Document ID: SEC-2006-0950-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Stock Exchange, Inc.
Posted Date: 2006-07-26T04:00Z

[Federal Register: July 26, 2006 (Volume 71, Number 143)]
[Notices]               
[Page 42432-42433]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26jy06-123]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54180; File No. SR-NSX-2006-09]

 
Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
and Amendment Nos. 1 and 2 Thereto to Amend Its Fee Schedule Contained 
in Exchange Rule 11.10(A) to Include a Quotation Fee

July 20, 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 3, 2006, the National Stock Exchange, Inc. (``NSX'' or 
``Exchange'') 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 the Exchange. On July 
19, 2006, NSX submitted Amendment No. 1 to the proposed rule change. On 
July 20, 2006, NSX submitted Amendment No. 2 to the proposed rule 
change. The Exchange has designated this proposal as one establishing 
or changing a due, fee, or other charge applicable only to a member 
imposed by the Exchange under 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, as 
amended, 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

    The Exchange proposes to amend its fee schedule reflected in 
Exchange Rule 11.10(A) to provide for a quotation fee. The quotation 
fee would be based upon the number of changes to the price or size of 
an ETP Holder's displayed bid or offer on the Exchange (``quotation 
updates'') and would apply only to the extent the ETP Holder's average 
number of daily quotation updates is greater than 3 million. Below is 
the text of the proposed rule change, as amended. Proposed new language 
is in italics.

RULES OF NATIONAL STOCK EXCHANGE

* * * * *

CHAPTER XI

Trading Rules

* * * * *

Rule 11.10 National Securities Trading System Fees

A. Trading Fees
    (a)-(r) No change.
    (s) Quotation Fee. ETP Holders will be charged for quotation 
updates based upon the per quotation update rates as noted below. A 
``quotation update'' means each change to the price or size of an ETP 
Holder's displayed bid or offer on the Exchange.

------------------------------------------------------------------------
       Avg. daily quotation updates          Charge per quotation update
------------------------------------------------------------------------
0 to 3,000,000............................  $0.00
3,000,001 and higher......................  $0.01 over 3,000,000
------------------------------------------------------------------------

* * * * *

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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change, as 
amended, 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 Exchange 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
    The Exchange's fee schedule reflected in Exchange Rule 11.10(A) 
currently provides for fees payable by ETP Holders based upon, among 
other things, transactions executed on the Exchange, but does not 
provide for any fees based solely upon the number of changes to the 
price or size of an ETP Holder's quotation updates. However, NSX states 
that quotation updates can affect both the Exchange's systems resources 
and its regulatory functions. For example, a sufficiently high level of 
quotation updates could require that the Exchange expend additional 
resources on its systems technology in order to avoid capacity and 
performance degradation issues. NSX states that the levels of 
surveillance and investigation required in order for the Exchange to 
adequately discharge its self-regulatory obligations also increase with 
an increase in quotation updates. For these reasons, the Exchange 
believes that it is appropriate to charge a fee for high levels of 
quotation updates that consume a high amount of the Exchange's systems 
capacity and require a higher amount of regulatory scrutiny.
    The proposed quotation fee would be based upon the number of 
quotations updates posted by an ETP Holder, but would apply only to the 
extent that an ETP Holder averages in excess of 3 million quotation 
updates per day. The Exchange is proposing to charge ETP Holders that 
provide quotation updates in excess of 3 million updates on an average 
daily basis a penny a quote for all quotation updates in excess of 3 
million.\5\ The average daily quotation updates would be calculated on 
a monthly basis taking the total quotation updates for the month-end 
period (``TQU'') and dividing the TQU by the number of trading days the 
ETP Holder provides quotation updates. Three million would be 
subtracted from this average daily quotation to yield the amount of 
daily quotations in excess of 3 million quotes. The excess would be 
multiplied by a penny to yield the daily

[[Page 42433]]

quote charge. The daily quote charge would be multiplied by the number 
of trading days quoted for the month to yield the monthly quote charge. 
NSX states that the monthly quote charge would be collected by the 
Exchange on a monthly basis. The formula for the quote charge thus is:
    [(Number of quotation updates for the month/number of trading days 
quoted) -3,000,000] x $.01 x the number of trading days quoted.
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    \5\ Thus, for example, an ETP Holder that has an averaged daily 
quotation updates of 3,000,001 would be assessed a penny and not 
have to pay $30,000.01.
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    NSX states that, in deciding whether to assess a quote fee, it made 
a business decision to allow a certain level of quote traffic as part 
of any Equity Trading Permit regardless of any trading activity through 
NSX. The Exchange states that it determined to use 3 million as the 
baseline for its quoting traffic after taking into consideration a 
number of business concerns. According to NSX, these concerns include, 
but are not limited to, the cost to the Exchange assessed by the 
Consolidated Quotation Service and the Securities Information Processor 
for Tape C securities (including the cost of penalties for exceeding 
capacity), the cost to the Exchange for software and hardware costs 
associated with increased capacity, the average number of quotes 
provided by ETP Holders, the capacity of the old NSTS System, and the 
increased regulatory costs associated with the surveillance and 
investigations of ETP Holders. NSX states that any ETP Holder could 
choose to remain under the baseline for quoting traffic and not be 
charged any quote fee, or could choose to exceed the baseline and be 
charged only for those quote updates in excess of the baseline. Thus, 
the rule would apply equally to all ETP Holders. The Exchange states 
that the rule also benefits ETP Holders as it allows them to plan for 
and administer their quoting traffic based on cost considerations 
during the interim period until the Exchange's new trading system is 
launched.
    NSX states that the quotation fee has been designed in this manner 
in order to ensure that the Exchange can continue to fulfill its 
obligations under Section 6(b) of the Act \6\ in the event of a high 
volume of quotation updates on the Exchange.
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    \6\ 15 U.S.C. 78f(b).
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\7\ in general, and furthers 
the objectives of Section 6(b)(4) of the Act,\8\ in particular, in that 
it is designed to provide for the equitable allocation of reasonable 
dues, fees, and other charges. The Exchange also believes that the 
proposed rule change, as amended, furthers the objectives of Section 
6(b)(1) of the Act \9\ in that it helps to assure that the Exchange is 
so organized and has the capacity to be able to carry out the purposes 
of the Act and to comply, and to enforce compliance by its ETP Holders 
with the Act.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4).
    \9\ 15 U.S.C. 78f(b)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, 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

    The Exchange neither solicited nor received comments on the 
proposed rule change, as amended.

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

    The foregoing proposed rule change, as amended, has been designated 
as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act \10\ and 
Rule 19b-4(f)(2) \11\ thereunder, because it establishes or changes a 
due, fee, or other charge applicable only to a member imposed by the 
Exchange. Accordingly, the proposal will take effect upon filing with 
the Commission. 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.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \11\ 17 CFR 240.19b-4(f)(2).
    \12\ 15 U.S.C. 78s(b)(3)(C). For purposes of calculating the 60-
day period within which the Commission may summarily abrogate the 
proposal, the Commission considers the period to commence on July 
20, 2006, the date on which the Exchange submitted Amendment No. 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, 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-NSX-2006-09 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NSX-2006-09. 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 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-NSX-2006-09 and should be submitted on or before August 
16, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-11927 Filed 7-25-06; 8:45 am]

BILLING CODE 8010-01-P