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Notice

Self-Regulatory Organizations; Notice of Filing of a Proposed Rule Change by the National Association of Securities Dealers, Inc. Relating to Fees for Nasdaq's InterMarket

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Information about this document as published in the Federal Register.

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Start Preamble August 27, 2002.

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 August 8, 2002, 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 (“Commission” or “SEC”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by Nasdaq. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

Nasdaq proposes to: (i) Modify the execution fees for Nasdaq InterMarket trades executed through the Intermarket Trading System (“ITS”) and Nasdaq's Computer Assisted Execution System (“CAES”); and (ii) establish a credit for the liquidity provider for executions via ITS and CAES.[3] Nasdaq will implement the proposed rule change as quickly as practicable following approval. Below is the text of the proposed rule change. Proposed new language is in italics; proposed deletions are in brackets.

* * * * *

7010. System Services

(a)-(c) No change.

(d) Computer Assisted Execution Service.

The charges to be paid by members receiving the Computer Assisted Execution Service (CAES) shall consist of a fixed service charge and a per share transaction charge plus equipment-related charges.

(1) Service Charges

$100 per month for each market maker terminal receiving CAES.

(2) Transaction Charges

(A) [As of January 1, 1998, $0.50 per execution] $0.003 per share executed up to a maximum of $75 per execution shall be paid by an order entry firm or CAES market maker that enters an order into CAES that is executed in whole or in part , and $0.002 per share executed up to a maximum of $50 per execution shall be credited to the CAES market maker that executes such an order.[*]

(B) [As of November 1, 1997, $1.00 per commitment] $0.002 per share executed up to a maximum of $75 per execution shall be paid by any member that sends a commitment through the ITS/CAES linkage to buy or sell a listed security that is executed in whole or in part , and $0.001 per share executed up to a maximum of $35 per execution shall be credited to a member that executes such an order.[**]

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[*As of September 1, 2000, a CAES market maker that receives and executes a CAES order or any part of a CAES order will not be required to pay a CAES transaction charge.]

[**As of September 1, 2000, a member that receives a commitment through the ITS/CAES linkage to buy or sell a security that is executed in whole or in part will not be required to pay a CAES transaction charge.]

(e)-(r) 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 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 below in Sections A, B, and C, 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's InterMarket (“InterMarket”) is a quotation, communication, and execution system that allows NASD members to trade stocks listed on the New York Stock Exchange, Inc. (“NYSE”) and the American Stock Exchange LLC (“Amex”).[4] The InterMarket competes with regional exchanges such as the Chicago Stock Exchange, Inc. (“CHX”) and the Cincinnati Stock Exchange, Inc. (“CSE”) for retail order flow in stocks listed on the NYSE and the Amex. The InterMarket is comprised of (1) CAES, a system that facilitates the execution of trades in listed securities between NASD members that participate in the InterMarket, and (2) ITS, a system that facilitates the execution of trades between NASD members and specialists on the floors of national securities exchanges that trade listed securities.[5]

Nasdaq proposes to modify the fee structure of the InterMarket to encourage market participants to provide additional liquidity to support executions through the InterMarket and thereby enhance its competitiveness. Specifically, Nasdaq will replace the current CAES execution fee of $0.50 with a per share execution fee of $0.003, and will credit $0.002 per share to a member whenever it provides the liquidity to support an execution through CAES (i.e., sells in response to a buy order, or buys in response to a sell order). The maximum fee will be capped at $75 per execution, and the maximum credit will be capped at $50 per execution.

Similarly, Nasdaq proposes that the current ITS execution fee of $1.00 will be replaced with a per share execution fee of $0.002, and a member that provides liquidity to support an ITS execution will receive a credit of $0.001 per share. There will be a maximum fee of $75 per execution, and a maximum credit of $35 per execution.

The proposed fee structure is similar to the structure that has been in place for Nasdaq's SuperSOES system since November 2001 and that will be used for Nasdaq's SuperMontage system when it is launched in the third quarter of 2002.[6]

2. Statutory Basis

Nasdaq believes that the proposed rule change is consistent with section 15A(b)(5) of the Act,[7] which requires that the rules of the NASD provide 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, and section 15A(b)(6) of the Act,[8] which requires that the rules are not designed to permit unfair discrimination between customers, issuers, brokers or dealers. Nasdaq believes that the proposed transaction execution fees will be imposed equally on members that use the InterMarket to place orders, whereas the proposed credits will be available to all members that enhance the viability of the InterMarket by providing liquidity to support executions. Moreover, Nasdaq believes that the level of the fees and credits are reasonable because its revenues from a given level of transaction activity under the new fee structure will be lower than its revenues from the same level of transaction activity under the prior fee structure.

B. Self-Regulatory Organization's Statement on Burden on Competition

Nasdaq believes that the proposed rule change will not 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 has neither solicited nor received written comments on the proposed rule change.

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, or

B. Institute proceedings to determine whether the proposed rule change 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 is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 submissions should refer to File No. SR-NASD-2002-109 in the caption above and should be submitted by September 24, 2002.

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For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[9]

Margaret H. McFarland,

Deputy Secretary.

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Footnotes

3.  On June 13, 2002, the NASD, through its subsidiary, Nasdaq, filed a similar proposed rule change that was effective upon filing pursuant to Section 19(b)(3)(A) of the Act. 15 U.S.C. 78s(b)(3)(A). See Securities Exchange Act Release No. 46153 (July 1, 2002), 67 FR 45164 (July 8, 2002) (SR-NASD-2002-68). The proposal was summarily abrogated by Commission order on July 2, 2002. See Securities Exchange Act Release No. 46159.

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4.  Nasdaq's InterMarket formerly was referred to as Nasdaq's Third Market. See e.g., Securities Exchange Act Release No. 42907 (June 7, 2000), 65 FR 37445 (June 14, 2000) (SR-NASD-00-32).

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5.  See CAES/ITS User Guide, at www.intermarket.nasdaqtrader.com, for further details.

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6.  See Securities Exchange Act Release Nos. 44910 (October 5, 2001), 66 FR 52167 (October 12, 2001) (SR-NASD-2001-67); and 45906 (May 10, 2002), 67 FR 34965 (May 16, 2002) (SR-NASD-2002-44).

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[FR Doc. 02-22343 Filed 8-30-02; 8:45 am]

BILLING CODE 8010-01-P