Document ID: SEC-2005-0402-0001
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 75229-75231]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr19de05-90]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52939; File No. SR-NASD-2005-137]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Modify Pricing for NASD Members Using the Nasdaq Market 
Center and 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, II, 
and III below, which Items have been prepared by Nasdaq. Nasdaq has 
designated this proposal as one establishing or changing a due, fee, or 
other charge imposed by the self-regulatory organization under Section 
19(b)(3)(A)(ii) \3\ of the Act 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 the 
Substance of the Proposed Rule Change

    Nasdaq proposes to modify the pricing for NASD members using the 
Nasdaq Market Center and Nasdaq's Brut Facility (``Brut''). Nasdaq 
states that it will implement the proposed rule change 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)-(4) No Change.
    (5) There shall be no charges or credits for order entry, 
execution, routing, or cancellation by members accessing the Nasdaq 
Market Center or Nasdaq's Brut Facility to buy or sell exchange-listed 
securities subject to the Consolidated Quotations Service and 
Consolidated Tape Association plans, other than:
    (A) The charges in Rule 7010(i)(1) for Exchange-Traded Funds,
    (B) Charges described in Rule 7010(d),
    (C) A fee of $0.0004 per share executed for orders delivered by 
Nasdaq's Brut Facility to an exchange using the exchange's proprietary 
order delivery system if such orders do not attempt to execute in 
Nasdaq's Brut Facility or the Nasdaq Market Center prior to routing to 
the exchange, [and]
    (D) a fee of $0.009 per share executed for any limit order 
delivered by Nasdaq's Brut Facility to the New York Stock Exchange 
(``NYSE'') using the NYSE's proprietary order delivery system if such 
an order is not an on-close order, is not executed in the opening, and 
remains at the NYSE for more than 5 minutes[.], and
    (E) for a pilot period beginning December 1, 2005 and ending 
December 31, 2005, a credit of $0.0005 per share executed to a member 
providing liquidity for a transaction in the following stocks: 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).
    (6) No change.
    (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 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 is proposing to modify 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

[[Page 75230]]

orders that are accessed by incoming orders) would receive a credit of 
$0.0005 per share executed.\5\ 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.\6\ Nasdaq notes 
that, with the exception of ETFs, however, such a credit is not 
currently offered with respect to stocks whose primary listing is not 
on Nasdaq.
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    \5\ 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.
    \6\ 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).
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    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. The 
Nasdaq represents that the forty stocks selected for inclusion in the 
pilot program \7\ are all stocks whose 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.\8\
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    \7\ 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).
    \8\ The change proposed by this filing applies to NASD members 
that use the Nasdaq Market Center and Brut; in SR-NASD-2005-138, 
Nasdaq is proposing to make the same change applicable to non-
members that use Brut.
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    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.\9\ 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.
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    \9\ Telephone conversation between John Yetter, Associate 
General Counsel, Exchange, and Michou Nguyen, Attorney, Division of 
Market Regulation, Commission, on December 7, 2005.
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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 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. 
Nasdaq believes that the proposed rule 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.
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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

    Nasdaq states that 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 \13\ thereunder 
because it establishes or changes a due, fee, or other charge 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 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.\14\
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    \12\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \13\ 17 CFR 240.19b-4(f)(2).
    \14\ 15 U.S.C. 78s(b)(3)(C).
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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 Number SR-NASD-2005-137 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-2005-137. 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

[[Page 75231]]

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-2005-137 and should be 
submitted on or before January 9, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
Jonathan G. Katz,
Secretary.
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    \15\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E5-7481 Filed 12-16-05; 8:45 am]

BILLING CODE 8010-01-P