Document ID: SEC-2006-1148-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-09-05T04:00Z

[Federal Register: September 5, 2006 (Volume 71, Number 171)]
[Notices]               
[Page 52358-52361]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05se06-59]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54375; File No. SR-NASD-2006-092]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Regarding the Pricing Schedule for NASD Members Using the 
ITS/CAES System, Brut, and Inet To Trade Securities Not Listed on The 
NASDAQ Stock Market LLC

August 28, 2006.
    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 July 31, 2006, 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, II, 
and III below, which Items have been prepared by Nasdaq. Nasdaq filed 
the proposed rule change pursuant to Section 19(b)(3)(A)(ii) of the 
Act,\3\ and Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to modify the pricing for NASD members using the 
ITS/CAES System and Brut and Inet (``Nasdaq Facilities'') to trade 
securities that are not listed on The NASDAQ Stock Market LLC (``Nasdaq 
Exchange'').\5\ Nasdaq states that it will implement the proposed rule 
change on August 1, 2006. The text of the proposed rule change is set 
forth below. Proposed new language is in italics; proposed deletions 
are in [brackets].\6\
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    \5\ The Commission notes that Nasdaq filed a proposed rule 
change to apply the same pricing change to non-members. See 
Securities Exchange Act Release No. 54376 (August 28, 2006) (File 
No. SR-NASD-2006-093).
    \6\ Nasdaq states that changes are marked to the rule text that 
appears in the electronic NASD Manual found at http://www.nasd.com, as 

further amended on an immediately effective basis by SR-NASD-2006-
078 (June 30, 2006). See Securities Exchange Act Release No. 54268 
(August 3, 2006), 71 FR 45882 (August 10, 2006). Nasdaq states that 
prior to the date when the Nasdaq Exchange begins to trade 
securities that are not listed on the Nasdaq Exchange, the Nasdaq 
Exchange will file a conforming change to the rules of the Nasdaq 
Exchange. The rules of the Nasdaq Exchange are found at 
http://www.complinet.com/nasdaq.

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7010. System Services

    (a)-(h) No change.
    (i) [Nasdaq Market Center]ITS/CAES System, Brut, and Inet Order 
Execution and Routing
    (1) The following charges shall apply to the use of the order 
execution and routing services of the [Nasdaq Market Center]ITS/CAES 
System, Brut, and Inet (the ``Nasdaq Facilities'') by members for all 
[Nasdaq-listed securities subject to the Nasdaq UTP Plan and for] 
Exchange-Traded Funds that are not listed on The NASDAQ Stock Market 
LLC [Nasdaq]. The term ``Exchange-Traded Funds'' shall mean Portfolio 
Depository Receipts, Index Fund Shares, and Trust Issued Receipts as 
such terms are defined in Rule 4420(i), (j), and (l), respectively, of 
The NASDAQ Stock Market LLC. For purposes of determining a member's 
volume in all securities under Rule 7010(i), the term ``Nasdaq 
Facilities'' shall also be deemed to include the member's volume in 
Nasdaq-listed securities through the facilities of The NASDAQ Stock 
Market LLC.

Order Execution:
    Order that accesses the Quote/Order
     of a market participant that does
     not charge an access fee to market
     participants accessing its Quotes/
     Orders through the Nasdaq
     Facilities:
    Charge to member entering order:
        Members with an average daily    $0.0028 per share executed (or,
         volume through the Nasdaq        in the case of executions
         Facilities in all securities     against Quotes/Orders at less
         during the month of (i) more     than $1.00 per share, 0.1% of
         than 30 million shares of        the total transaction cost).
         liquidity provided, and (ii)
         more than 50 million shares of
         liquidity accessed and/or
         routed; or members with an
         average daily volume through
         the Nasdaq Facilities in all
         securities during the month of
         (i) more than 20 million
         shares of liquidity provided,
         and (ii) more than 60 million
         shares of liquidity accessed
         and/or routed.
    Other members......................  $0.0030 per share executed (or,
                                          in the case of executions
                                          against Quotes/Orders at less
                                          than $1.00 per share, 0.1% of
                                          the total transaction cost).
    Credit to member providing
     liquidity:
        Members with an average daily    $0.0025 per share executed (or
         volume through the Nasdaq        $0, in the case of executions
         Facilities in all securities     against Quotes/Orders at less
         during the month of more than    than $1.00 per share).
         30 million shares of liquidity
         provided.
        Other members..................  $0.0020 per share executed (or
                                          $0, in the case of executions
                                          against Quotes/Orders at less
                                          than $1.00 per share).

