98-27908. Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the National Association of Securities Dealers, Inc. Relating to Establishment of a Pilot Program To Provide Proprietary Trading Data via Nasdaq Trader.com  

  • [Federal Register Volume 63, Number 201 (Monday, October 19, 1998)]
    [Notices]
    [Pages 55909-55910]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 98-27908]
    
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    
    [Release No. 34-40542; File No. SR-NASD-98-71]
    
    
    Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
    Change by the National Association of Securities Dealers, Inc. Relating 
    to Establishment of a Pilot Program To Provide Proprietary Trading Data 
    via Nasdaq Trader.com
    
    October 9, 1998.
        On September 29, 1998, the National Association of Securities 
    Dealers, Inc. (``NASD'' or ``Association'') through its wholly-owned 
    subsidiary, the Nasdaq Stock Market, Inc. (``Nasdaq'') filed with the 
    Securities and Exchange Commission (``Commission'' or ``SEC'') a 
    proposed rule, pursuant to Section 19(b)(1) of the Securities Exchange 
    Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder.\2\ The proposed 
    rule change is described in Items I, II, and III below, which Items 
    have been prepared by Nasdaq. The Commission is publishing this notice 
    to solicit comments on the proposed rule change from interested 
    persons.
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        \1\ 15 U.S.C. 78s(b)(1).
        \2\ 17 CFR 240.19b-4.
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    I. Self-Regulatory Organization's Statement of The Terms of 
    Substance of The Proposed Rule Change
    
        Nasdaq is proposing to amend Rule 7010 of the Rules of the NASD, to 
    establish a pilot program to provide proprietary trading data via 
    Nasdaq's NasdaqTrader.com web site. Below is the text of the proposed 
    rule change. Proposed new language is in italics.
    
    (o) Nasdaq Trader.com Proprietary Data Fee
    
        The charge to be paid by the subscriber for each entitled user 
    receiving Nasdaq Proprietary Data via NasdaqTrader.com is $100 per 
    month (monthly maximum of 25 Historical Research Reports) or $150 per 
    month (monthly maximum of 100 Historical Research Reports). The 
    Proprietary Data Package includes:
        (1) For NASD Member Firms:
        (a) Daily Share Volume Report for a Broker/Dealer (Subscriber's 
    information only)
        (b) Daily Share Volume Reports for a Security
        (c) Monthly Summaries
        (d) Monthly Compliance Report Cards (Subscriber's information only)
        (e) Historical Research Reports
        (i) Market Maker Price Movements Report
        (ii) Equity Trade Journal (Subscriber's information only)
        (2) For Non-Member Qualified Institutional Buyers:
        (a) Daily Share Volume Reports for a Security
        (b) Monthly Summaries
        (c) Historical Research Reports
        (i) Market Maker Price Movement Report
        The Association may modify the contents of the Proprietary Data 
    Package.
    * * * * *
    
    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
    
        Nasdaq is proposing to establish a pilot proprietary trading data 
    distribution facility accessible to NASD members and qualified 
    institutional buyers through its NasdaqTrader.com web site. Under the 
    proposal, NASD member firms will be able to obtain data, verified for 
    accuracy by Nasdaq's Automated Confirmation Transaction Service 
    (``ACT''), regarding their trading volume in securities in which they 
    report volume as well as disseminate some or all of that information to 
    other users of the system. Fees from system subscribers will be used to 
    offset the costs associated with the maintenance and marketing of the 
    secured content as well as the product's portion of the ongoing 
    maintenance and administration of the Nasdaq web security 
    infrastructure.\3\
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        \3\ See Securities Exchange Act Rel. No. __ (October __, 1998) 
    (File No. SR-NASD-98-70), n.4.
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        Specifically, NASD member firms who elect to receive Nasdaq's 
    Proprietary Data Package (NPDP'') will be able to obtain the following: 
    (1) Daily Share Volume Reports displaying the firm's own T+1 daily 
    trading volume for each issue in which the firm reports volume; (2) 
    Daily Share Volume Reports for a Security containing voluntarily-posted 
    daily share volumes in individual issues traded by other NASD member 
    firms; (3) Monthly Summaries providing monthly trading volume 
    statistics for the top 50 market participants broken down by industry 
    sector, security, or type of trading (e.g. block or total); (4) Monthly 
    Compliance Report Cards outlining the firm's own compliance status in 
    the areas of trade reporting, firm quote compliance and best execution 
    obligations; and (5) Historical Research Reports consisting of Market 
    Maker Price Movement Reports (``MMPMR'') which show all of a Market 
    Maker's quote updates (price, size and inside quote at time of update) 
    for a security on a specified date, and, Equity Trade Journals 
    (``ETJs'') which detail all trades reported through ACT by the NASD 
    member firm for a selected security and date.\4\ With the exception of 
    the individual Daily Share Volume Reports for a Broker/Dealer, 
    Compliance Report Card, and ETJ reports, non-NASD member Qualified 
    Institutional Buyers (``QIBs'') \5\ who subscribe to the system will 
    also be able to obtain the NPDP. Due to capacity restrictions, NPDP 
    users seeking Historical Research Reports will be limited to either 25 
    or 100 monthly reports depending on the subscription fee paid.
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        \4\ For a trial period, an individual firm's proprietary data 
    described in numbers 1, 4 and 5 above are currently being made 
    available through NasdaqTrader.com without charge. Upon SEC approval 
    of the proposed fee, Nasdaq will begin to assess the proposed 
    monthly fee for the entire data package.
        \5\ For purposes of this service, Nasdaq will rely on the 
    definition of ``Qualified Institutional Buyer'' found in Rule 144A 
    of the Securities Act of 1933.
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        The NPDP pilot proposal is a direct response to requests from 
    professional Nasdaq market participants to increase the availability of 
    Nasdaq-verified trading data through NasdaqTrader.com. Sell-side 
    traders use share volume to display their trading activity in specific 
    Nasdaq issues while buy-side representatives utilize similar data to 
    determine which sell-side firm to select for execution of their orders. 
    NPDP attempts to create a secure, controlled mechanism to allow these 
    parties to display and view such data and make informed choices 
    regarding their trading partners.
        Nasdaq also recognizes, however, that the data contained in the 
    NPDP is proprietary and confidential. As such, Nasdaq has established a 
    secure information display and retrieval environmental through the 
    combined use of User IDs, passwords and digital certificates.\6\ To 
    further protect NASD
    
