executed under 2000 
shares, monthly; (2) a fee of $.30 for each remaining executed order of 
less than 2000 shares, monthly; (3) a fee of $.90 per order for all 
orders over 2000

[[Page 28768]]

shares; and (4) no fee will be charged to a member who receives an 
execution in SOES or NNMS.
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    \10\ As noted above, Nasdaq established these fees in a previous 
proposal. See June 30 Notice, supra note 4.
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2. Statutory Basis
    Nasdaq believes the proposed rule change is consistent with section 
15A(b)(5) \11\ of the Act, 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.
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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 believes that the proposed rule change will not result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purpose of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Comments were neither solicited nor received on the proposed rule 
change.

III. 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 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 
NASD. All submissions should refer to File No. SR-NASD-2001-31 and 
should be submitted by June 14, 2001.

IV. Commission's Findings and Order Granting Accelerated Approval 
of the Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities association, 
and, in particular, the requirements of section 15A of the Act.\12\ 
Specifically the Commission finds that the proposal is consistent with 
section 15A(b)(5) of the Act, which requires that the rules of a 
national securities association provide for the equitable allocation of 
reasonable dues, fees and charges among members and issuers and other 
persons using any facility or system which the association operates or 
controls.\13\
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    \12\ 15 U.S.C. 78o-3.
    \13\ 15 U.S.C. 78o-3(b)(5).
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    The Commission notes that the pilot program provided in NASD Rule 
7010(i), which establishes reduced fees for members who enter directed 
SelectNet orders, was implemented in February 1998 \14\ and was most 
recently extended through March 31, 2001.\15\
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    \14\ See 1998 Notice, supra note 6.
    \15\ See June 30 Notice, supra note 4.
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    The Commission finds that it is consistent with the Act to permit 
retroactive application of the pilot program from the expiration of the 
current pilot program and to extend the pilot program through March 31, 
2002, or the Implementation Date, whichever is sooner, to allow market 
participants to continue to receive the benefit of the reduced Select 
Net fees provided under the pilot program.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day after the date of publication of notice 
thereof in the Federal Register.\16\ Specifically, the Commission notes 
that accelerated approval of the proposal will allow the pilot program 
to continue without interruption. Accordingly, the Commission finds 
that it is consistent with sections 15A(b)(5) \17\ and 19(b) \18\ of 
the Act to approve the proposal on an accelerated basis.
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    \16\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f)
    \17\ 15 U.S.C. 78o-3(b)(5).
    \18\ 15 U.S.C. 78s(b).
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V. Conclusion

    It is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-NASD-2001-31), as amended, 
is hereby approved on an accelerated basis.
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    \19\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-2(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 01-13162 Filed 5-23-01; 8:45 am]
BILLING CODE 8010-01-M