[[Page 52359]]

    Order that accesses the Quote/Order
     of a market participant that
     charges an access fee to market
     participants accessing its Quotes/
     Orders through the Nasdaq
     Facilities:
    Charge to member entering order:
        Members with an average daily    $0.001 per share executed (but
         volume through the Nasdaq        no more than $10,000 per
         Facilities in all securities     month).
         during the month of more than
         500,000 shares of liquidity
         provided.
        Other members..................  $0.001 per share executed.
[Order Routing for Nasdaq-Listed
 Securities]:
    [Any order entered by a member that  [The greater of (i) $0.004 per
     is routed outside of the Nasdaq      share executed or (ii) a pass-
     Facilities and that does not         through of all applicable
     attempt to execute in the Nasdaq     access fees charged by
     Facilities prior to routing].        electronic communications
                                          networks that charge more than
                                          $0.003 per share executed].
    [Any other order entered by a
     member that is routed outside of
     the Nasdaq Facilities:]
        [Members with an average daily   [The greater of (i) $0.0028 per
         volume through the Nasdaq        share executed or (ii) a pass-
         Facilities in all securities     through of all applicable
         during the month of (i) more     access fees charged by
         than 30 million shares of        electronic communications
         liquidity provided, and (ii)     networks that charge more than
         more than 50 million shares of   $0.003 per share executed].
         liquidity accessed and/or
         routed; or members with an
         average daily volume through
         the Nasdaq Facilities in all
         securities during the month of
         (i) more than 20 million
         shares of liquidity provided,
         and (ii) more than 60 million
         shares of liquidity accessed
         and/or routed].
        [Other members]................  [The greater of (i) $0.0030 per
                                          share executed or (ii) a pass-
                                          through of all applicable
                                          access fees charged by
                                          electronic communications
                                          networks that charge more than
                                          $0.003 per share executed].
Order Routing for Exchange-Traded Funds
 Not Listed On Nasdaq:
    Order routed to the New York Stock   See DOT fee schedule in Rule
     Exchange (``NYSE'') through its      7010(i)[(6)] (7).
     DOT system.
    Any other order entered by a member  $0.004 per share executed.
     that is routed outside of the
     Nasdaq Facilities and that does
     not attempt to execute in the
     Nasdaq Facilities prior to routing.
    Order routed to the American Stock   $0.003 per share executed
     Exchange (``Amex'') after            (plus, in the case of orders
     attempting to execute in the         charged a fee by the Amex
     Nasdaq Facilities.                   specialist, $0.01 per share
                                          executed).
    Order routed through the             $0.0007 per share executed.
     Intermarket Trading System
     (``ITS'') after attempting to
     execute in the Nasdaq Facilities.
    Order routed to venues other than    $0.003 per share executed.
     the NYSE and Amex after attempting
     to execute in the Nasdaq
     Facilities.

    (2) No change.
    (3) [Closing Cross] Reserved

[Market-on-Close and Limit-on-Close      [$0.0005 per share executed].
 orders executed in the Nasdaq Closing
 Cross].
[All other quotes and orders executed    [No charge for execution].
 in the Nasdaq Closing Cross].

    (4) [Opening Cross] Reserved
    [Members shall be assessed the following Nasdaq Market Center 
execution fees for quotes and orders executed in the Nasdaq Opening 
Cross:]

[Market-on-Open, Limit-on-Open, Good-    [$0.0005 per share executed for
 till-Cancelled, Immediate-or-Cancel,     the net number of buy and sell
 and Day orders executed in the Nasdaq    shares up to a maximum of
 Opening Cross].                          $10,000 per firm per month].
[All other quotes and orders executed    [No charge for execution].
 in the Nasdaq Opening Cross].

    (5) [IPO/Halt Cross] Reserved
    [Members shall be assessed the following Nasdaq Market Center 
execution fees for quotes and orders executed in the Nasdaq IPO/Halt 
Cross:]

[All quotes and orders executed in the   [$0.0005 per share executed].
 Nasdaq IPO/Halt Cross].

    (6) Except as provided in paragraph (7), the following charges 
shall apply to the use of the order execution and routing services of 
the Nasdaq Facilities by members for securities subject to the 
Consolidated Quotations Service and Consolidated Tape Association plans 
other than Exchange-Traded Funds (``Covered Securities''):

Order Execution:
    Order that accesses the Quote/Order  ...............................
     of a Nasdaq Facility market
     participant:
    Charge to member entering order....  $0.0007 per share executed.
    Credit to member providing           $0.0007 per share executed.
     liquidity for a Covered Security
     listed on NYSE and The NASDAQ
     Stock Market LLC:.

