3014 Federal Register / Vol. 60, No. 8 / Thursday, January 12, 1995 / Notices

1The computer facilities that support the

provisions of NWII are operated by The Nasdaq

Stock Market, Inc. (‘‘NSMI’’), a wholly owned

subsidiary of the NASD.

2The NWII roll-out will occur in five phases with

the final phase scheduled for completion in mid1996. Each phase consists of installing NWII at all

subscriber sites in a defined geographic area. Thus,

while the roll-out proceeds, some subscribers will

continue to utilize NWI and will pay the existing

charges for that service.

[Release No. 34–35189; File No. SR–NASD–

94–76]

Self-Regulatory Organizations; Notice

and Immediate Effectiveness of

Proposed Rule Change by National

Association of Securities Dealers, Inc.,

Relating to Subscriber Fees for

Nasdaq Workstation II and SystemsRelated Testing Fees

January 3, 1995.

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 14, 1994,

the National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

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 the NASD. The

NASD has designated this proposal as

one establishing or changing a fee under

Section 19(b)(3)(A(ii) of the Act, which

renders the rule effective upon the

Commission’s receipt of this filing. 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

Pursuant to Section 19(b)(1) of the Act

and Rule 19b–4 thereunder, the

following is the full text of a proposed

rule change that will revise the fee

structure applicable to NASD members

receiving the second generation of

Nasdaq WorkstationΤΜ Service

(hereinafter referred to as ‘‘NWII’’)

functionality.1 Additionally, the NASD

is proposing to implement fees that

member firms would pay to test certain

communications interfaces. The

proposed fees would take effect on

January 1, 1995 and be reflected in

Sections A(9) and E(5), respectively, of

Part VIII of Schedule D to the NASD ByLaws. The full text of the proposed rule

change is set forth below. (New

language is underlined and deletions are

bracketed.)

Part VIII—Schedule of NASD Charges

for Services and Equipment

a. System Services

* * * * *

9. Nasdaq WorkstationΤΜ Service

* * * * *

The following charges shall apply to

the receipt of Level 2 or Level 3 Nasdaq

Service via equipment and

communications linkages prescribed for

the Nasdaq Workstation II service.

Service Charge—$100/month per server

Display Charge—$500/month per

presentation device

Additional Circuit—$1,150 per month

* * * * *

E. Other Services

1. No change.

2. No change.

3. No change.

4. Testing Services.

Subscribers that conduct tests of their

computer-to-computer interface

(‘‘CTCI’’) or digital interface (‘‘DIS/

CHIPS’’) with the central processing

facilities of The Nasdaq Stock Market,

Inc. (‘‘NSMI’’) shall pay the following

charges:

$285/hour—For CTCI/DIS/CHIPS

testing between 9:00 a.m. and 5:00

p.m. E.T. on business days;

$333/hour—For testing at all other times

on business days, or on weekends and

holidays.

The foregoing fees shall not apply to

testing occasioned by (i) new or

enhanced services and/or software

provided by NSMI or (ii)

modifications to software and/or

services initiated by NSMI in response

to a contingency.

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 rule change is to

amend the subscriber fees applicable to

NASD member firms that use the NWII

to support their trading in The Nasdaq

Stock Market (‘‘Nasdaq’’) and/or the

OTC Bulletin (‘‘OTCBB’’) component of

the over-the-counter (‘‘OTC’’) equities

market. The rule change also would

establish a new category of fees to be

paid by member firms (either directly or

through billings from their service

bureaus) for testing communication

interfaces with central processing

facilities that support Nasdaq.

The roll-out of NWII, which began in

November, 1994, constitutes a

significant milestone in the upgrade of

hardware, software, and network

facilities that comprise the

infrastructure of Nasdaq. The software

driving NWII is windows-based and

provides several data management

features that are not available in the

original version of Nasdaq Workstation

service (hereinafter referred to as

‘‘NWI’’). Moreover, a new network—

known as the Enterprise Wide Network

(‘‘EWN’’)—has been developed to

deliver NWII functionality. The capacity

of the EWN is more than five times that

of the network developed for NWI (i.e.,

56,000 baud versus 9,600 baud). Since

the NWII roll-out has now begun, it is

appropriate to implement service fees

calculated to recover the higher costs of

operating and maintaining the NWII

functionality and the EWN.2

Under the NWII, each subscriber

location will have at least one service

delivery platform or server that resides

on the EWN. (The server functions as

the subscriber’s gateway to the EWN.)

