Document ID: SEC-2007-1142-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: NASDAQ Stock Market LLC
Posted Date: 2007-08-15T04:00Z

[Federal Register: August 15, 2007 (Volume 72, Number 157)]
[Notices]               
[Page 45848-45850]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15au07-128]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56228; File No. SR-NASDAQ-2007-056]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change and Amendment No. 2 Thereto, 
To Modify Pricing for Nasdaq Members Using the Nasdaq Market Center

August 8, 2007.
    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 June 1, 2007, The NASDAQ Stock Market LLC (``Nasdaq'') filed with 
the Securities and Exchange Commission (``Commission'') the proposed 
rule change as described in Items I, II and III below, which Items have 
been prepared by Nasdaq. On July 27, 2007, Nasdaq filed Amendment No. 
1. On August 6, 2007, Nasdaq withdrew Amendment No. 1 and filed 
Amendment No. 2, which replaced the text of the original filing in its 
entirety. The Commission is publishing this notice to solicit comment 
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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to modify pricing for the Nasdaq Market Center. 
Nasdaq will make the proposed rule change effective retroactively as of 
February 12, 2007.
    The text of the proposed rule change appears below. Proposed new 
language is italicized and proposed deletions are in brackets.\3\
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    \3\ Changes are marked to the rule text that appears in the 
electronic Nasdaq Manual found at http://nasdaq.complinet.com.

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* * * * *

7013.  Consolidated Quotation Service and Exchange-Listed Securities 
Transaction Credit

    (a) No change.
    (b) Nasdaq members that trade securities listed on [the NYSE 
(``Tape A'') and] Amex (``Tape B'') through Nasdaq may receive from 
Nasdaq transaction credits based on the number

[[Page 45849]]

of transactions attributed to them. A transaction is attributed to a 
member if the transaction is executed through the Nasdaq Market Center, 
and the member acts as liquidity provider (i.e., the member sells in 
response to a buy order or buys in response to a sell order). A Nasdaq 
member may earn credits from [one or both] a pool[s] maintained by 
Nasdaq[, each pool] representing 50% of the revenue paid by the 
Consolidated Tape Association to Nasdaq for [each of Tape A and] Tape B 
transactions after deducting the amount that Nasdaq pays to the 
Consolidated Tape Association for capacity usage. A Nasdaq member may 
earn credits from the pool[s] according to the member's pro rata share 
of transactions attributed to Nasdaq members in [each of Tape A and] 
Tape B for each calendar quarter. Liquidity providers executing 
transactions in Tape B securities through the Nasdaq Market Center will 
receive credits with respect to such transactions on an estimated 
monthly basis[; all other credits under this rule will be paid on a 
quarterly basis].

7014.  [Nasdaq Market Center for Non-Nasdaq Securities] Reserved.

    [The charges to be paid by members using the Nasdaq Market Center 
for trading non-Nasdaq exchange-listed securities through the Nasdaq 
Market Center shall consist of a fixed service charge of $200 per 
member per month, transaction charges as provided in Nasdaq Rule 7018 
and equipment-related charges as provided elsewhere in the Rule 7000 
Series.]
* * * * *

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. The 
text of these statements may be examined at the places specified in 
Item III below, and is set forth in Sections A, B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Nasdaq proposes two retroactive changes to its fee schedule to 
address transition issues arising from its commencing operations as a 
national securities exchange for trading non-Nasdaq securities on 
February 12, 2007. First, Nasdaq proposes to eliminate a monthly fixed 
fee for trading non-Nasdaq securities through the Nasdaq Market Center, 
as provided in Rule 7014. That rule states that members trading such 
securities will pay a fixed service charge of $200 per member per 
month, transaction charges as provided in Nasdaq Rule 7018, and 
equipment-related charges as provided elsewhere in the Rule 7000 
Series. Prior to February 12, 2007, Nasdaq's parent corporation, The 
Nasdaq Stock Market, Inc. (``Nasdaq Inc.''), operated multiple 
platforms for trading non-Nasdaq securities, and charged a $200 monthly 
service fee under NASD rules. On February 12, 2007, Nasdaq began to 
trade non-Nasdaq securities as an exchange on a single platform, but 
Nasdaq Inc. continued to operate a separate platform for trading non-
Nasdaq securities under NASD rules until March 5, 2007. Accordingly, 
the charge under NASD rules remained in place until March 5, 2007.
    Because trading all securities on a single platform governed by a 
common set of trading rules reduces Nasdaq's costs, and because 
Nasdaq's pricing now makes few distinctions between the trading of 
Nasdaq-listed and non-Nasdaq securities, Nasdaq believes that it is 
appropriate to eliminate the $200 monthly service charge. Nasdaq seeks 
to make the change retroactive to February 12, 2007, the date when 
Nasdaq began trading these securities as an exchange. Making the change 
retroactive to February 12, 2007 will also ensure that members are not 
charged duplicative fees (a fee under NASD rules and a fee under Nasdaq 
rules) for the period from February 12, 2007 to March 5, 2007.
    The rule's reference to equipment related charges is now obsolete, 
since trading through Nasdaq is no longer reliant on equipment provided 
by Nasdaq for use on the premises of its market participants. Finally, 
although transaction charges under Rule 7018 are applicable, Nasdaq 
believes that it is unnecessary to cross-reference them in a separate 
rule. Accordingly, the rule is being deleted in its entirety.
    Second, Nasdaq proposes to correct an oversight with regard to the 
text of Rule 7013 that arose when Nasdaq began to operate as an 
exchange for trading non-Nasdaq securities on February 12, 2007. Prior 
to that time, and until March 5, 2007, Nasdaq Inc. shared market data 
revenue with NASD members trading non-Nasdaq stocks pursuant to former 
NASD Rule 7010(c)(2). For the period from February 1, 2006 through 
March 5, 2007, the text of that rule read as follows:

