[Federal Register Volume 60, Number 8 (Thursday, January 12, 1995)]
[Notices]
[Pages 3014-3015]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-716]
[[Page 3014]]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35189; File No. SR-NASD-94-76]
Self-Regulatory Organizations; Notice and Immediate Effectiveness
of Proposed Rule Change by National Association of Securities Dealers,
Inc., Relating to Subscriber Fees for Nasdaq Workstation II and
Systems-Related Testing Fees
January 3, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December
14, 1994, the National Association of Securities Dealers, Inc.
(``NASD'' or ``Association'') filed with the Securities and Exchange
Commission (``Commission'' or ``SEC'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the NASD. The NASD has designated this proposal as one establishing
or changing a fee under Section 19(b)(3)(A(ii) of the Act, which
renders the rule effective upon the Commission's receipt of this
filing. 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
Pursuant to Section 19(b)(1) of the Act and Rule 19b-4 thereunder,
the following is the full text of a proposed rule change that will
revise the fee structure applicable to NASD members receiving the
second generation of Nasdaq Workstation Service
(hereinafter referred to as ``NWII'') functionality.\1\ Additionally,
the NASD is proposing to implement fees that member firms would pay to
test certain communications interfaces. The proposed fees would take
effect on January 1, 1995 and be reflected in Sections A(9) and E(5),
respectively, of Part VIII of Schedule D to the NASD By-Laws. The full
text of the proposed rule change is set forth below. (New language is
underlined and deletions are bracketed.)
\1\The computer facilities that support the provisions of NWII
are operated by The Nasdaq Stock Market, Inc. (``NSMI''), a wholly
owned subsidiary of the NASD.
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Part VIII--Schedule of NASD Charges for Services and Equipment
a. System Services
* * * * *
9. Nasdaq Workstation Service
* * * * *
The following charges shall apply to the receipt of Level 2 or
Level 3 Nasdaq Service via equipment and communications linkages
prescribed for the Nasdaq Workstation II service.
Service Charge--$100/month per server
Display Charge--$500/month per presentation device
Additional Circuit--$1,150 per month
* * * * *
E. Other Services
1. No change.
2. No change.
3. No change.
4. Testing Services.
Subscribers that conduct tests of their computer-to-computer
interface (``CTCI'') or digital interface (``DIS/CHIPS'') with the
central processing facilities of The Nasdaq Stock Market, Inc.
(``NSMI'') shall pay the following charges:
$285/hour--For CTCI/DIS/CHIPS testing between 9:00 a.m. and 5:00 p.m.
E.T. on business days;
$333/hour--For testing at all other times on business days, or on
weekends and holidays.
The foregoing fees shall not apply to testing occasioned by (i) new or
enhanced services and/or software provided by NSMI or (ii)
modifications to software and/or services initiated by NSMI in response
to a contingency.
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 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 may be examined at the places specified in
Item IV below. The 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
The purpose of this rule change is to amend the subscriber fees
applicable to NASD member firms that use the NWII to support their
trading in The Nasdaq Stock Market (``Nasdaq'') and/or the OTC Bulletin
(``OTCBB'') component of the over-the-counter (``OTC'') equities
market. The rule change also would establish a new category of fees to
be paid by member firms (either directly or through billings from their
service bureaus) for testing communication interfaces with central
processing facilities that support Nasdaq.
The roll-out of NWII, which began in November, 1994, constitutes a
significant milestone in the upgrade of hardware, software, and network
facilities that comprise the infrastructure of Nasdaq. The software
driving NWII is windows-based and provides several data management
features that are not available in the original version of Nasdaq
Workstation service (hereinafter referred to as ``NWI''). Moreover, a
new network--known as the Enterprise Wide Network (``EWN'')--has been
developed to deliver NWII functionality. The capacity of the EWN is
more than five times that of the network developed for NWI (i.e.,
56,000 baud versus 9,600 baud). Since the NWII roll-out has now begun,
it is appropriate to implement service fees calculated to recover the
higher costs of operating and maintaining the NWII functionality and
the EWN.\2\
\2\The NWII roll-out will occur in five phases with the final
phase scheduled for completion in mid-1996. Each phase consists of
installing NWII at all subscriber sites in a defined geographic
area. Thus, while the roll-out proceeds, some subscribers will
continue to utilize NWI and will pay the existing charges for that
service.
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Under the NWII, each subscriber location will have at least one
service delivery platform or server that resides on the EWN. (The
server functions as the subscriber's gateway to the EWN.) Each server
will be capable of supporting up to eight presentation devices (i.e.,
Workstations). To recover the operational and maintenance costs
associated with providing NWII, the proposed fee structure would
establish a charge of $100/month per server and a charge of $500/month
for each workstation or presentation device linked to that server.