[[Page 52360]]

    Credit to a member providing         ...............................
     liquidity for other Covered
     Securities.
    Members with an average daily        $0.0005 per share executed.
     volume through the Nasdaq
     Facilities in Covered Securities
     during the month of more than 5
     million shares of liquidity
     accessed, provided, or routed but
     less than 10 million shares of
     liquidity provided.
    Members with an average daily        $0.0006 per share executed.
     volume through the Nasdaq
     Facilities in Covered Securities
     during the month of 10 million or
     more shares of liquidity provided.
    Other members......................  No credit.
Order Routing:
    Order routed to Amex...............  $0.003 per share executed
                                          (plus, in the case of orders
                                          charged a fee by the Amex
                                          specialist, $0.01 per share
                                          executed).
    Order routed through the ITS.......  $0.0007 per share executed.
    Order routed to NYSE...............  See DOT fee schedule in Rule
                                          7010(i)(7).
    Order for NYSE-listed Covered        $0.001 per share executed.
     Security routed to venue other
     than the NYSE.
    Order for Covered Security listed    $0.003 per share executed.
     on venue other than the NYSE and
     routed to venue other than Amex.

    (7) The following [classes] charges shall apply to the use of the 
Nasdaq Facilities by members for routing to the NYSE through its DOT 
system for all securities, including Exchange-Traded Funds:

Order charged a fee by the NYSE          $0.01 per share executed.
 specialist.
Order that attempts to execute in the    [No charge] $0.0002 per share
 Nasdaq Facilities prior to routing and   executed (but no more than
 that is not charged a fee by the NYSE    $60,000 per month).
 specialist.
Order that does not attempt to execute   $0.0003 per share executed.
 in the Nasdaq Facilities prior to
 routing and that is not charged a fee
 by the NYSE specialist[:].
    [Average daily shares of liquidity   ...............................
     routed through Nasdaq's DOT
     linkage by the member during the
     month:]
        [More than 30 million].........  [$0.0001 per share executed].
        [Between 2,000,001 and 30        [$0.0003 per share executed].
         million].
        [Between 250,001 and 2 million]  [$0.0005 per share executed].
        [Between 100,001 and 250,000]..  [$0.001 per share executed].
        [100,000 or less]..............  [$0.01 per share executed].

    (8) When a market participant enters an order into Nasdaq's Brut or 
Inet systems that is sent to an ITS/CAES System [Nasdaq Market Center] 
market participant that charges an access fee to Brut or Inet, the 
market participant entering the order shall be charged (i) the 
applicable execution fee of the Nasdaq Facilities, or (ii) in the case 
of executions against Quotes/Orders at less than $1.00 per share, a 
pass-through of the access fee charged to Brut or Inet.
    (9) No change.
    (j)-(y) 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
Transition to Operation of the Nasdaq Exchange
    Nasdaq proposes to amend NASD Rule 7010(i), which has historically 
contained the fees for the trading systems of The Nasdaq Stock Market, 
to reflect the Nasdaq Exchange's commencing operations for trading of 
securities listed on the Nasdaq Exchange. During a transitional period, 
the Nasdaq Exchange will operate for its own listed stocks, while The 
Nasdaq Stock Market, Inc. continues to operate under authority 
delegated by NASD to provide quotation, execution, and trade reporting 
services for non-Nasdaq listed securities. Nasdaq states that the Brut 
and Inet platforms owned by Nasdaq will be operated as facilities of 
the Nasdaq Exchange for purposes of trading Nasdaq-listed securities, 
and as facilities of NASD for purposes of trading non-Nasdaq 
securities. Accordingly, Nasdaq is amending NASD Rule 7010(i) to remove 
fees and credits associated with trading Nasdaq-listed stocks, which 
are now contained in Rule 7018 of the Nasdaq Exchange.\7\ Nasdaq states 
that NASD Rule 7010(i) would continue to govern fees and credits for 
the ITS/CAES System (formerly the Nasdaq Market Center) operated by 
Nasdaq for trading non-Nasdaq securities, as well as Brut and Inet to 
the extent that they are used for trading non-Nasdaq securities. The 
ITS/CAES System, Brut and Inet are collectively referred to in the 
proposed rule as the Nasdaq Facilities.
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    \7\ See Securities Exchange Act Release No. 54285 (August 8, 
2006) (File No. SR-NASDAQ-2006-023) (notice of filing and immediate 
effectiveness of proposed rule change regarding technical and 
conforming changes to Nasdaq Rule 7018). Telephone conversation 
among John Yetter, Senior Associate General Counsel, Nasdaq, David 
Liu, Special Counsel, Division of Market Regulation (``Division''), 
Commission, and Theodore S. Venuti, Attorney, Division, Commission, 
on August 14, 2006.
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    Nasdaq states that, because the level of some of the current fees 
for transactions in non-Nasdaq stocks depends upon a market 
participant's monthly transaction volume in all securities (i.e., 
Nasdaq-listed and non-Nasdaq listed), Nasdaq is adding a sentence to 
the proposed rule to provide that, for purposes of determining a 
member's volume in all securities under NASD Rule 7010(i), the term 
``Nasdaq Facilities,'' shall also be deemed to

