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Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Granting Accelerated Approval to Proposed Rule Change and Amendment No. 1 Thereto Relating to Computer to Computer Interface Fees

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Information about this document as published in the Federal Register.

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Start Preamble February 6, 2001.

I. Introduction

On December 7, 2001, the National Association of Securities Dealers, Inc. (“NASD” or “Association”), through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”), filed with the Securities and Exchange Commission (“SEC” or “Commission”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) [1] and rule 19b-4 thereunder,[2] a proposed rule change to increase the fees charged to non-members that continue to use the x.25 Computer to Computer Interface (“CTCI”) to access Nasdaq services. On January 10, 2002, Nasdaq submitted Amendment No. 1 to the proposal.[3]

The proposed rule change and Amendment No. 1 were published for comment in the Federal Register on January 18, 2002.[4] The comment period was for 15 days and expired on February 2, 2002. No comments were received on the proposal, as amended. In this order, the Commission is approving the proposed rule change, as amended, on an accelerated basis.

II. Description of the Proposal

Nasdaq's CTCI network is a point-to-point dedicated circuit connection from the premises of brokerages and service providers to Nasdaq's Trumbull, Connecticut processing facilities. Through CTCI, firms are able to enter trade reports to Nasdaq's Automated Confirmation Transaction Service and orders to Nasdaq's Small Order Execution and SuperSOES systems. CTCI also processes SelectNet transaction confirmation reports.

In response to numerous requests from market participants that Nasdaq upgrade the speed and reliability of its CTCI data transmission environment, Nasdaq began the process last year of “sunsetting” its CTCI x.25/bisynch network in favor of a new network that provides greater capacity and a more efficient transmission protocol. The CTCI x.25/bisynch network can only transmit data up to 19.2 kilobits per second (“kb”). The new Transmission Control Protocol/Internet Protocol (“TCP/IP”) CTCI network operates over the Enterprise Wide Network II and provides connectivity over more powerful 56kb and T1 data lines. In order to take advantage of the new CTCI network, users are required to upgrade their current x.25/19.2kb lines to either 56kb or T1 lines. Although the conversion process has been underway since January of 2001, as of late November, 295 x.25 CTCI circuits held by 60 firms remained active.

Nasdaq represents that as more and more users convert to TCP/IP, Nasdaq's per circuit cost of continuing to offer the x.25 CTCI connections increases. Since the x.25 CTCI network is provisioned to support over 600 circuits, Nasdaq believes that it is appropriate to pass through the expense of that network to those firms that have failed to transition. According to Nasdaq, the fee increase, together with continued transition support from Nasdaq staff, will allow Nasdaq to “sunset” the x.25 CTCI network on March 31, 2002 (or sooner, if all x.25 CTCI subscribers have transitioned prior to that date).[5]

NASD proposes to increase the fee assessed on NASD non-members that continue to use the x.25 CTCI to access Nasdaq services rather than transitioning to TCP/IP. Nasdaq plans to assess the new fee during the months of February and March 2002 and to terminate remaining x.25 CTCI circuits at the end of March, although both the date for implementing the new fee and the date for terminating x.25 CTCI circuits are subject to adjustment.

III. Discussion

The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association.[6] In particular, the Commission believes that the proposal, as amended, is consistent with the requirements of section 15A(b)(5) of the Act [7] because 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 association operates or controls. The Commission notes that an identical proposed rule change for members became immediately effective upon filing on January 10, 2002.[8] Further, the Commission notes that Nasdaq has represented that as more and more users convert to TCP/IP, Nasdaq's per circuit cost of continuing to offer the x.25 CTCI connections increases. Nasdaq has stated that the proposed rule change, as amended, will permit it to pass through the expense of that network to those firms that have failed to transition.

Pursuant to section 19(b)(2) of the Act,[9] the Commission finds good cause for approving the proposed rule change, as amended, prior to the thirtieth day after the date of publication of the notice of filing thereof in the Federal Register. The Commission notes that Nasdaq plans to assess the new fee during the months of February and March 2002 and to terminate remaining x.25 CTCI circuits at the end of March. The Commission also notes that members also will be assessed an identical fee in February and March 2002 and therefore, the proposed fee will be consistent with the fee charged to members. Further, Nasdaq has represented to the Commission that the new fee is necessary due to a decrease in the number of subscribers of x.25 CTCI circuits and is comparable to the fee assessed to subscribers of the TCP/IP CTCI circuits. Accordingly, the Commission finds that there is good cause, consistent with section 15A of Start Printed Page 6777the Act,[10] to approve the proposal on an accelerated basis.

IV. Conclusion

It is therefore ordered, pursuant to section 19(b)(2) of the Act,[11] that the proposed rule change (SR-NASD-2001-88), as amended, is approved on an accelerated basis.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[12]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  See letter from John M. Yetter, Assistant General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division of Market Regulation (“Division”), Commission, dated January 8, 2002 (“Amendment No. 1”).

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4.  See Securities Exchange Act Release No. 45266 (January 10, 2002), 67 FR 2714.

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5.  Nasdaq has indicated that those members utilizing the remaining x.25 CTCI circuits will be unable to link to the CTCI system at the end of March. Nasdaq does not foresee any circumstances that would cause it to adjust the date of termination of the x.25 CTCI circuits at this time. January 3, 2002 telephone conversation between John M. Yetter, Assistant General Counsel, Nasdaq, and John Riedel, Staff Attorney, Division, Commission.

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6.  In approving the proposed rule change, as amended, the Commission has considered its impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).

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8.  See Securities Exchange Act Release No. 45264 (January 10, 2002), 67 FR 2942 (January 22, 2002).

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[FR Doc. 02-3497 Filed 2-12-02; 8:45 am]

BILLING CODE 8010-01-U