    NASD members that trade securities listed on the NYSE (``Tape 
A'') and Amex (``Tape B'') in over-the-counter transactions may 
receive from the NASD transaction credits based on the number of 
transactions attributed to them. A transaction is attributed to a 
member if (i) For Tape B securities, the transaction is executed 
through CAES, ITS, or Nasdaq's Brut or Inet Facilities, and the 
member acts as liquidity provider (i.e., the member sells in 
response to a buy order or buys in response to a sell order) or (ii) 
for Tape A and Tape B securities, the transaction is not executed 
through CAES, ITS, or Nasdaq's Brut or Inet Facilities, and the 
member is identified as the executing party in a trade report 
submitted to the NASD that the NASD submits to the Consolidated Tape 
Association. An NASD member may earn credits from one or both pools 
maintained by the NASD, each pool representing 50% of the revenue 
paid by the Consolidated Tape Association to the NASD for each of 
Tape A and Tape B transactions after deducting the amount that the 
NASD pays to the Consolidated Tape Association for capacity usage. 
An NASD member may earn credits from the pools according to the 
member's pro rata share of all over-the-counter transactions 
attributed to NASD members in each of Tape A and Tape B for each 
calendar quarter.

    The rule text reflected the fact that Nasdaq Inc. provided both 
electronic transaction execution systems similar to those currently 
provided by Nasdaq, and over-the-counter trade reporting services 
similar to those now provided by the NASD/NASDAQ Trade Reporting 
Facility (``TRF'') and TRFs operated by other exchanges. For both Tape 
A and Tape B securities, the rule provided for sharing of revenues 
associated with over-the-counter trade reports,\4\ but the rule 
provided for sharing of revenues associated with electronic system 
trades for Tape B securities only.\5\ The rule was amended effective 
February 1, 2006 to eliminate sharing of revenues associated with 
electronic system trades for Tape A securities.\6\
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    \4\ ``[F]or Tape A and Tape B securities, the transaction is not 
executed through CAES, ITS, or Nasdaq's Brut or Inet Facilities. * * 
*.'' ITS/CAES, Brut and Inet were electronic trading systems 
operated by Nasdaq Inc.
    \5\ ``[F]or Tape B securities, the transaction is executed 
through CAES, ITS, or Nasdaq's Brut or Inet Facilities. * * *''
    \6\ Securities Exchange Act Release No. 53256 (February 8, 
2006), 71 FR 8020 (February 15, 2006) (SR-NASD-2006-013).
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    Following transition to exchange operation on February 12, 2007, 
Nasdaq intended to maintain the status quo with respect to revenue 
sharing. Thus, NASD Rule 7001B, which applies to the NASD/NASDAQ TRF, 
continues to provide for sharing of revenues associated with over-the-
counter trade reports, on terms comparable to those provided under 
former NASD Rule 7010(c)(2). By contrast, the text of Nasdaq Rule 7013, 
which was originally adopted through Nasdaq's Form 1

[[Page 45850]]

application for registration as a national securities exchange,\7\ was 
not amended to reflect the elimination of Tape A sharing prior to the 
time when Nasdaq began to trade non-Nasdaq securities as an exchange on 
February 12, 2007. The proposed rule change will rectify this 
oversight, and thereby allow Nasdaq to maintain the status quo with 
respect to market data revenue sharing, as had been Nasdaq's intent. 
Nasdaq has not distributed any Tape A revenues for system trades.
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    \7\ Securities Exchange Act Release No. 53128 (January 13, 
2006), 71 FR 3550 (January 23, 2006) (File No. 10-131).
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2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\8\ in general, and with Section 
6(b)(4) of the Act,\9\ in particular, in that it 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 Nasdaq operates or controls. Nasdaq believes that the change will 
eliminate an unnecessary charge with respect to trading of non-Nasdaq 
securities and thereby make Nasdaq's fees for trading these securities 
more reasonable. Nasdaq further believes that the change with respect 
to revenue sharing will allow Nasdaq to maintain the status quo with 
respect to Tape A revenue sharing that had existed prior to Nasdaq 
beginning to operate as a national securities exchange for trading non-
Nasdaq securities.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
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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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) As the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, as amended; or
    B. Institute proceedings to determine whether the proposed rule 
change, as amended, should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-NASDAQ-2007-056 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2007-056. 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 on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Exchange. 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-NASDAQ-2007-056 and should be submitted on or before 
August 30, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-15965 Filed 8-14-07; 8:45 am]

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