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Notice

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the National Association of Securities Dealers, Inc. to Extend the Pilot Nasdaq Transaction Services Pricing Package

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Start Preamble October 30, 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 October 18, 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 (“SEC” or “Commission”) the proposed rule change as described in items I and II below, which items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change.

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

Nasdaq proposes to extend, through March 31, 2003, three components of the pilot Nasdaq Transaction Services pricing package currently in effect (“pricing pilot”).[3] The components of the pricing pilot extended by this proposal include: (1) The $0.002 order execution fee for Nasdaq National Market Execution System (“NNMS” or “SuperSoes”) orders; (2) the $0.001 per share rebate for liquidity providers on SuperSoes executions; and (3) the $0.01 quote update fee. Without such an extension, these pricing standards would terminate on October 31, 2002. The text of the proposed rule change is set forth below. Proposed new language is italicized; proposed deletions are in brackets.

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7010. System Services

(a)-(i)(1) No change.

(i)(2) Nasdaq National Market Execution System (SuperSoes)

The following charges shall apply to the use of the Nasdaq National Market Execution System:

Order Entry Charge—$0.10 per order entry (entering party only)

Per share Charge—$0.001 per share executed for all fully or partially executed orders (entering party only)

Cancellation Fee—$0.25 per order cancelled (canceling party only) [4]

For a pilot period commencing on November 1, 2001 and lasting until [October] March 31, 200[2]3, the per share charge will be $0.002 per share executed for all fully or partially executed orders (entering party only).

(3) No change.

(4) Liquidity Provider rebate

For a pilot period commencing on November 1, 2001 and lasting until [October] March 31, 200[2]3:

(A) No change.

(B) No change.

(5) Quotation Updates

(A) Except as provided in subparagraph (B), for a pilot period commencing on February 1, 2002 and lasting until [October] March 31, 200[2]3, a fee of $0.01 per quotation update will be charged to NASD members that post quotations in the Nasdaq quotation montage. A “quotation update” includes any change to the price or size of a displayed quotation or reserve size.

(B) No change.

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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 proposes to extend to March 31, 2003, three components of the pricing pilot. The components of the Start Printed Page 67679pricing pilot extended by this proposal include: (1) The $0.002 order execution fee for SuperSoes orders; (2) the $0.001 per share rebate for liquidity providers on SuperSoes executions; and (3) the $0.01 quote update fee. Without the extension, the pricing pilot will expire on October 31, 2002. Nasdaq represents that the pilot extension is needed in order to ensure pricing continuity throughout the rollout of SuperMontage,[5] which will not be complete by October 31, 2002.

Beginning on October 5, 2001,[6] Nasdaq instituted a pricing pilot program that increased the per share charge for the use of SuperSoes; and introduced a rebate to providers of liquidity in SuperSoes. Nasdaq represents that the program was introduced as part of Nasdaq's ongoing efforts to align the prices charged to market participants for using SuperSoes with the costs of providing services as well as the benefits provided to market participants. As a result of this program, the per share charge for orders entered and executed in SuperSoes increased from $0.001 per share to $0.002 per share.[7] This increase was accompanied by the institution of a rebate designed to enhance market efficiency and fairness by offering incentives to market participants that provide liquidity through SuperSoes. Nasdaq represents that the rebate was also structured to address competitive disparities that existed between electronic communications networks that charge non-subscribers fees for accessing their quotes, and market makers that are generally prohibited by the SEC from charging fees.

Beginning February 1, 2002,[8] Nasdaq instituted a quotation update fee applicable to NASD members of $0.01 per quotation update. Nasdaq represents that the quotation update fee was introduced in recognition of the fact that the ability to post quotes in the Nasdaq quotation montage provides market participants with the valuable opportunity to advertise the liquidity that they offer. In addition, by not charging for quotation updates, Nasdaq was allowing its participants to quote inefficiently. Nasdaq believes that the quotation update fee discouraged the practice of posting an excessive number of quote updates that resulted in very few executed trades, while still encouraging market makers to provide liquidity through the rebate program introduced in October 2001.

