Document ID: SEC-2005-0401-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2005-12-19T05:00Z

[Federal Register: December 19, 2005 (Volume 70, Number 242)]
[Notices]               
[Page 75231-75233]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19de05-91]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52938; File No. SR-NASD-2005-138]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Order Granting Accelerated Approval 
of Proposed Rule Change To Modify the Pricing for Non-Members Using 
Nasdaq's Brut Facility

December 9, 2005.
    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 November 22, 2005, the National Association of Securities Dealers, 
Inc. (``NASD''), through its subsidiary, The Nasdaq Stock Market, Inc. 
(``Nasdaq''), filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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, and at the same time is granting accelerated 
approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    Nasdaq proposes to modify the pricing for non-members using 
Nasdaq's Brut Facility (``Brut''). Nasdaq requests approval to 
implement the proposed rule change retroactively for a pilot period 
running from December 1, 2005 through December 31, 2005. The text of 
the proposed rule change is below. Proposed new language is in italics. 
Proposed deletions are in [brackets].
* * * * *

7010. System Services

    (a)-(h) No change.
    (i) Nasdaq Market Center and Brut Facility Order Execution
    (1)-(5) No change.
    (6) The fees applicable to non-members using Nasdaq's Brut Facility 
shall be the fees established for members under Rule 7010(i), as 
amended by SR-NASD-2005-019, SR-NASD-2005-035, SR-NASD-2005-048, and 
SR-NASD-2005-071, [and] SR-NASD-2005-125, and SR-NASD-2005-137, and as 
applied to non-members by SR-NASD-2005-020, SR-NASD-2005-038, SR-NASD-
2005-049, SR-NASD-2005-072, [and] SR-NASD-2005-126, and SR-NASD-2005-
138.
    (j)-(v) 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 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
    In SR-NASD-2005-137, which applies to NASD members, Nasdaq modified 
its fee schedule for transaction executions in certain stocks listed on 
markets other than Nasdaq by creating a pilot program under which 
liquidity providers (i.e., market participants that put quotes or 
orders that are accessed by incoming orders) may receive a credit of 
$0.0005 per share executed.\3\ In this filing, Nasdaq is proposing to 
apply the same modification to non-NASD members that use Nasdaq's Brut 
Facility.
---------------------------------------------------------------------------

    \3\ Telephone conversation between John Yetter, Associate 
General Counsel, Exchange, and David Liu and Michou Nguyen, 
Attorneys, Division of Market Regulation, Commission, on December 6, 
2005.
---------------------------------------------------------------------------

    Nasdaq currently offers a liquidity provider credit with respect to 
securities whose primary listing is on Nasdaq, and its credit for 
transactions in exchange-traded funds (``ETFs'') listed on the American 
Stock Exchange (``Amex'') was recently extended to ETFs listed on other 
exchanges.\4\ Nasdaq notes that, with the exception of ETFs, however, 
such a credit has not been offered with respect to stocks whose primary 
listing is not on Nasdaq.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release Nos. 52757 (November 9, 
2005), 70 FR 69791 (November 17, 2005) (SR-NASD-2005-125); and 52758 
(November 9, 2005), 70 FR 69793 (November 17, 2005) (SR-NASD-2005-
126).
---------------------------------------------------------------------------

    Nasdaq states that with the enhanced opportunities for electronic 
trading of non-Nasdaq listed stocks occasioned by market participant 
demand and upcoming regulatory changes, however, it expects that new 
competitive opportunities will develop for Nasdaq and other electronic 
venues. Nasdaq believes that the quality of executions that it can 
offer in such an environment will depend on the degree to which market 
participants in a position to provide liquidity opt to do so through 
Nasdaq. Because the market for executions of these stocks has not yet 
been subject to vigorous competition, and because the balance between 
the cost of providing credits and the revenue growth associated with 
increased liquidity provision has therefore not been tested in a fully 
competitive environment, Nasdaq believes that a pilot program, 
consisting of a modest $0.0005 per share credit paid with respect to a 
limited number of stocks, would allow an assessment of the costs and 
benefits of the credit to Nasdaq and its market participants. Nasdaq 
represents that the forty stocks selected for inclusion in the pilot 
program \5\ are all stocks whose

[[Page 75232]]

propensity to trade on electronic venues, high daily trading volumes, 
and large market capitalizations may correlate with a relatively high 
degree of price elasticity with regard to liquidity provision.
---------------------------------------------------------------------------