[[Page 52361]]

include the member's volume in Nasdaq-listed securities traded through 
the facilities of the Nasdaq Exchange (i.e., the Nasdaq Market Center, 
Brut and Inet). Nasdaq states that this clarification is necessary to 
ensure that fees and credits for trading non-Nasdaq securities remain 
at their current levels during the transitional period before the 
Nasdaq Exchange begins to trade non-Nasdaq securities.
Fee Changes
    Nasdaq also proposes to change its fees for routing orders to the 
New York Stock Exchange (``NYSE'') through its DOT system. NYSE 
recently announced that it would impose a significant fee increase on 
broker-dealers, such as Nasdaq's Brut broker-dealer, that route orders 
to the NYSE floor through DOT, effective August 1, 2006.\8\ Nasdaq 
states that as a result, it must pass these increased costs through to 
market participants that make use of the routing service. Specifically, 
for orders that attempt to execute in the Nasdaq Facilities prior to 
routing and that are not charged a fee by the NYSE specialist,\9\ 
Nasdaq is proposing a charge of $0.0002 per share executed; however, 
the total fee for all such orders routed during a month is capped at 
$60,000. For orders that are routed through DOT but that do not attempt 
to execute in the Nasdaq Facilities, the routing fee is $0.0003 per 
share executed, with no cap.
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    \8\ See Securities Exchange Act Release No. 54142 (July 13, 
2006), 71 FR 41493 (July 21, 2006) (File No. SR-NYSE-2006-46). 
Effective August 1, 2006, the NYSE is imposing a new charge of 
$0.00025 per share executed, subject to a monthly cap of $750,000.
    \9\ Nasdaq states that the NYSE specialist fees are distinct 
from the new DOT fees imposed by the NYSE itself. Specialist fees 
are generally imposed when orders routed to the NYSE remain 
unexecuted for a period of time. The routing fee for orders that are 
charged by the specialist remains $0.01 per share executed.
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    Finally, to encourage greater liquidity provision with respect to 
securities that are listed on both the NYSE and the Nasdaq Exchange, 
Nasdaq proposes to increase the credit to liquidity providers in these 
securities, from $0.0005 or $0.0006 per share executed (depending on 
the member's volume) to $0.0007 per share executed. Nasdaq believes 
that the change would promote greater competition between Nasdaq and 
NYSE and enhance market quality with respect to Nasdaq's trading of 
these dual-listed securities.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A of the Act,\10\ in general, and with 
Section 15A(b)(5) of the Act,\11\ 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 the NASD operates or controls. Nasdaq states that its 
changes in routing fees are necessitated by increased costs imposed on 
Nasdaq's routing broker-dealer by NYSE. Nasdaq believes that the 
increased liquidity provider credit for dual-listed stocks will promote 
greater competition between the two primary listing markets in the U.S. 
Finally, Nasdaq believes the changes to reflect operation of the Nasdaq 
Exchange for trading Nasdaq-listed securities are needed to maintain 
the current levels of other fees and credits associated with trading 
non-Nasdaq securities.
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    \10\ 15 U.S.C. 78o-3.
    \11\ 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.

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

    The foregoing rule change is subject to Section 19(b)(3)(A)(ii) of 
the Act \12\ and subparagraph (f)(2) of Rule 19b-4 thereunder \13\ 
because it establishes or changes a due, fee, or other charge 
applicable only to a member imposed by the self-regulatory 
organization. Accordingly, the proposal is effective upon Commission 
receipt of the filing. 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.
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 17 CFR 240.19b-4(f)(2).
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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 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 No. SR-NASD-2006-092 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 No. SR-NASD-2006-092. 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 will also 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 No. SR-NASD-2006-092 and should be submitted on or before 
September 26, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-14599 Filed 9-1-06; 8:45 am]

BILLING CODE 8010-01-P