2. Statutory Basis

Nasdaq believes that the proposed rule change is consistent with the provisions of section 15A of the Act,[9] in general and with sections 15A(b)(5) and 15A(b)(6) of the Act.[10] Section 15A(b)(5) requires that the rules of the NASD provide for the equitable allocation of reasonable fees, dues, and other charges among members and issuers and other persons using any facility of system which the NASD operates or controls. Section 15A(b)(6) requires rules that foster cooperation and coordination with persons engaged in facilitating transactions in securities and that are not designed to permit unfair discrimination between customers, issuers, brokers or dealers. Nasdaq believes that the proposed rule changes will ensure the fair and orderly operation of Nasdaq and the protection of investors by ensuring pricing continuity throughout the SuperMontage rollout.

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 comments on the proposed rule change.

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

The foregoing rule change has become effective pursuant to section 19(b)(3)(A) of the Act [11] and Rule 19b-4(f)(6)[12] thereunder because the proposal: (i) Does not significantly affect the protection of investors or the public interest; (ii) does not impose any significant burden on competition; and (iii) does not become operative prior to 30 days after the date of filing or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest; provided that Nasdaq has given the Commission notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such short time as designated by 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.

Nasdaq has requested that the Commission waive the five-day pre-filing notice requirement and the 30-day operative delay. The Commission believes that the proposed rule change is consistent with the protection of investors and the public interest and therefore believes there is good cause to waive the five-day pre-filing notice requirement and to designate the proposal as immediately operative upon filing. The Commission notes that the proposal extends a current pilot program already in place. Acceleration of the operative date will allow the pilot to operate continuously through March 31, 2003. For these reasons, the Commission finds good cause to waive the five-day pre-filing notice requirement and to designate that the proposal become operative immediately upon filing.[13]

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 Start Printed Page 67680Commission 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 at the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of Nasdaq. All submissions should refer to File No. SR-NASD-2002-150 and should be submitted by November 27, 2002.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[14]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  The pricing pilot components to be extended by this proposal were established by Securities Exchange Act Release No. 44910 (Oct. 5, 2001), 66 FR 52167 (Oct. 12, 2001) (SR-NASD-2001-67); No. 45342 (Jan. 28, 2002), 67 FR 5019 (Feb. 1, 2002) (SR-NASD-2001-96); and No. 45379 (Jan. 31, 2002), 67 FR 5867 (Feb. 7, 2002) (SR-NASD-2001-64 and SR-NASD-2001-68).

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4.  Nasdaq corrected a typographical error that appeared in the proposed rule language. Telephone conversation between Teri Nelson Jacoby, Assistant General Counsel, Nasdaq and Susie Cho, Special Counsel, Division of Market Regulation, Commission, October 23, 2002.

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5.  On January 19, 2001, the Commission issued an order to approve a proposed rule change to establish SuperMontage, Nasdaq's new proprietary system for quote display and transaction execution. See Securities Exchange Act Release No. 43863 (Jan. 19, 2001), 66 FR 8020 (Jan. 26, 2001) (SR-NASD-99-53).

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6.  See Securities Exchange Act Release No. 44910 (Oct. 5, 2001), 66 FR 52167 (Oct. 12, 2001) (SR-NASD-2001-67).

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7.  The $0.002 per share charge for non-members became effective in February 2002. See Securities Exchange Act Release No. 45379 (Jan. 31, 2002), 67 FR 5867 (Feb. 7, 2002) (SR-NASD-2001-64 and SR-NASD-2001-68).

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8.  See Securities Exchange Act Release No. 45342 (Jan. 28, 2002), 67 FR 5019 (Feb. 1, 2002) (SR-NASD-2001-96).

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10.  15 U.S.C. 78o-3(b)(5) and (6).

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13.  For purposes only of accelerating the operative date of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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[FR Doc. 02-28133 Filed 11-5-02; 8:45 am]

BILLING CODE 8010-01-P