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    member firms' proprietary data, the service is designed so that firm-
    specific reports regarding daily trading volume figures will only be 
    made available to the member firm itself, unless that member determines 
    voluntarily to submit the information to the Daily Share Volume Report 
    for a Security for dissemination to other NPDP subscribers.\7\ 
    Additional firm specific reports such as the Monthly Compliance Report 
    Cards and the ETJ will also be restricted so that NASD member firms 
    will only be allowed to view their own information.
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        \6\ A digital certificate is an electronic code or computer file 
    assigned by Nasdaq to each user to identify the person accessing its 
    system and to verify that the user is accessing the correct 
    database.
        \7\ Daily Share volume Reports for a Security, available for 
    viewing by all system users, will be compiled based on voluntarily-
    submitted daily figures.
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        Concerns for data protection, and the system security requirements 
    needed to encourage greater disclosure of proprietary trading 
    statistics, also shaped Nasdaq's determination to make NPDP available 
    only to NASD member firms and QIBs. Nasdaq believes that these groups 
    contain the largest number of market participants who may benefit from 
    the availability of the voluntarily-disclosed, Nasdaq-verified, trading 
    volumes and related information available via the NPDP service. At the 
    same time, these participants are also the most likely to possess the 
    requisite staff and resources to comply with NPDP system security 
    mandates. Moreover, the QIBs defined in Rule 144A consist of entities 
    registered with various regulatory bodies which Nasdaq believes 
    provides an additional layer of protection against the improper use of 
    its members' proprietary trading data. Finally, the Rule 144A QIB 
    definition sought to be relied on by Nasdaq has already been adopted by 
    the Commission as a standard delineating the characteristics of 
    institutional market participants. As such, Nasdaq believes that this 
    standard is an appropriate starting point to evaluate the commercial 
    viability of its new data package during the pilot program.\8\
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        \8\ Nasdaq will monitor requests for the NPDP from institutes 
    not meeting the QIB standard of Rule 144A with a view to expanding 
    the availability of the data package to those institutions 
    consistent with Nasdaq Trader.com's security limitations.
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        Given the commercial uncertainties associated with the launching of 
    any new data product, Nasdaq will be establishing this new service as a 
    12 month pilot program to evaluate user interest. As part of that 
    evaluation, Nasdaq may experiment with the mix of information available 
    in the NPDP by adding and deleting various components of the package 
    based on user feedback.
        Nasdaq believes the proposed rule change is consistent with the 
    provisions of Section 15A(b)(6) \9\ of the Act. Nasdaq believes that 
    the NPDP pilot fosters cooperation and coordination with persons 
    engaged in facilitating transactions in securities and is not designed 
    to permit unfair discrimination between customers, issuers, brokers or 
    dealers.
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        \9\ Section 15A(b)(6) requires the Commission to determine that 
    the rules of the association are designed to prevent fraudulent and 
    manipulative acts and practices, to promote just and equitable 
    principles of trade, to foster cooperation and coordination with 
    persons engaged in regulating, clearing, settling, processing 
    information with respect to, and facilitating transactions in 
    securities, to remove impediments to and perfect the mechanism of a 
    free and open market and a national market system, and are not 
    designed to permit unfair discrimination between customers, issuers, 
    brokers or dealers, and in general, to protect investors and the 
    public interest.
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    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.
    
    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
    
        Within 35 days of the date of publication of this notice in the 
    Federal Register or within such longer period (i) as the Commission may 
    designate up to 90 days of such date if it finds such longer period to 
    be appropriate and publishes its reasons for so finding or (ii) as to 
    which the self-regulatory organization consents, the Commission will:
    
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule change 
    should be disapproved.
    
    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 Commission, 450 Fifth Street, NW, Washington, DC 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 November 19, 1998.
    
        For the Commission, by the Division of Market Regulation, 
    pursuant to delegated authority.\10\
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        \10\17 CFR 200.30-3(a)(12).
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    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 98-27908 Filed 10-16-98; 8:45 am]
    BILLING CODE 8010-01-M
    
    
    

Document Information

Published:
10/19/1998
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
98-27908
Pages:
55909-55910 (2 pages)
Docket Numbers:
Release No. 34-40542, File No. SR-NASD-98-71
PDF File:
98-27908.pdf