Thus, an NWII subscriber with 8 Workstations and 1 server would pay
$4,100/month under the proposed fee structure. Although it is possible
to support as many as eight Workstations on a single server, and NWII
subscriber might wish to configure its operating environment, for
example, with two servers, each supporting 4 Workstations. In this
circumstance, the subscriber would pay $1,150/month for the second
circuit at the same location, $200/month for the two servers, and
$4,000/month for receipt of NWII functionality on 8 Workstations. The
proposed fees are premised on the assumption that a subscriber will
maximize the capacity of each server before adding a second
telecommunications circuit and server. However, if a firm elects to add
servers and circuits without maximizing, that firm will bear the
additional circuit cost of $1150/month which constitutes a
[[Page 3015]] pass-through of the actual cost borne by NSMI.
Regarding the proposed testing fees, these have been calculated to
recover NSMI's actual costs in accommodating members' requests for
testing of specialized communications interfaces with NSMI's central
processing facilities. Typically, such testing occurs when new broker-
dealer subscribers are added to an existing computer-to-computer
interface (``CTCI'') maintained by a service bureau or when a broker-
dealer (with its own digital interface) has effected a major change in
its internal systems/software applications. The scope, purpose, and
longevity of the test are determined by the subscriber. NSMI
participates in the testing process by providing a test environment
that closely approximates the production environment for the service(s)
which the subscriber wishes to test (e.g., the Automated Transaction
(``ACT'') service). Derivation of the testing fees involved a review of
NSMI testing logs for 1993; the computation of direct and indirect
costs allocable to tests actually performed; and the breakdown of those
costs into hourly rates. In sum, the proposed testing fees would pass-
through the actual costs incurred by NSMI in accommodating subscribers'
testing needs. No testing fee would be assessed in circumstances where
major systems/software change instituted by NSMI have prompted the
subscriber's test.
The NASD believes that the proposed rule change is consistent with
the requirements of Section 15A(b)(5) of the Act. Section 15A(b)(5)
specifies that the rules of a national securities association shall
provide for the equitable allocation of reasonable dues, fees, and
other charges among members, issuers, and other persons using any
facility or system that the Association operates or controls. It should
be noted that the proposed NWII fees will be payable exclusively by
NASD member firms that receive Level 2 or Level 3 Nasdaq service via
the NWII offering. As described earlier, NWII is being implemented in
phases with all current NWI subscribers in a defined area being
converted to NWII.\3\ Thus, beginning January 1, 1995, all NASD members
that are converted to NWII will be liable for the new fees; NWI
subscribers will continue to pay the NWI service fees until they are
coverted.
\3\NWI and NWII both permit the deliver of either Level 2 or
Level 3 Nasdaq service. Subscription to Level 3 is limited to NASD
members that meet the financial and operational requirements for
market making. Subscription to Level 2 Nasdaq service is open to
non-members as well as members because it does not provide the
functionality needed to enter quotations as a market maker.
Extension of the NWII fees to non-member subscribers will be the
subject of a separate Rule 19b-4 filing. Meanwhile, any non-members
converted to NWII will continue to pay the prevailing rate for NWI
functionality.
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The NASD believes that the proposed NWII fees are reasonable in
that they were calculated to recover the projected costs of operating
and maintaining the NWII software, hardware, and the EWN. The
development costs associated with NWII have been expensed by NSMI and
will not be recovered through the proposed NWII fees. Although higher
than the existing fees for NWI, the NWII fees are believed reasonable
that subscribers will be provided the increased functionality embedded
in the new software package, increased network capacity to accommodate
future growth in traffic and business volume, and upgraded hardware
capable of more rapid processing of message traffic to and from market
participants.
Regarding the proposed testing fees, these have been calculated to
recover the actual costs incurred by NSMI to accommodate the testing
requirements of CTCI and digital interface subscribers. All entities
that would be required to pay these testing fees are either NASD
members or service bureaus that incur testing charges will pass them on
to their broker-dealer customers. Hence, the affected NASD members will
ultimately pay the testing charge incurred by their service bureaus.
Based on the foregoing factors, the NASD submits that both
categories of proposed fees are reasonable and designed to achieve an
equitable allocation of operating costs among NASD members utilizing
the affected NSMI services.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The NASD 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
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 Act and subparagraph (e) of Rule 19b-4
thereunder, because the proposal constitutes a change in a ``due, fee
or other charge'' or specific automated services provided to NASD
member firms. 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.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street NW., Washington, D.C. 20549.
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 the
NASD. All submissions should refer to the file number in the caption
above and should be submitted by February 2, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
\4\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-716 Filed 1-11-95; 8:45 am]
BILLING CODE 8010-01-M
