[Federal Register Volume 66, Number 37 (Friday, February 23, 2001)]
[Notices]
[Pages 11342-11344]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-4427]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43968; File No. SR-NASD-01-05]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment Nos. 1 and 2 by the 
National Association of Securities Dealers, Inc. Relating to Access to, 
and Fees Assessed for, the Automated Confirmation and Transaction 
Service

February 15, 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 January 12, 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 February 8, 2001, Nasdaq amended the proposal.\3\ On 
February 13, 2001, Nasdaq again amended the proposal.\4\ Nasdaq filed 
the proposal pursuant to Section 19(b)(3)(A) of the Act,\5\ and Rule 
19b-4(f)(6) thereunder,\6\ which renders the proposal effective upon 
filing with the Commission. 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 February 8, 2001 letter from Jeffrey S. Davis 
(``Davis''), Assistant General Counsel, Nasdaq, to Katherine A. 
England (``England''), Assistant Director, Division of Market 
Regulation (``Division''), SEC (``Amendment No. 1''). In Amendment 
No. 1, Nasdaq converted the proposal to a non-controversial filing 
pursuant to Section 19(b)(3)(A) and Rule 19b-4(f)(6). 15 U.S.C. 
78s(b)(3)(A) and 17 CFR 240.19b-4(f)(6). Nasdaq also asked the 
Commission to waive the 30-day operative waiting period. The 
Commission considers Nasdaq's original filing as satisfying the 5-
day pre-filing notice requirement. See Rule 19b-4(f)(6)(iii). 17 CFR 
240.19b-4(f)(6)(iii). For purposes of calculating the 60-day 
abrogation period, the Commission considers the period to commence 
as of February 8, 2001, the date of the last substantive amendment 
to the proposal.
    \4\ See February 13, 2001 letter from Davis to England 
(``Amendment No. 2''). In Amendment No. 2, Nasdaq completely 
replaced the original proposed rule language with new language, to 
correct inaccuracies in the text of the proposed rule as it was 
originally filed. The new proposed rule language in Amendment No. 2 
does not change the substance of the proposal, which creates a new 
method for accessing ACT, and establishes fees for using the new 
method of access. Telephone conversation between Davis and Joseph 
Morra, Special Counsel, Division, SEC, February 13, 2001.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
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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(g) to create ``Nasdaq 
ACT,'' an internet-based means for member firms to report trades to the 
Automated Confirmation and Transaction (``ACT'') Service. Nasdaq also 
proposes to establish fees to be assessed for the use of Nasdaq ACT. 
The text of the proposed rule change is below. Proposed new language is 
in italics. Proposed deletions are in brackets.

Rule 7010  System Services
(a)-(f)  No Change.
(g)  Confirmation Transaction Service (ACT):
    Transaction Related Charges:

Comparison..............................  $0.0144/side per 100 shares
                                           (minimum 400 shares; maximum
                                           7,500 shares)
Automated Give-Up.......................  $0.01/side per 100 shares
                                           (minimum 400 shares; maximum
                                           7,500 shares)
Late Report--T+N........................  $0.288/side
Browse/query............................  $0.288/query <SUP>1</SUP>
Terminal fee............................  $57.00/month (ACT only
                                           terminals)
CTCI fee................................  $575.00/month
Nasdaq ACT..............................  $300/month (full
                                           functionality) or $150/month
                                           (up to an average of twenty
                                           transactions per day each
                                           month) <SUP>2</SUP>
Service desk............................  $57.00/month <SUP>[2]</SUP> <SUP>3</SUP>
Trade Reporting.........................  $.029/side (applicable only to
                                           reportable transaction not
                                           subject to trade comparison
                                           through ACT) <SUP>[3]</SUP> <SUP>4</SUP>
Risk Management Charges.................  $.035/side and $17.50/month
                                           per correspondent firm
 
Footnotes

[[Page 11343]]

 
<SUP>1</SUP>Each ACT query incurs the $0.288 fee; however, the first accept or
  decline processed for a transaction is free, to insure that no more
  than $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 $0.288 query charge.
<SUP>2</SUP> For the purposes of this service only, a transaction is defined as an
  original trade entry, either on trade date or as-of transactions per
  month.
<SUP>[2]</SUP> <SUP>3</SUP> The ACT service desk is available to ACT participants that: (1) do
  not have access to Nasdaq equipment and that average five or fewer
  trades per day during the previous calendar quarter; or (2) utilized
  the Nasdaq Workstation I to report trades as of June 1999, do not have
  access to Nasdaq equipment, and average 20 or fewer trades per day
  during the previous calendar quarter.
<SUP>[3]</SUP> <SUP>4</SUP> The trade reporting service charge is applicable to those trades
  input into ACT for reporting purposes only, such as NSCC Qualified
  Special Representative reports and reports of internalized
  transactions.

