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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 Modify the Fees Paid by NNMS Order Entry Firms for Certain Order Executions Through Nasdaq's SuperMontage System

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Start Preamble August 11, 2003.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1] and Rule 19b-4[2] thereunder, notice is hereby given that on July 31, 2003, the National Association of Securities Dealers, Inc. (“NASD”), through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”), submitted to 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 under Section 19(b)(3)(A)(ii) of the Act [3] and Rule 19b-4(f)(2) thereunder.[4] 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 modify the fees paid by NNMS Order Entry Firms (“OE Firms”) for certain order executions through Nasdaq's SuperMontage system. Nasdaq implemented the rule change on August 1, 2003.

Below is the text of the proposed rule change. Proposed new language is italicized; proposed deleted language is bracketed.

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7000. CHARGES FOR SERVICES AND EQUIPMENT

7010. System Services

(a)-(h) No change.

(i) Nasdaq National Market Execution System (SuperMontage).

The following charges shall apply to the use of the Nasdaq National Market Execution System (commonly known as SuperMontage) by members:

Order Entry
Non-Directed Orders (excluding Preferenced Orders)No charge
Preferenced Orders:
Preferenced Orders that access a Quote/Order of the member that entered the Preferenced Order)No charge
Other Preferenced Orders$0.02 per order entry
Directed Orders$0.10 per order entry
Order Execution
Non-Directed or Preferenced Order that accesses the Quote/Order of a market participant that does not charge an access fee to market participants accessing its Quotes/Orders through the NNMS:
Charge to member entering order$0.003 per share executed (but no more than $120 per trade for trades in securities executed at $1.00 or less per share)
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Credit to member providing liquidity$0.002 per share executed (but no more than $80 per trade for trades in securities executed at $1.00 or less per share)
Non-Directed or Preferenced Order that accesses the Quote/Order of a market participant that charges an access fee to market participants accessing its Quotes/Orders through the NNMS$0.001 per share executed (but no more than $40 per trade for trades in securities executed at $1.00 or less per share)
Directed Order$0.003 per share executed
Non-Directed or Preferenced Order entered by a member [Nasdaq Quoting Market Participant] that accesses its own Quote/OrderNo charge
[Non-Directed Order entered by an NNMS Order Entry Firm that accesses its own Quote/Order][$0.001 per share executed (but no more than $40 per trade for trades in securities executed at $1.00 or less per share)]
Order Cancellation
Non-Directed and Preferenced OrdersNo charge
Directed Orders$0.10 per order cancelled

(j)-(s) 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

On May 12, 2003, the Commission approved [5] on a permanent basis a proposed rule change to allow OE Firms [6] to enter non-marketable limit orders into SuperMontage using the SIZE Market Participant Identifier (“SIZE”).[7] The program had originally been approved on a 90-day pilot basis, beginning on February 10, 2003.[8]

At the beginning of the 90-day pilot period, Nasdaq did not assess a charge (or provide a liquidity provider credit) when a market participant's non-directed or preferenced order executed against its own Quote/Order. Effective April 1, 2003, however, Nasdaq modified its SuperMontage fee schedule to provide that an OE Firm entering a non-directed order that accesses a limit order that the OE Firm itself posted in SIZE would pay $0.001 per share executed (but no more than $40 per trade for trades in securities executed at $1.00 or less per share).[9] In situations where a Quoting Market Participant's order executes against its own Quote/Order, however, the order execution remained free.

The discount for Quoting Market Participants is based, in part, on an expectation that, in its absence, many Quoting Market Participants would internalize a greater percentage of orders through their own proprietary crossing systems, rather than exposing them to the full market. Based on experience with the program for OE Firms' use of SIZE, however, Nasdaq has concluded that applying the discount to OE Firms' orders may also encourage OE Firms to expose a greater percentage of their orders through SuperMontage, in lieu of internalizing them or routing them to competing market centers. Accordingly, Nasdaq is eliminating the $0.001 fee applicable to order executions in which an OE Firm's non-directed order is matched with the same firm's order in SIZE.

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 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 NASD operates or controls. Nasdaq states that the proposed rule change will result in an elimination of the fees payable by an OE Firm for non-directed orders that execute against orders entered by the OE Firm in SIZE. As a result, Nasdaq believes that the fees assessed on OE Firms and Quoting Market Participants for use of SuperMontage will now be identical in all respects.

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 and 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

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 has become effective upon filing pursuant to Section 19(b)(3)(A)(ii) of the Act [12] and subparagraph (f)(2) of Rule 19b-4 thereunder,[13] because it establishes or changes a due, fee, or other charge imposed by the self-regulatory organization. At any time within 60 days of the filing of the 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.

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 Start Printed Page 48977Commission, 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 Nasdaq. All submissions should refer to File No. SR-NASD-2003-116 and should be submitted by September 5, 2003.

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.  15 U.S.C. 78s(b)(3)(A)(ii).

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5.  See Securities Exchange Act Release No. 47830 (May 12, 2003), 68 FR 27126 (May 19, 2003) (SR-NASD-2003-37) (“May Approval Order”).

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6.  As noted in the May Approval Order, Nasdaq interprets the term “NNMS Order Entry Firm” to encompass NNMS Market Makers to the extent that they do not make markets in particular stocks. In SuperMontage, such firms are treated the same as other OE Firms when placing orders into the system for stocks in which they do not make a market.

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7.  SIZE is the anonymous market participant identifier (“MPID”) that represents the aggregate size of all Non-Attributable Quotes and Orders entered by market participants in Nasdaq at a particular price level. Non-Attributable Quotes and Orders are not displayed in the Nasdaq Quotation Montage using the market participant's MPID.

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8.  See Securities Exchange Act Release No. 47301 (January 31, 2003), 68 FR 6236 (February 6, 2003) (SR-NASD-2002-173).

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9.  See Securities Exchange Act Release No. 47530 (March 19, 2003), 68 FR 14730 (March 26, 2003) (SR-NASD-2003-30).

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12.  15 U.S.C. 78s(b)(3)(a)(ii).

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[FR Doc. 03-20907 Filed 8-14-03; 8:45 am]

BILLING CODE 8010-01-U