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Notice

Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend NASD Rule 7010 To Modify Pricing for NASD Members Using ITS/CAES System and Inet Facility

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Start Preamble February 12, 2007.

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 January 29, 2007, the National Association of Securities Dealers, Inc. (“NASD”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared substantially by NASD. NASD submitted the proposed rule change under Section 19(b)(3)(A) of the Act [3] and Rule 19b-4(f)(2) thereunder,[4] which renders the proposal effective upon filing with the Commission.[5] 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

NASD proposes to amend NASD Rule 7010 to modify the pricing for its members using the ITS/CAES System and the Inet facility (the “Nasdaq Facilities”), which are currently operated by The Nasdaq Stock Market, Inc. and its subsidiaries (“Nasdaq”) as facilities of NASD. The text of the proposed rule change is available on the NASD's Web site at http://www.nasd.com, at NASD and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, NASD 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 Start Printed Page 7788may be examined at the places specified in Item IV below. NASD 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

This proposed rule change modifies the pricing schedule for the systems for trading non-Nasdaq exchange-listed securities that are currently operated as NASD facilities by Nasdaq. The fees apply to the Nasdaq Facilities, but as is currently the case with respect to fees for these systems, the fee schedule reflects the volume of a member's use of ITS/CAES, Inet, and the Nasdaq Market Center (a facility of The NASDAQ Stock Market LLC (the “Nasdaq Exchange”)) in determining applicable fees.[6] The changes made by this proposed rule change relate to order execution fees for ITS/CAES and Inet, fees for routing to venues other than the New York Stock Exchange (the “NYSE”), and fees for routing orders in exchange-traded funds to the NYSE; fees to route other orders to the NYSE are unchanged.

Currently, members with an average daily volume in all securities during the month of (i) More than 30 million shares of liquidity provided, and (ii) more than 50 million shares of liquidity accessed and/or routed; or members with an average daily volume through the Nasdaq Facilities in all securities during the month of (i) More than 20 million shares of liquidity provided, and (ii) more than 60 million shares of liquidity accessed and/or routed, pay a fee of $0.0027 per share executed when their orders access liquidity on ITS/CAES or Inet or are routed. Members with lower volumes pay a fee of $0.0028 or $0.003, depending on their volumes. The proposed rule change raises the volume thresholds needed to qualify for the $0.0027 fee, such that it will be available to market participants that (i) Add more than 35 million shares of liquidity per day during the month and route or remove more than 55 million shares of liquidity per day during the month, or (ii) add more than 25 million shares of liquidity per day during the month and route or remove more than 65 million share of liquidity per day during the month.

Currently, members adding more than 30 million shares of liquidity per day during the month receive a liquidity provider credit of $0.0025 per share executed; members providing less liquidity receive a credit of $0.002. The proposed rule change raises the threshold needed to qualify for the $0.0025 rebate to 35 million shares per day. However, the proposed rule change also introduces an intermediate credit of $0.0022 per share executed for members that provide more than 20 million shares of liquidity during the month.

The fees reflected in this proposed rule change were announced by Nasdaq on November 30, 2006,[7] as part of a market-wide evolution in the pricing structure for non-Nasdaq listed securities and an effort by Nasdaq to adopt consistent pricing for all types of securities. Previously, the fees charged by Nasdaq and other venues for non-Nasdaq securities had been characterized by low execution and routing fees and no credits for liquidity providers. During the fall of 2006, however, other markets began to adopt higher execution fees, coupled with liquidity provider credits, thereby moving toward a structure that had long been in effect for Nasdaq-listed securities. As of January 2, 2007, NASD likewise introduced fees for the ITS/CAES and Inet that reflected this evolving pricing structure.[8] However, the fees filed for January were intended as a one-month transition away from the previous structure, and therefore included lower thresholds to qualify for favorable pricing. In addition, the new higher thresholds proposed by this proposed rule change reflect the growing volumes of orders for NYSE-listed securities that are executed or routed through Inet and ITS/CAES, and are intended to encourage further usage.

2. Statutory Basis

NASD believes that the proposed rule change is consistent with Section 15A of the Act,[9] in general, and furthers the objectives of Section 15A(b)(5) of the Act,[10] 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.

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

NASD does not believe that the proposed rule change will impose 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

NASD 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 proposed rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act [11] and subparagraph (f)(2) of Rule 19b-4 thereunder,[12] because it establishes or changes a due, fee, or other charge imposed by the NASD. 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. Comments may be submitted by any of the following methods:

Electronic Comments

Paper Comments

  • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASD-2007-010. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/​rules/​sro.shtml). 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 also will be available for inspection and copying at the principal offices of NASD. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASD-2007-010 and should be submitted on or before March 13, 2007.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[13]

Florence E. Harmon,

Deputy Secretary.

End Signature End Preamble

Footnotes

5.  NASD stipulated the implementation date to be February 1, 2007.

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6.  The consideration of volumes through the Nasdaq Exchange is a function of the phased transition of Nasdaq from an operator of NASD facilities to a separate national securities exchange. As such, NASD fee schedules will be amended to remove all references to Nasdaq at or shortly after the time when the Nasdaq Exchange begins to trade non-Nasdaq exchange-listed securities, which is currently expected to occur on February 12, 2007. The Nasdaq Exchange has submitted a comparable filing to establish the same fees for Nasdaq-listed securities, which likewise considers trading volumes through ITS/CAES and Inet. See SR-NASDAQ-2007-003.

When the Nasdaq Exchange begins to trade non-Nasdaq securities, Inet will no longer be operated as an NASD facility for trading non-Nasdaq securities. Accordingly, for the month of February, the volumes used to determine fees for ITS/CAES and Inet will also consider volumes in non-Nasdaq securities through the Nasdaq Market Center. For this reason, a reference to “Nasdaq-listed securities” is being deleted from the explanatory text of Rule 7010(i)(1). This change is necessary to ensure that members using Inet and ITS/CAES prior to the anticipated transition on February 12, 2007 pay fees for that period that reflect a full month's worth of their trading activity.

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7.  See Nasdaq Head Trader Alert #2006-199 (November 30, 2006), available at http://www.nasdaqtrader.com/​trader/​news/​2006/​headtraderalerts/​hta2006-199.stm.

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8.  See Securities Exchange Act Release No. 55129 (January 18, 2007), 72 FR 03894 (January 26, 2007).

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11.  15 U.S.C. 78s(b)(3)(a)(ii).

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[FR Doc. E7-2841 Filed 2-16-07; 8:45 am]

BILLING CODE 8010-01-P