    (h)-(p)  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, 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 amend NASD Rule 7010(g) to create Nasdaq ACT, an 
internet-based ACT service that will permit NASD members to report 
trades to ACT. Nasdaq ACT will offer functionality that is identical to 
that offered through the current modes of reporting to ACT, as 
described below. Nasdaq also proposes to establish fees to be assessed 
for the use of Nasdaq ACT.
    ACT is the Nasdaq system used by members to report and compare 
trades for clearance and settlement, and to transmit trade reports for 
regulatory purposes and public dissemination. After members enter trade 
information into ACT (as required by NASD ACT and trade-reporting 
rules),\7\ the system sends locked-in trades to clearing. Under current 
NASD rules, members must report trades to ACT for certain transactions 
executed in the over-the-counter market, including transactions in 
Nasdaq National Market securities (``NNM''), Nasdaq SmallCap securities 
(``SmallCap''), Over-the-Counter Bulletin Board (``OTCBB'') securities, 
Nasdaq convertible debt securities, exchange-listed securities effected 
in the over-the-counter market, and securities traded exclusively in 
the over-the-counter market (e.g., Pink Sheet securities).\8\
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    \7\ See NASD Rules 4630, 4640, 4650, 6100, 6400, 6600, and 6700.
    \8\ Id.
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    There generally are three methods to report trades to ACT: (1) 
Ordering a Nasdaq Workstation II service (``NWII''); (2) using the 
Nasdaq ACT Service Desk; or (3) having another firm that has access to 
ACT through the NWII trade report (commonly known as a ``give-up'' 
relationship). Each mode of trade-report entry accomplishes the same 
result, but they have different characteristics. The NWII offers the 
full-range of ACT functionality, including entry of trade reports, ACT 
trade scan, comparison of trade reports, No/Was trade corrections, 
trade statistics, risk management requests, risk management scan, risk 
management alerts, clearing broker scan, and various clearing alerts. 
NWII is the optional delivery mechanism for large NASD members, many of 
whom use the wide-ranging functionality that it offers in addition to 
ACT.
    The ACT Service Desk was designed as a cost effective method of 
trade reporting for firms that effect very few transactions in Nasdaq 
securities or other securities traded in the over-the-counter 
market.\9\ As such, NASD rules limit participation in the ACT Service 
Desk to only those members who do not have access to Nasdaq equipment 
and who have effected an average of five or fewer trades per day during 
the previous calendar quarter.\10\ If a firm has reported more than 
five trades per day during the previous calendar quarter, the firm must 
either order a NWII to report trades or enter into a give-up 
arrangement.\11\
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    \9\ The ACT Service Desk is a phone-based service that allows 
firms to report trades over the phone to Nasdaq Market Operations 
staff, who in turn input the trades into the Act system for 
dissemination to the tape. See generally, Securities Exchange Act 
Release No. 27908 (April 17, 1990), 55 FR 15313 (April 23, 1990) 
(SR-NASD-90-15) (notice establishing ACT Service Desk).
    \10\ See footnote to NASD Rule 7010(g).
    \11\ See footnote to NASD Rule 7010(g).
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    In a ``give-up'' arrangement, a member who reports or accepts a 
trade in ACT on behalf of another member would identify in the ACT 
screen give-up box the member on whose behalf the trade was being 
reported or accepted. Where the executing broker accepts a trade that 
has been reported by another member, the reporting member would have to 
report the trade with the executing broker as the contra-side and 
identify the prime brokerage customer as the contra-side give-up. The 
executing broker may then accept the trade as presented. This would 
avoid a second trade report and ensure that the prime brokerage 
customer is identified to the NASD.
    Nasdaq Act will provide the same basic ACT features and functions 
offered through the NWII service. In the case of Nasdaq ACT, however, 
clients that use some but not all ACT functionality will have the 
opportunity to reduce their expenses by purchasing a scaled-back 
version of the service. Specifically, users will be able to purchase 
Nasdaq ACT with full ACT functionality for $300 per month per terminal. 
On the other hand, users that need only the trade entry and trade query 
function (and not risk management) and who enter an average of 20 or 
fewer trades per day per month will be assessed $150 per month per 
terminal.
    Nasdaq believes that Nasdaq ACT will be a cost-effective 
alternative for many users that are currently accessing ACT. For 
instance, clearing firms use ACT to manage their risk with their 
clients to ensure that the clients to not extend their trading activity 
beyond their ``cap'' limits. Back-office personnel use ACT to compare 
trades effected on their trading floors. These users do not take 
advantage of the quote engine or the other execution systems offered on 
NWII. In addition, some market participants may choose to use Nasdaq 
ACT to serve as a back-up or redundancy for their NWII terminals.
2. Statutory Basis
    Nasdaq believes the proposed rule change is consistent with Section 
15A(b)(6) of the Act,\12\ which requires, among other things, that the 
Association's rules must be designed to foster cooperation and 
coordination with person engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to and perfect the mechanism of a 
free and open market

[[Page 11344]]

and a national market system, and, in general to protect investors and 
the public interest. Nasdaq believes that the proposed rule change is 
consistent with the purposes of the Act in that it will provide a cost 
effective and efficient mechanism to report trades, and therefore 
facilitate clearance and settlement. Additionally, Nasdaq believes the 
proposed rule change will enhance the process by which members engage 
in the comparison and clearing of securities transactions.
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    \12\ 15 U.S.C. 78o-3(b)(6)
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    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(5) of the Act,\13\ which requires that 
the Association's rules 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 Nasdaq operates or 
controls.
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    \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

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) impose any significant burden on competition; and
    (iii) become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \14\ and 
Rule 19b-4(f)(6) \15\ thereunder. 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.\16\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ The 60-day abrogation period began February 8, 2001. See 
footnote 3, supra.
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    Nasdaq has requested that the Commission accelerate the operative 
date. The Commission finds good cause to designate the proposal to 
become immediately operative upon filing, because such designation is 
consistent with the protection of investors and the public interest. 
Acceleration of the operative date will allow member firms that wish to 
report trades to ACT via the internet to access the service 
immediately. The Commission finds no reason to require NASD members to 
wait 30 days before participating in a service that is designed to be 
both efficient and cost-effective. For these reasons, the Commission 
finds good cause to designate that the proposal become operative upon 
filing.\17\
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    \17\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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 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 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 number SR-NASD-01-05 and should be 
submitted by March 16, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
Margaret H. McFarland,
Deputy Secretary.
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    \18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 01-4427 Filed 2-22-01; 8:45 am]
BILLING CODE 8010-01-M