[Federal Register Volume 63, Number 32 (Wednesday, February 18, 1998)]
[Notices]
[Pages 8241-8242]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3995]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39641; File No. SR-NASD-98-06]
Self-Regulatory Organizations; Notice and Immediate Effectiveness
of Proposed Rule Change by National Association of Securities Dealers,
Inc. Relating to SelectNet Fees
February 10, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 30, 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'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the NASD. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Nasdaq is herewith filing a proposed rule change to lower the fees
charged under NASD Rule 7010(l) for the execution of transactions in
SelectNet.\2\ Under the proposed new SelectNet fee structure, fees
would be assessed in the following manner: (1) $1.00 will be charged
for each SelectNet order entered and directed to one particular market
participant that is subsequently executed in whole or in part; (2) no
fee will be charged to a member who receives and executes a directed
SelectNet order; (3) the existing $2.50 fee will remain in effect for
both sides of executed SelectNet orders that result from broadcast
messages; and (4) a $0.25 fee will remain in effect for any member who
cancels a SelectNet order. The new fees are effective February 1, 1998,
and continue through a 90-day trial period commencing the day Nasdaq's
SelectNet fee filing is published in the Federal Register.
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\2\ This filing complements SR-NASD-97-98, which extended
Nasdaq's temporary fee reduction to $1.25 per side for all SelectNet
transactions until January 31, 1998. Due to an error in the computer
disk version of the filing sent to the SEC, the extension of the
temporary fee reduction was incorrectly reported in the Federal
Register as continuing until March 31, 1998. See Securities Exchange
Act Release No. 39555 (January 15, 1998), 63 FR 3595 (January 23,
1998). Thus, as of February 1, 1998, the temporary SelectNet fee
reduction extended by SR-NASD-97-98 will lapse, and new and lower
SelectNet fees will be assessed as described in this filing.
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Proposed new language is in italics; proposed deletions are in
brackets.
* * * * *
7010. System Service
(a)-(k) No Change.
(l) SelectNet Service.
Effective February 1, 1998, [T]the following charges shall apply to
the use of SelectNet:
Transaction Charge $2.50/side
Directed Order Charge $1.00 (per execution, entering party only)
Cancellation Fee $.25/per order
(m)-(n) 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 NASD included statements
concerning the purpose of and basis for the proposed rule change. The
text of these statements may be examined at places specified in Item IV
below. The self-regulatory organization 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 lower its SelectNet fees. Currently, both
sides of a transaction executed in SelectNet are assessed $2.50
each.\3\ Nasdaq, recognizing recent significant changes in SelectNet
usage, is proposing a new fee structure that responds to this new
trading environment and more closely aligns SelectNet fees with current
market activity.
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\3\ This fee has been temporarily reduced to $1.25 per side
since October 1, 1997. See Securities Exchange Act Release No. 39248
(October 16, 1997), 62 FR 55296 (October 23, 1997). The fee will
revert to $2.50 per side on February 1, 1998, for any orders not
covered by the fee reduction (i.e., execution of broadcast orders
will continue to be charged at $2.50 per side).
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SelectNet transaction volume is at historic highs. In August 1997,
more than 75,000 daily executions took place in SelectNet. This
represented an almost fourfold increase in volume from average daily
activity recorded in 1996. Since then, SelectNet volumes have remained
at significantly increased levels, with more than 79,000 average daily
transactions in November 1997 and over 88,000 in December 1997.
The growth in SelectNet usage can be attributed to a number of
factors, most notably the introduction of the SEC Order Execution Rules
(``Order Execution Rules'') in January of 1997 \4\ and market maker
decisions to electronically communicate with each other, in lieu of the
telephone. Nasdaq also used the SelectNet system to create the access
linkage with each electronic communication network (``ECN'') that
sought to display its prices in Nasdaq consistent with the requirements
of the Order Execution Rules. Accordingly, SelectNet is the only means
of accessing orders displayed in the Nasdaq quote montage by broker-
dealers that are not subscribers to the ECN's own network. As such,
growth in SelectNet utilization closely tracked the expansion in the
number of Nasdaq stocks covered by the Order Execution Rules and the
increased use of ECNs to display orders.
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\4\ See Securities Exchange Act Release No. 37619A (September 6,
1996), 61 FR 48290 (September 12, 1996).
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Responding to increased SelectNet activity, Nasdaq's new fees
reduce SelectNet cost burdens on all users. For example, a directed,
and subsequently executed, order under the new fee structure for
directed orders will cost only $1.00, payable by the entering party. In
contrast, the present SelectNet fee is $5.00 with $2.50 being assessed
on both sides of the trade. The proposed $1.00 fee on the party
entering a directed SelectNet order represents a 60% reduction in the
fee charged only five months ago, and is 20% less than the current
temporarily-reduced fee of $1.25.
Nasdaq has eliminated any execution fees for directed SelectNet
orders
[[Page 8242]]
because Nasdaq recognizes that executing parties provide significant
liquidity to the market on a regular and continuous basis. This
liquidity, represented by the maintenance of executable quotes
accessible through directed SelectNet orders, is of substantial benefit
to all market participants. Nasdaq strongly believes that the continued
provision of such liquidity should be encouraged and that the
elimination of charges on directed order executions obtained through
SelectNet is a way to help achieve that goal.
Nasdaq notes that under the Order Execution Rules, any party may
have its trading interest reflected in a quotation displayed for
possible execution by an incoming directed order. For example, a
customer's limit order that improves a market maker's price must now be
displayed in that market maker's quote. Under Nasdaq's proposal, it is
conceivable that customer limit orders, and the market liquidity they
represent, may be handled by market makers at a lower cost than was the
case under the old fee structure. Likewise, Nasdaq market makers who
maintain executable quotes will also incur no fees when providing
liquidity by having their quotes accessed for execution by others
through directed SelectNet orders. Moreover, broker-dealers that enter
directed orders seeking to access liquidity will also have their fees
significantly reduced for any executions they obtain through SelectNet.
These fees are also equally applied, with all market participants being
charged the same $1.00 directed order entry fee. In sum, these fee
reductions should result in lower overall transaction costs for all
SelectNet system users.
While the new fees start February 1, 1998, Nasdaq believes that a
90-day trial period, commencing the date Nasdaq's new SelectNet fees
are published in the Federal Register, is appropriate due to
uncertainty regarding SelectNet usage levels as a result of the fee
changes. Nasdaq will continue to monitor usage levels and trading
behavior with a view to future modification of SelectNet charges if
warranted.
For the reason set forth above, Nasdaq believes that the proposed
rule change is consistent with Section 15A(b)(5) of the Act, which
requires that the rules of the NASD provide 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
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
This filing applies to the assessment of SelectNet fees to NASD
members, and thus the proposed rule change is effective immediately
upon filing pursuant to Section 19(b)(3)(A)(ii) of the Act and
subparagraph (e)(2) of Securities Exchange Act Rule 19b-4 thereunder
\5\ because the proposal is establishing or changing a due, fee or
other charge. At any time within 60 days 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.\6\
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\5\ 15 U.S.C. Sec. 78(b)(3)(A)(ii).
\6\ In reviewing the proposal, the Commission has considered the
proposal's impact on efficiency, competition, and capital formation.
See 15 U.S.C. 78c(f).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposal 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 File No. SR-NASD-98-06 and should be submitted by March 11,
1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-3995 Filed 2-17-98; 8:45 am]
BILLING CODE 8010-01-M
