On August 19, 2002, 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”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, a proposed rule change to modify Nasdaq's transaction credit program for exchange-listed securities  to allocate credits to liquidity providers. The proposed rule change was published for notice and comment in the Federal Register on November 19, 2002.
The Commission received one comment on the proposed rule change. This order approves the proposed rule change.
As set forth in its July 2, 2002 Order of Summary Abrogation (“Abrogation Order”), the Commission will continue to examine the issues surrounding market data fees, the distribution of market data rebates, and the impact of market data revenue sharing programs on both the accuracy of market data and on the regulatory functions of self-regulatory organizations. In the interim, the Commission believes it is reasonable to allow Nasdaq to amend its transaction credit program for exchange-listed securities to allocate credits to liquidity providers. To the extent that the Abrogation Order was prompted by evidence that entities were engaging in conduct with no economic benefit other than to capture market data fees, Nasdaq's proposal to allocate credits to liquidity providers may remove some of the incentives for engaging in such behavior.
The Commission has reviewed carefully the proposed rule change and the comment letter, and finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association  and, in particular, the requirements of Section 15A of the Act. Specifically, the Commission finds that the proposed rule change is consistent with Section 15A(b)(5) of the Act  which requires the rules of a national securities association to 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.
The decision to allow Nasdaq to make these adjustments to its transaction credit program for exchange-listed securities, however, is narrowly drawn, and should not be construed as resolving the issues raised in the Abrogation Order, and does not suggest what, if any, future actions the Commission may take with regard to market data revenue sharing programs.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-NASD-2002-115) be, and it hereby is, approved.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
3. Nasdaq's transaction credit program for exchange-listed securities was a pilot at the time Nasdaq filed the instant proposed rule change. The program is now permanent. See Securities Exchange Act Release No. 46938 (December 3, 2002), 67 FR 72993 (December 10, 2002) (SR-NASD-2002-149) (approving proposal to make permanent Nasdaq's transaction credit pilot program for exchange-listed securities, and to increase the percentage of revenue available for distribution from 40% to 50%).Back to Citation
5. See December 10, 2002 letter from Darla C. Stuckey, Corporate Secretary, New York Stock Exchange, Inc. (“NYSE”) to Jonathan G. Katz, Secretary, Commission (“NYSE Letter”). The NYSE Letter does not specifically address the instant proposed rule change, but instead expresses the NYSE's general opposition to market data revenue sharing programs. Therefore, the Commission has not included a detailed summary of comments in this order. The NYSE Letter is available at the Commission. The Commission did not ask Nasdaq to respond to the NYSE Letter.Back to Citation
6. Securities Exchange Act Release No. 46159 (July 2, 2002), 67 FR 45775 (July 10, 2002) (File Nos. SR-NASD-2002-61, SR-NASD-2002-68, SR-CSE-2002-06, and SR-PCX-2002-37) (Order of Summary Abrogation).Back to Citation
7. In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).Back to Citation
[FR Doc. 02-32919 Filed 12-27-02; 8:45 am]
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