Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the National Association of Securities Dealers, Inc. Establishing Execution Fees for the Nasdaq Application of the OptiMark System

[Federal Register Volume 64, Number 206 (Tuesday, October 26, 1999)]
[Notices]
[Pages 57677-57678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27887]



[[Page 57677]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42032; File No. SR-NASD-99-56]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the National Association of 
Securities Dealers, Inc. Establishing Execution Fees for the Nasdaq 
Application of the OptiMark System

October 19, 1999.
    Purusant 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 October 6, 1999, 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 (``SEC'' or ``Commission'') the 
proposed rule change as 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 NASD Rule 7010 to establish fees for 
NASD members that obtain executions through, or sponsor customers that 
use, the Nasdaq Application of the OptiMark System (``Nasdaq 
Application''). The text of the proposed rule change is available at 
the NASD and the Commission.

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 SEC recently approved a proposed rule change filed by the NASD 
to implement the Nasdaq Application.\3\ The Nasdaq Application permits 
NASD members and their customers to enter orders in Nasdaq stocks into 
an anonymous matching system that has been designed, developed, and 
patented by OptiMark Technologies, Inc. (``OptiMark Match'') and has 
been integrated into Nasdaq's facilities in Trumbull, CT.
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    \3\ Securities Exchange Act Release No. 41967 (September 30, 
1999), 64 FR 54704 (October 7, 1999).
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    The Nasdaq Application allows NASD members (and if sponsored by 
NASD members, customers of such members) to enter trading interests, 
called profiles, into Nasdaq-operated systems where those profiles are 
collected and matched periodically by the OptiMark Match. In addition 
to matching profiles entered directly into the system, the Nasdaq 
Application incorporates bids and offers in the Nasdaq Quote Montage, 
creates profiles for such quotes, and includes the quotes in the next 
match. The OptiMark Match then attempts to match contra interests at 
the best prices and sizes according to the rules of the match process. 
If the system finds that profiles have matched, it creates execution 
reports for such matched interests. When an execution occurs, Nasdaq 
will charge a fee for such execution.
    Nasdaq will charge NASD members that obtain executions through this 
new service the following fees. First, as a standard fee for all 
executions of profiles, Nasdaq shall charge a fee of $0.01 per share 
executed to the NASD member in whose name the profile was entered. 
Second, for executions that occur when a profile is entered by an NASD 
member for its own account as principal, the NASD member will be 
charged a discounted execution charge of $0.005 per share. However, if 
a profile that would otherwise qualify for a discounted fee receives an 
execution that results in price improvement of more than the minimum 
price increment, the execution will be charged the standard rate of 
$0.01.\4\ Finally, Nasdaq has determined not to charge an execution fee 
with respect to executions that occur against any market maker or ECN 
quotations as a result of the Nasdaq Application including such 
quotations as part of the optiMark Match process.\5\
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    \4\ With respect to the price improvement element of the fee 
structure, as an incentive to provide liquidity to the system, 
Nasdaq will temporarily waive the imposition of the price 
improvement aspect of the fee structure. Thus, even if an execution 
of a profile obtains price improvement as a result of a match, for 
the next six months, Nasdaq will not impose the higher execution fee 
if the NASD member's principal execution otherwise qualifies for the 
discounted execution rate.
    \5\ As is currently the case for executions through other Nasdaq 
facilities, an ECN whose quotation is matched with an Optimark 
profile may continue to charge a fee to the contra party. Telephone 
conversation between Eugene A. Lopez, Vice President, Trading and 
Market Services, Nasdaq, and Richard Strasser, Assistant Director, 
Division of Market Regulation, SEC, on October 13, 1999.
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    With respect to customers that are sponsored by NASD members and 
that directly enter profiles into the Nasdaq Application after signing 
all necessary agreements with Nasdaq, OptiMark, the sponsoring NASD 
member, and the Designated Clearing Broker, Nasdaq notes that fees for 
executions of such profiles shall be charged to the NASD member that is 
the sponsor of such customer. Therefore, Nasdaq will submit an invoice 
to the NASD member designated as the clearing broker, who will be 
responsible for paying the fee to Nasdaq.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(5) of the Act \6\ in that the proposed 
fees provide for the equitable allocation of reasonable fees among 
members.
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    \6\ 15 U.S.C. 78o-(b)(5).
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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, 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 foregoing rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A) of the Act \7\ and subparagraph (f)(2) of Rule 
19b-4 \8\ thereunder in that it constitutes a fee for executions 
charged to NASD members. At any time within 60 days of the filing of 
the proposed rule change, the

[[Page 57678]]

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.
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    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(2).
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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 proposed rule 
change is consistent with the Act.\9\ Persons making written 
submissions should file six copies thereof with the Secretary, 
Securities and Exchange Commission, 450 fifth Street, N.W., Washington, 
D.C. 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-99-56 and should be submitted by November 16, 1999.

    \9\ In reviewing the proposed rule change, the commission 
considered its potential impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    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. 99-27887 Filed 10-25-99; 8:45 am]
BILLING CODE 8010-01-M