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Daily Rules, Proposed Rules, and Notices of the Federal Government

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46456; File No. SR-NASD-2002-106]

Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendments Nos. 1 and 2 Thereto by the National Association of Securities Dealers, Inc. To Establish Maximum Execution Fees and Liquidity Provider Rebates for SuperSoes Transactions in Low-Priced Securities

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 ("Act"),1 and Rule 19b-42 thereunder, notice is hereby given that on August 6, 2002, the National Association of Securities Dealers, Inc. ("NASD" or "Association"), through its subsidiary, The Nasdaq Stock Market, Inc. ("Nasdaq"), submitted to the Securities and Exchange Commission (the "Commission") the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the NASD. Nasdaq submitted Amendment No. 1 with the Commission on August 19, 2001.3 Nasdaq filed Amendment No. 2 with the Commission on August 30, 2001.4 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

Nasdaq proposes to: (1) Establish a $75 maximum execution fee cap for a single SuperSoes transaction, and (2) establish a $37.50 maximum cap on the rebate amount provided by Nasdaq to market participants that provide liquidity to its market. Nasdaq has designated this proposal as one establishing or changing a due, fee, or other charge imposed by the self-regulatory organization under section 19(b)(3)(A)(ii) of the Act,5 which renders the rule effective upon the Commission's receipt of this filing.6

The text of the proposed rule change appears below. New text is in italics.

7010. System Services

(a)-(h) No change.

(i) Transaction Execution Services

(1) No change.

(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)

For a pilot period commencing on November 1, 2001 and lasting until October 31, 2002, the per share charge will be $0.002 per share executed for all fully or partially executed orders (entering party only)

For trades in securities that are executed at a price of $1.00 or less per share, the maximum charge per trade under this section shall not exceed $75.00

(3) No change.

(4) Liquidity provider rebate

For a pilot period commencing on November 1, 2001 and lasting until October 31, 2002:

(A) NASD members that do not charge an access fee to market participants accessing their quotations through the Nasdaq National Market Execution System will receive a rebate of $0.001 per share when their quotation is executed against by a Nasdaq National Market Execution System order.

(B) NASD members will receive a rebate of $0.001 per share when they send a Nasdaq National Market Execution System order that executes against the quotation of a market participant that charges an access fee to market participants accessing its quotations through the Nasdaq National Market Execution System.

(C) For trades in securities that are executed at a price of $1.00 or less per share, the maximum rebate available per trade under section (4) of this rule shall not exceed $37.50.

(j)-(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, the 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 Change1. Purpose

In order to control trading costs for low-priced stocks, Nasdaq proposes to establish a maximum SuperSoes execution fee of $75.00 per trade and liquidity provider rebate cap of $37.50 per trade for securities trading at $1.00 or less per share.

Currently, Nasdaq assesses on parties entering orders into SuperSoes a $0.002 per share charge for all resulting full or partial trade executions. This fee applies regardless of the price of the individual security traded and there is no maximum fee per individual trade. Nasdaq also rebates $0.001 per share to market participants that provide liquidity to the market by having their quotes accessed by SuperSoes orders, when those quoting market participants do not themselves charge a separate fee for that access. When a market participant enters an order into SuperSoes that interacts with the quote of an access fee-charging Electronic Communications Network ("ECN"), Nasdaq likewise rebates $0.001 per share to that entering party. Like the per share SuperSoes execution fee, these rebates currently have no maximum dollar amount.

Nasdaq represents that recent market activity has caused the prices of many Nasdaq securities to fluctuate, and in some cases lose significant value. As the prices of these securities decline, market participants generally need to purchase or sell an increasing number of total shares to actively participate in the market for these issues. This increase in the size of individual transactions, when combined with SuperSoes' unlimited per share fee structure, raise execution costs to market participants. Similarly, large transactions involving low-priced securities also can result in disproportionate liquidity-provider rebates.

In response, Nasdaq has determined to establish per trade maximums for SuperSoes execution fees and liquidity provider rebates in low-priced ($1.00 or less per share) securities. Under the proposal, Nasdaq would cap at $75 the maximum execution fee it would impose on the entering party for a single SuperSoes trade where the price of the security traded was one dollar or less. For rebates, Nasdaq would cap at $37.50 the amount it gives back to market participants for providing liquidity in low-priced securities or when their orders access the low-priced quotes of fee-charging ECNs. Nasdaq notes that the ratio between its low-priced maximum per trade fee and per trade rebate is the same as those that are applicable to higher-priced issues.

2. Statutory Basis

Nasdaq believes that the proposed rule change is with the provisions of section 15A of the Act,7 in general, and with section 15A(b)(5) of the Act,8 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 association operates or controls.

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 or appropriate in furtherance of the purposes of the Act, as amended.

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 pursuant to section 19(b)(3)(A)(ii) of the Act9 and Rule 19b-4(f)(2)10 thereunder because it establishes or changes a due, fee, or charge imposed by the self-regulatory organization. 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.11

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change, as amended, 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 the filing will also be available for inspection and copying at the principal office of the Association. All submissions should refer to File No. SR-NASD-2002-106 and should be submitted by October 1, 2002.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.12

1217 CFR 200.30-3(a)(12).

Margaret H. McFarland, Deputy Secretary.
ACTION: 11For purposes of determining the effective date and calculating the 60-day abrogation date, the Commission considers August 30, 2002, the date Nasdaq filed Amendment No. 2, to be the effective date of the proposed rule change.