    \5\ Advanced Micro Devices Inc. (AMD); Apache Corp. (APA); AT&T 
Corp. (T); Avaya, Inc. (AV); Baker Hughes, Inc. (BHI); BJ Services 
Co. (BJS); Bristol-Myers Squibb Co. (BMY); Burlington Resources, 
Inc. (BR); Calpine Corp. (CPN); Charles Schwab Corp. (SCH); 
Citigroup Inc. (C); ConocoPhillips (COP); Corning Inc. (GLW); Devon 
Energy Corp. (DVN); EMC Corp. (EMC); Exxon Mobil Corp. (XOM); Ford 
Motor Co. (F); Gateway, Inc. (GTW); General Electric Co. (GE); 
Halliburton Co. (HAL); Hewlett-Packard Co. (HPQ); Johnson & Johnson 
(JNJ); JPMorgan Chase & Co. (JPM); Kohl's Corp. (KSS); LSI Logic 
Corp. (LSI); Micron Technology, Inc. (MU); Motorola, Inc. (MOT); 
Noble Corp. (NE); Occidental Petroleum Corp. (OXY); Office Depot 
Inc. (ODP); Pfizer Inc. (PFE); Phelps Dodge Corp. (PD); Pulte Homes, 
Inc. (PHM); Qwest Communications International Inc. (Q); 
Schlumberger Ltd. (SLB); Solectron Corp. (SLR); Sovereign Bancorp, 
Inc. (SOV); Time Warner, Inc. (TWX); Valero Energy Corp. (VLO); and 
Verizon Communications, Inc. (VZ).
---------------------------------------------------------------------------

    Nasdaq plans to run the pilot for a period of at least three 
months; however, because the authority for this proposal provided by 
the Nasdaq Board of Directors runs only through December 31, 2005, the 
pilot period covered by this filing is one month. Upon obtaining Board 
approval for a longer pilot, which Nasdaq expects to receive in 
December 2005, Nasdaq plans to file to extend the pilot through 
February 28, 2006.\6\ Nasdaq states that, based on information received 
regarding the trading characteristics of the forty stocks included in 
the pilot, it would then determine whether to submit a proposed rule 
change to extend the pilot further, modify the level of the liquidity 
provider credit, and/or offer a credit with respect to additional 
stocks.
---------------------------------------------------------------------------

    \6\ Telephone conversation between John Yetter, Associate 
General Counsel, Exchange, and Michou Nguyen, Attorney, Division of 
Market Regulation, Commission, on December 7, 2005.
---------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\7\ in general, and with 
Section 15A(b)(5) of the Act,\8\ in particular, in that the proposed 
rule change provides 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. The 
proposed rule change applies to non-members that use Nasdaq's Brut 
Facility a fee change that is being implemented for NASD members that 
use the Nasdaq Market Center and/or Nasdaq's Brut Facility. 
Accordingly, Nasdaq believes that the proposed rule change promotes an 
equitable allocation of fees between members and non-members using 
Nasdaq's order execution facilities. Nasdaq believes that the proposed 
change will institute a liquidity provider credit available to all 
market participants that opt to provide liquidity through Nasdaq or 
Brut to support executions in any of forty stocks included in the pilot 
program.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78o-3.
    \8\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------

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.

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

    Nasdaq states that written comments were neither solicited nor 
received.

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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NASD-2005-138 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.

All submissions should refer to File Number SR-NASD-2005-138. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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 also will be available for inspection and copying at the 
principal office of the NASD. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NASD-2005-138 and should be submitted on or before 
January 9, 2006.

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

    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 self-regulatory organization.\9\ 
Specifically, the Commission believes that the proposed rule change is 
consistent with Section 15A(b)(5) of the Act,\10\ which requires that 
the rules of the self-regulatory organization provide for the equitable 
allocation of reasonable dues, fees, and other charges among members 
and issuers and other persons using any facilities or system which it 
operates or controls.
---------------------------------------------------------------------------

    \9\ The Commission has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \10\ 15 U.S.C. 78o-3(b)(5).
---------------------------------------------------------------------------

    The Commission notes that this proposal would retroactively modify 
pricing for non-NASD members using the Nasdaq's Brut Facility to be 
implemented on a pilot basis running from December 1, 2005 to December 
31, 2005. This proposal would permit the schedule for non-NASD members 
to mirror the schedule applicable to NASD members that became effective 
November 22, 2005, pursuant to SR-NASD-2005-137 and that Nasdaq stated 
it would implement on a pilot basis from December 1, 2005 to December 
31, 2005.
    The Commission finds good cause for approving the proposed rule 
change prior to the 30th day of the date of publication of the notice 
thereof in the Federal Register. The Commission notes that the proposed 
fees for non-NASD members are identical to those in SR-NASD-2005-137, 
which implemented those fees for NASD members and which became 
effective as of November 22, 2005. The Commission notes that this 
change will promote consistency in Nasdaq's fee schedule by applying 
the same pricing schedule with the same date of effectiveness for both 
NASD members and non-NASD members. Therefore, the Commission finds that 
there is good cause, consistent with Section 19(b)(2) of the Act,\11\ 
to approve

[[Page 75233]]

the proposed change on an accelerated basis.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (File No. SR-NASD-2005-138), is 
approved on an accelerated basis.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jonathan G. Katz,
Secretary.
[FR Doc. E5-7482 Filed 12-16-05; 8:45 am]

BILLING CODE 8010-01-P