I. Introduction
On March 7, 2002, the National Association of Securities Dealers, Inc. (“NASD”) through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”) filed with the Securities and Exchange Commission (“SEC” or “Commission”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and rule 19b-4 thereunder, a proposed rule change to establish fees for new Nasdaq market data products. On April 25, 2002, Nasdaq filed Amendment No. 1 that entirely replaced the original rule filing. On July 29, 2002, Nasdaq filed Amendment No. 2 that entirely replaced the original rule filing and Amendment No. 1. On August 23, 2002, Nasdaq filed Amendment No. 3 that entirely replaced the original rule filing and Amendment Nos. 1 and 2. On September 13, 2002, the Nasdaq submitted Amendment No. 4 that entirely replaced the original rule filing and Amendment Nos. 1, 2, and 3. The proposed rule change, as amended, was published for comment in the Federal Register on September 27, 2002. The Commission did not receive any comments on the proposed rule change. On October 3, 2002, Nasdaq filed Amendment No. 5 to the proposed rule change. This order approves the proposed rule change, as amended, and notices and grants accelerated approval to Amendment No. 5.
17 CFR 240.19b-4.
See Letter from Mary M. Dunbar, Deputy General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division of Market Regulation (“Division”), Commission, dated April 25, 2002.
See Letter from Mary M. Dunbar, Deputy General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division, Commission, dated July 26, 2002.
See Letter from Mary M. Dunbar, Deputy General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division, Commission, dated August 22, 2002.
See Letter from Mary M. Dunbar, Deputy General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division, Commission, dated September 13, 2002.
See Securities Exchange Act Release No. 46521 (September 20, 2002), 67 FR 61179 (“notice”).
See Letter from Mary M. Dunbar, Deputy General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division, Commission, dated October 3, 2002 (“Amendment No. 5”). In Amendment No. 5, Nasdaq corrected grammatical errors in the rule language text of the proposed rule change; amended a footnote to the rule language text to state that Nasdaq itself is a distributor of its data feed(s); and added a footnote to rule 7010(q)(2)(A) stating that Nasdaq is a distributor of its data feed(s) and will execute a Nasdaq distributor agreement and pay the distributor charge.
II. Description of the Proposal
Nasdaq proposes to amend NASD rule 7010 to establish fees for new Nasdaq data entitlement packages. In its rule filings regarding SuperMontage, Nasdaq described its new data feeds and products: the Nasdaq Prime data feed, which will provide the new data for a Nasdaq entitlement package called “TotalView,” and the Aggregate Depth at Price (“ADAP”) data feed, which will provide the new data entitlement packages called “DepthView” and “PowerView”.
These rule filings were approved by the Commission in Securities Exchange Act Release Nos. 43863 (January 19, 2001), 66 FR 8020 (January 26, 2001) and 45790 (April 19, 2002), 67 FR 21007 (April 29, 2002).
As described further below, PowerView includes data from ADAP and the NQDS data feed.
A. TotalView
TotalView will provide, on a real-time basis: (1) All individual attributable quote/order information at the five best price levels displayed by the Nasdaq SuperMontage system; (2) the aggregate size of all unattributed quotes or orders at each of the top five price levels, on both sides of the market, that are in the SuperMontage system; (3) the aggregate attributable and unattributable quotes and orders at each of the top five price levels, on both sides of the market, that are in the SuperMontage system; (4) the quote and order data found in the Nasdaq Quotation Dissemination Service (“NQDS”) data feed, including the best attributed quotation from each Nasdaq participant, and (5) the Nasdaq Inside Price. Nasdaq proposes to charge distributors of TotalView $7500.00 per month. In addition, Nasdaq proposes to charge $150.00 per month per controlled device. According to Nasdaq, TotalView will use significantly more bandwidth than any Nasdaq data entitlement to date. In addition, Nasdaq believes that this data product is highly specialized and thus has not proposed a non-professional fee at this time.
The NQDS data feed currently consists of: (1) Real-time quotes for each Market Maker and Electronic Communication Network (“ECN”) in NASDAQ National Market and SmallCap issues; (2) real-time best bid or offer (“BBO”) quotes for each regional UTP exchange that quotes in NASDAQ-listed issues; and (3) real-time National BBO quote appendages for NASDAQ National Market and SmallCap issues. Telephone conversation between Eleni Constantine, Associate General Counsel, Office of General Counsel, Nasdaq and Susie Cho, Special Counsel, Division, Commission, September 19, 2002.
Nasdaq proposes that a “distributor” be defined as any firm that receives a Nasdaq data feed directly from Nasdaq or indirectly through another vendor and then distributes it either internally or externally. Further, Nasdaq proposes that all distributors execute a Nasdaq distributor agreement. Nasdaq itself is a distributor if its data feeds. Accordingly it must execute an agreement and pay the distributor fee.
Nasdaq proposes that a “controlled device” be defined as any device that a distributor of the Nasdaq Data Entitlement Package(s) permits to: (a) Access the information in the Nasdaq Data Entitlement Package(s); or (b) communicate with the distributor so as to cause the distributor to access the information in the Nasdaq Data Entitlement Package. If a controlled device is part of an electronic network between computers used for investment, trading or order routing activities, the burden will be on the distributor to demonstrate that the particular controlled device should not have to pay for an entitlement. For example, in some display systems the distributor gives the end user a choice to see the data or not'a user that chooses not to see it would not be charged. Similarly, in a non-display system, users of controlled devices may have a choice of basic or advanced computerized trading or order routing services, where only the advanced version uses the information. Customers of the basic service would be excluded from the entitlement requirement.
