00-21437. Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the National Association of Securities Dealers, Inc. to Eliminate CAES Transactions Charges for Member Firms that Receive and Execute ...

August 15, 2000.

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 August 11, 2000, 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”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by Nasdaq. Nasdaq has designated this proposal as one establishing or changing a due, fee, or other charge imposed by the Association under section 19(b)(3)(A)(ii) of the Act, ^[3] which renders the proposal effective upon filing with the Commission. 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

Nasdaq proposes to amend NASD Rule 7010 to eliminate Computer Assisted Execution Service (“CAES”) charges for member firms that receive and execute orders. Below is the text of the proposed rule change. Proposed new language is in italic; deleted language is bracketed.

7000. CHARGES FOR SERVICES AND EQUIPMENT

7010. System Services

(a)-(c) No change.

(d) Computer Assisted Execution Services.

The charges to be paid by members receiving the Computer Assisted Execution Service (CAES) shall consist of a fixed service charge and a per transaction charge plus equipment related charges.

(1) Service Charges

No change.

(2) Transaction Charges

[(A) As of November 1, 1997, $0.50 per execution shall be paid by an CAES market maker that receives and executes a CAES order or any part of a CAES order.]

(A) [(B)] As of January 1, 1998, $0.50 per execution shall be paid by any order entry firm or CAES market maker that enters an order into CAES that is executed in whole or in part.*

(B)[(C)] As of November 1, 1997, $1.00 per commitment shall be paid by any member that [which] sends [or receives] a commitment through the ITS/CAES linkage to buy or sell a listed security that is executed in whole or in part.* *

* As of September 1, 2000, a CAES market maker that receives and executes a CAES order or any part of a CAES order will not be required to pay a CAES transaction charge.

* * As of September 1, 2000, a member that receives a commitment through the ITS/CAES linkage to buy or sell a security that is executed in whole or in part will not be required to pay a CAES transaction charge.

* * * * *

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

Nasdaq proposes to eliminate CAES transaction charges for members receiving and executing orders in listed securities effective September 1, 2000. CAES transaction charges for members sending orders that are executed will remain the same. In particular, Nasdaq proposes to reduce the transaction charge to zero for a member that receives a commitment through the CAES and ITS/CAES linkages to buy or sell a listed security that is executed in whole or in part.

CAES allows NASD member firms to direct agency orders in both Nasdaq and exchange-listed securities to market makers for automatic execution. Intermarket Trading System (“ITS”)/CAES allows members to transmit and receive buy and sell commitments in exchange-listed securities. The difference between the two is that CAES allows trades among Nasdaq market makers in any CAES-eligible Consolidated Quotation System security, while ITS only permits trades between a Nasdaq market maker and an exchange in listed securities. ^[4]

Nasdaq believes this proposal potentially will lower the costs investors must pay to trade exchange-listed securities in Nasdaq InterMarket, thereby supporting the competitiveness of Nasdaq market makers and Electronic Communications Networks in attracting additional retail order flow. The proposal also is intended to provide an incentive (in the form of a no transaction fee execution) to any member providing liquidity in a Nasdaq InterMarket transaction.

The Nasdaq InterMarket operates in a competitive price environment with regional exchanges like the Chicago Stock Exchange (“CHX”) and the Cincinnati Stock Exchange (“CSE”). Currently, the CHX does not charge a transaction fee to the receiving party for market orders in listed securities sent to the exchange via MAX, the CHX's automated order routing system. Similarly, the CSE does not impose a fee for transactions in Consolidated Tape B (American Stock Exchange) securities. Nasdaq believes it is important for the Nasdaq InterMarket to be able to compete without artificial impediments. For this reason, the ability to meet the competitive price opportunities being provided by the regional stock exchanges by similarly eliminating transaction charges is fundamental to attracting and retaining market participants during this pivotal period of industry growth. It is essential to structure transaction fees in a manner that will encourage a broker/dealer making a first time decision on where to trade listed securities to be able to evaluate the substantial benefits of the Nasdaq InterMarket without pricing disincentives.

2. Statutory Basis

Nasdaq believes that the proposal to eliminate CAES transaction charges for firms that receive and execute orders is consistent with Section 15A(b)(5) of the Act, ^[5] which states that NASD rules must 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

Nasdaq 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, 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 proposed rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act ^[6] and subparagraph (f)(2) of Rule 19b-4 thereunder,^[7] because it establishes or changes a due, fee, or other charge imposed by the Association. At any time within 60 days of the filing 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.

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 20549-0609. 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 filing will also be available for inspection and copying at the principal office of the NASD. All submissions should refer to file number SR-NASD-00-49 and should be submitted by September 13, 2000.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[8]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  15 U.S.C. 78s(b)(3)(A)(ii).

4.  See CAES/ITS User Guide, p. 5, at <http://intermarket.nasdaqtrader.com>.

5.  15 U.S.C. 78o-3(b)(5).

6.  15 U.S.C. 78s(b)(3)(A)(ii).

7.  17 CFR 240.19b-4(f)(2).

8.  17 CFR 200.30-3(a)(12).