Each server will be capable of

supporting up to eight presentation

devices (i.e., Workstations). To recover

the operational and maintenance costs

associated with providing NWII, the

proposed fee structure would establish

a charge of $100/month per server and

a charge of $500/month for each

workstation or presentation device

linked to that server. Thus, an NWII

subscriber with 8 Workstations and 1

server would pay $4,100/month under

the proposed fee structure. Although it

is possible to support as many as eight

Workstations on a single server, and

NWII subscriber might wish to configure

its operating environment, for example,

with two servers, each supporting 4

Workstations. In this circumstance, the

subscriber would pay $1,150/month for

the second circuit at the same location,

$200/month for the two servers, and

$4,000/month for receipt of NWII

functionality on 8 Workstations. The

proposed fees are premised on the

assumption that a subscriber will

maximize the capacity of each server

before adding a second

telecommunications circuit and server.

However, if a firm elects to add servers

and circuits without maximizing, that

firm will bear the additional circuit cost

of $1150/month which constitutes a
Federal Register / Vol. 60, No. 8 / Thursday, January 12, 1995 / Notices 3015

3NWI and NWII both permit the deliver of either

Level 2 or Level 3 Nasdaq service. Subscription to

Level 3 is limited to NASD members that meet the

financial and operational requirements for market

making. Subscription to Level 2 Nasdaq service is

open to non-members as well as members because

it does not provide the functionality needed to enter

quotations as a market maker. Extension of the

NWII fees to non-member subscribers will be the

subject of a separate Rule 19b–4 filing. Meanwhile,

any non-members converted to NWII will continue

to pay the prevailing rate for NWI functionality.

4 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1) (1988).

pass-through of the actual cost borne by

NSMI.

Regarding the proposed testing fees,

these have been calculated to recover

NSMI’s actual costs in accommodating

members’ requests for testing of

specialized communications interfaces

with NSMI’s central processing

facilities. Typically, such testing occurs

when new broker-dealer subscribers are

added to an existing computer-tocomputer interface (‘‘CTCI’’) maintained

by a service bureau or when a brokerdealer (with its own digital interface)

has effected a major change in its

internal systems/software applications.

The scope, purpose, and longevity of the

test are determined by the subscriber.

NSMI participates in the testing process

by providing a test environment that

closely approximates the production

environment for the service(s) which the

subscriber wishes to test (e.g., the

Automated Transaction (‘‘ACT’’)

service). Derivation of the testing fees

involved a review of NSMI testing logs

for 1993; the computation of direct and

indirect costs allocable to tests actually

performed; and the breakdown of those

costs into hourly rates. In sum, the

proposed testing fees would passthrough the actual costs incurred by

NSMI in accommodating subscribers’

testing needs. No testing fee would be

assessed in circumstances where major

systems/software change instituted by

NSMI have prompted the subscriber’s

test.

The NASD believes 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. It should be noted that the

proposed NWII fees will be payable

exclusively by NASD member firms that

receive Level 2 or Level 3 Nasdaq

service via the NWII offering. As

described earlier, NWII is being

implemented in phases with all current

NWI subscribers in a defined area being

converted to NWII.3 Thus, beginning

January 1, 1995, all NASD members that

are converted to NWII will be liable for

the new fees; NWI subscribers will

continue to pay the NWI service fees

until they are coverted.

The NASD believes that the proposed

NWII fees are reasonable in that they

were calculated to recover the projected

costs of operating and maintaining the

NWII software, hardware, and the EWN.

The development costs associated with

NWII have been expensed by NSMI and

will not be recovered through the

proposed NWII fees. Although higher

than the existing fees for NWI, the NWII

fees are believed reasonable that

subscribers will be provided the

increased functionality embedded in the

new software package, increased

network capacity to accommodate

future growth in traffic and business

volume, and upgraded hardware

capable of more rapid processing of

message traffic to and from market

participants.

Regarding the proposed testing fees,

these have been calculated to recover

the actual costs incurred by NSMI to

accommodate the testing requirements

of CTCI and digital interface

subscribers. All entities that would be

required to pay these testing fees are

either NASD members or service

bureaus that incur testing charges will

pass them on to their broker-dealer

customers. Hence, the affected NASD

members will ultimately pay the testing

charge incurred by their service

bureaus.

Based on the foregoing factors, the

NASD submits that both categories of

proposed fees are reasonable and

designed to achieve an equitable

allocation of operating costs among

NASD members utilizing the affected

NSMI services.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The NASD believes that the proposed

rule change will not result in 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

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)(ii) of the Act and

subparagraph (e) of Rule 19b–4

thereunder, because the proposal

constitutes a change in a ‘‘due, fee or

other charge’’ or specific automated

services provided 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 NW.,

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 will 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 and should

be submitted by February 2, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.4

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–716 Filed 1–11–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35193; File No. SR–PSE–

94–27]

Self-Regulatory Organizations; Pacific

Stock Exchange Incorporated; Notice

of Filing of Proposed Rule Change

Relating to Implementation of a ThreeDay Settlement Standard

January 4, 1995.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

December 19, 1994, the Pacific Stock

Exchange Incorporated (‘‘PSE’’) filed

with the Securities and Exchange