B. DepthView
DepthView will provide the aggregated size at each of the top five price levels, both on the bid and the ask, within the Nasdaq SuperMontage system. Nasdaq proposes to charge $50.00 per month for each controlled device and $25.00 per month for each controlled device of a non-professional. According to Nasdaq, DepthView requires more processing capacity to calculate its five aggregated price levels on each side of the market. Nasdaq represented that the price for DepthView was based on the increased processing capacity needed and a review of the prices charged by other major exchanges for aggregated order data.
Nasdaq proposes that a “non-professional” be defined as a natural person who is neither: (a) Registered or qualified in any capacity with the Commission, the Commodity Futures Trading Commission, any state securities agency, any securities exchange or association, or any commodities or futures contract market or association; (b) engaged as an “investment advisor” as that term is defined in section 201(11) of the Investment Advisors Act of 1940 (whether or not registered or qualified under that Act); nor (c) employed by a bank or other organization exempt from registration under federal or state securities law to perform functions that would require registration or qualification if such functions were performed for an organization not so exempt.
C. PowerView
PowerView will include both the data available through DepthView and the data available in the NQDS data feed, including the best-attributed quotation from each Nasdaq participant in each Nasdaq National Market and Small Cap Market stock. Nasdaq proposes to charge $75.00 per month per controlled device and $29.00 per month per controlled device of non-professionals.
See note 11, supra.
III. Discussion
The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association, and in particular, the requirements of section 15A(b)(5) of the Act, which requires that the rules of an association provide for the equitable allocation of reasonable fees, dues and other charges among members and issuers and other persons using any facility or system which the association operates or controls. Specifically, the Commission believes that the NASD's proposed charges for these new data products are reasonable when compared to similar types of services provided by other markets. Further, Nasdaq has represented that these new data products will provide more market data than currently provided and will require significantly more bandwidth and systems capacity.
In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
15 U.S.C. 78o-3(b)(5).
For example, the New York Stock Exchange's OpenBook service has a monthly charge of $5000.00 for receipt of the data feed and $50.00 for each end-user terminal. See Securities Exchange Act Release No. 45138 (December 7, 2001), 66 FR 64895 (December 14, 2001).
Nasdaq has proposed lower fee charges for non-professionals for DepthView and PowerView. The Commission believes that should provide an opportunity for many investors to have access to the enhanced data provided by these services, which should help to increase transparency. Nasdaq represented that it may consider a non-professional fee for TotalView in the future.
Nasdaq has proposed a new definition for controlled devices. With this new definition, Nasdaq will impose charges on all devices that have the capacity to either access or to utilize a particular data feed, whether the controlled device displays the data, “receives” the data, or has the ability to utilize the data even though the data remains on another device. A distributor is required to pay the controlled device fee for all such devices that are part of a network that receives a particular data feed. Nasdaq has proposed, however, that distributors that can demonstrate that a particular controlled device in fact has no capacity to access or use the data will not be charged the controlled device fee. The Commission believes that the proposed definition of controlled device is consistent with the requirements of the Act, which permits an association to impose reasonable fees on persons who are using a facility or system of such association.
In its notice, Nasdaq represented that it will not impose any restrictions on redistribution of the data products to qualified vendors and broker-dealers that have entered into Distributor Agreements with Nasdaq. According to Nasdaq, its display requirements are covered by the Distributor Agreements. The Commission notes that this order only approves the fees proposed by Nasdaq for the data products and therefore, the Commission is not approving or disapproving the terms of Nasdaq's Distributor Agreements.
Finally, the Commission notes that Nasdaq has acknowledged that persons who subscribe to receive the new data products, to the extent that they act as a vendor, must comply with the requirements of the Vendor Display rule. Specifically, the Vendor Display rule establishes minimum requirements governing the manner in which transaction, quotation, and other market information is displayed in certain exchange-listed and Nasdaq-listed securities (“subject securities”). Generally, under the rule, vendors that provide quotation information with respect to subject securities must provide a consolidated display of quotation information from all reporting market centers for that security. Because DepthView, PowerView, and TotalView do not, individually, satisfy the consolidated display requirement of the rule, vendors, including Nasdaq itself to the extent it acts as a vendor, will need to disseminate additional quotation information along with these data products to comply with the rule. In this connection, the Commission notes that Nasdaq has put statements to this effect on its website description of these services and it its subscription contracts.
17 CFR 240.11Ac1-2. Vendors purchasing data feeds from Nasdaq are likewise responsible for their compliance with the Vendor Display rule. See also notice, supra note 7.
The Commission finds good cause for approving Amendment No. 5 to the proposed rule change prior to the thirtieth day after the date of publication of notice thereof in the Federal Register. Amendment No. 5 merely provides technical corrections and clarification to the proposed rule text, which was reflected in the notice of the proposed rule change. The Commission, therefore, believes that granting accelerated approval of Amendment No. 5 is appropriate and consistent with section 15A(b)(6) and section 19(b) of the Act.
15 U.S.C. 78s(b).
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 5, including whether it 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 at 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-2002-33 and should be submitted by December 13, 2002.
V. Conclusion
For the reasons discussed above, the Commission finds that the proposal, as amended, is consistent with the Act and the rules and regulations thereunder. It is therefore ordered, pursuant to section 19(b)(2) of the Act, that the proposed rule change (SR-NASD-2002-33), as amended, be and hereby is approved.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-29761 Filed 11-21-02; 8:45 am]
BILLING CODE 8010-01-P