02-21428. Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendments Nos. 1 and 2 Thereto by the National Association of Securities Dealers, Inc. To Increase Fees for the Mutual Fund Quotation Service and To Adopt a New ...

August 16, 2002.

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 July 30, 2002, the National Association of Securities Dealers, Inc. (“NASD” or “Association”) through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”), 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 by Nasdaq. Nasdaq filed Amendment No. 1 to the proposal with the Commission on August 5, 2002.^[3] Nasdaq filed Amendment No. 2 to the proposal with the Commission on August 15, 2002.^[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 amend NASD Rule 7090 to increase fees associated with the Mutual Fund Quotation Service (“MFQS” or the “Service”) and to adopt a new administrative fee to process a request to amend the name and/or symbol of a fund. If approved, Nasdaq proposes to implement the proposed rule change on the first day of the month immediately following approval by the Commission.

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

Rule 7090. Mutual Fund Quotation Service

(a) Funds and Unit Investment Trusts included in the Mutual Fund Quotation Service (“MFQS”) shall be assessed an annual fee of $400 per fund or trust authorized for the News Media Lists and $275 per fund or trust authorized for the Supplemental List. Funds or trusts authorized during the course of an annual billing period shall receive a proportion of these fees but no credit or refund shall accrue to funds or trusts terminated during an annual billing period. In addition, there shall be a one-time application processing fee of [$250] $325 for each new fund or trust authorized.

(b) If a Unit Investment Trust expires by its own terms during an annual billing period and is replaced within three months by a trust that is materially similar in investment objective, the replacing trust shall be charged a one-time application fee of $150. In addition, the replacing trust shall not be charged an annual fee if the expiring trust has already paid an annual fee for that annual billing period.

(c) Funds included in the MFQS and pricing agents designated by such funds (“Subscriber”), shall be assessed a monthly fee of [$75] $100 for each logon identification obtained by the Subscriber. A Subscriber may use a logon identification to transmit to Nasdaq pricing and other information that the Subscriber agrees to provide to Nasdaq.

(d) Funds included in the MFQS shall be assessed a $20 administrative fee to process a request to amend the name and/or the symbol of a fund.

* * * * *

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

1. Purpose

The MFQS was created to collect and to disseminate data pertaining to the value of open- and closed-end mutual funds, money market funds, and unit investment trusts. Currently, the MFQS disseminates the valuation data for over 17,000 funds, an increase of over 45 percent since January 2000. Funds must meet minimum eligibility criteria in order to be included in the MFQS.^[5] The MFQS has two “lists” in which a fund may be included—the News Media List and the Supplemental List—and each list has its own eligibility requirements. If a fund qualifies for the News Media List, pricing information about the fund is eligible for inclusion in the fund tables of newspapers and is also eligible for dissemination over Nasdaq's Level 1 Service, which is distributed to market data vendors. If a fund qualifies for the Supplemental List, the pricing information about that fund generally is not included in newspaper fund tables, but is disseminated over Nasdaq's Level 1 Service. The Supplemental List, therefore, provides significant visibility for funds that do not otherwise qualify for inclusion in the News Media List.

MFQS permits funds included in the Service or a pricing agent designated by such funds (“Subscribers”) to transmit specific fund-related information directly to Nasdaq via the Internet. This information includes, but is not limited to, net asset value, offer price, closing market price, capital gains distributions, and assets. Nasdaq assigns to each Subscriber one or more logon identifications that allow the Subscriber to interface with the MFQS and transmit data securely to Nasdaq. Each logon identification is unique and allows only one user at a Subscriber to access the MFQS at a time; however, a Subscriber may obtain multiple logon identifications, to allow multiple users to access the MFQS simultaneously.

On June 3, 2002, Nasdaq introduced several enhancements to the MFQS Web site in response to enhancement requests from Subscribers, including new data messages for the pricing of unit investment trusts, new query tools to evaluate statistics regarding fund pricing updates, and improvements in the efficiency of fund update processing.

In 1998, Nasdaq established a fee of $75 per month per logon identification to cover the costs of maintaining the security of web-based access to the MFQS.^[6] Since that time, Nasdaq has regularly upgraded its security software and hardware to keep pace with the evolving complexity of Internet security threats. As a result, Nasdaq proposes to increase this fee to $100 per month per logon identification to reflect the costs of these upgrades and the costs of recent website enhancements.^[7]

Currently, funds wishing to list with MFQS pay a one-time application processing fee of $250, and thereafter pay an annual listing fee. The application processing fee has not been modified since it was introduced in 1996.^[8] Since that time, the growth of MFQS has required the staff that process applications to shift from a desktop database using off-the-shelf software to a more sophisticated database and tracking system that requires full software lifecycle support (e.g., software engineers, quality control testing, and technical staff support in production). To reflect the costs associated with this upgrade, as well as general increases in the personnel costs associated with MFQS since 1996, Nasdaq proposes to increase the fee to $325.

Finally, Nasdaq introduces a nominal $20 fee for processing requests to change the name and/or symbol of a fund that is currently listed on MFQS. In 2001, MFQS operations personnel performed over 2,000 name and symbol changes for listed funds. Nasdaq believes that it should be compensated for the personnel and system costs associated with making these changes. The fee would be charged for each request to change a name and/or symbol. Thus, if a fund requested a simultaneous change to its name and its symbol, the fee would still be $20.

2. Statutory Basis

Nasdaq believes that the proposed rule change is consistent with the provisions of section 15A of the Act,^[9] in general, and with section 15A(b)(5) of the Act,^[10] in particular, 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. Nasdaq believes that the fee changes are necessary to ensure that the fees for MFQS continue to cover the costs of its operation. The fees will be imposed directly on funds that benefit from the operation of the System.

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

Nasdaq neither solicited nor received written comments.

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, 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 such filings will also be available for inspection and copying at the principal office of the Association. All submissions should refer to File No. SR-NASD-2002-101 and should be submitted by September 12, 2002.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[11]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See letter from John M. Yetter, Assistant General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division of Market Regulation (“Division”), Commission, dated August 5, 2002 (“Amendment No. 1”). In Amendment No. 1, Nasdaq made technical corrections to the proposed rule text.

4.  See letter from John M. Yetter, Assistant General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division, Commission, dated August 14, 2002 (“Amendment No. 2”). In Amendment No. 2, Nasdaq amended the purpose section of the proposal to better reflect the basis for each proposed fee increase.

5.  See NASD Rule 6800.

6.  See Securities Exchange Act Release No. 40694 (November 19, 1998); 63 FR 65832 (November 30, 1998).

7.  Nasdaq understands that while this fee was initially designed to only cover the cost of maintaining the Internet security of the system, Nasdaq now believes that the fee increase is necessary to cover the additional costs of developing and providing web-based access to MFQS. Telephone conversation between John M. Yetter, Assistant General Counsel, Nasdaq, and Christopher Solgan, Law Clerk, Division, Commission, on August 6, 2002.

8.  See Securities Exchange Act Release No. 37014 (March 22, 1996); 61 FR 14182 (March 29, 1996).

9.  15 U.S.C. 78 o-3.

10.  15 U.S.C. 78 o-3(b)(5).

11.  17 CFR 200.30-3(a)(12).