Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by The National Association of Securities Dealers, Inc. Relating to Consolidation of the Level 1 and Last Sale Information Services and Subscriber Fees

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35054; File No. SR-NASD-94-70]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by The National Association of Securities Dealers, Inc. Relating

to Consolidation of the Level 1 and Last Sale Information Services and

Subscriber Fees

December 6, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December

1, 1994 the National Association of Securities Dealers, Inc. (``NASD''

or ``Association'') 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.

I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

Pursuant to Section 19(b)(1) of the Act and Rule 19b-4 thereunder,

the following is the full text of a proposed rule change that will

effectuate a consolidation of the Nasdaq Level 1 and Last Sale

Information services and of the corresponding subscriber charges. The

proposed language would modify Sections A(1) and (5) of Part VIII of

Schedule D to the NASD By-Laws. (New language is italicized and

deletions are bracketed.)

PART VIII

SCHEDULE OF NASD CHARGES FOR SERVICES AND EQUIPMENT

A. System Services

1. Level 1 Service

The charge to be paid by the subscriber for each terminal receiving

NASDAQ Level 1 Service is [$9.25] $19 per month. This Service includes

the following data: (i) inside bid/ask quotations calculated for

securities [quoted in] listed on [t]The Nasdaq Stock Market [Nasdaq

System] and securities quoted in the OTC Bulletin Board (``OTCBB'')

service; [and] (ii) the individual quotations or indications of

interest of broker-dealers utilizing the OTCBB service; and (iii) last

sale information on securities classified as designated securities in

Schedule D to the NASD By-Laws, Parts X, XI, and XIII and securities

classified as over-the-counter equity securities in Part XII of

Schedule D.

* * * * *

5. Rescinded and reserved for future use.

[Last Sale Information

a. The charge to be paid by the subscriber for each terminal

receiving Last Sale Information through a vendor shall be determined by

the total number of securities classified by the Corporation (i) as

designated securities under Part X and XI and (ii) those classified as

OTC Equity Securities under Part XII of Schedule D to the NASD By-Laws.

The following schedule of charges shall apply to the receipt of last

sale information for such securities.

------------------------------------------------------------------------

Charge

per

Number of securities terminal

per

month

------------------------------------------------------------------------

250 or less................................................... $2.50

251 or 500.................................................... 5.00

501 or 1,000.................................................. 7.50

1001 or more.................................................. 9.75

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b. The rate for each month shall be determined by the total number

of designated securities and OTC Equity Securities at the start of

business on the first day of that month.]

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 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. The NASD 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

The purpose of this rule change is to establish a single service

offering comprised of the existing Nasdaq Level 1 (``Level 1'')

quotation and Last Sale Information (``Last Sale'') services. The

monthly charge to be levied for the consolidated service will be $19/

terminal, the sum of the monthly charges currently assessed for receipt

of the Last Sale and Level 1 services on an authorized terminal device.

Hence, this rule proposal does not entail an increase in the subscriber

charges for the individual constituent services; however, its

implementation will result in higher fees for some Level 1 subscribers

who do not currently pay for receipt of last sale data.

The two services covered by this proposal are distributed by

commercial vendors of market data pursuant to contracts with The Nasdaq

Stock Market, Inc. (``NSMI''), a wholly-owned subsidiary of the

NASD.1 Vendors distribute the data via their respective networks

to the end users who pay the established charge levied by NSMI for

receipt of the quotation and transaction information. The existence of

separate service categories for quotation and transaction data traces

to the evolution of The Nasdaq Stock Market (``Nasdaq''). From its

inception in 1971, Nasdaq provided quotation information on a real-time

basis for vendor distribution. In 1982, the NASD implemented rules

requiring member firms to report individual transactions in the top

tier of Nasdaq listings within 90 seconds of execution. Later, this

reporting regime was extended to Nasdaq SmallCap issues, Nasdaq

convertible debt issues, and equity issues traded exclusively over-the-

counter (``OTC''). In 1991, the universe of quotation data available to

Level 1 subscribers was expanded to include real-time quotations

entered by OTC market makers utilizing the OTCBB service. The instant

proposal would combine the real-time quotation and transaction data for

Nasdaq and OTC issues, respectively, into a single service distributed

by vendors for which their subscribers will pay a single monthly charge

of $19/terminal.

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\1\NSMI operates and maintains the facilities that collect and

validate market data prior to broadcasting the data to vendors for

redistribution.

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The NASD posits that this proposal will produce benefits to vendors

as well as their customers. First, it will simplify the billing process

by eliminating the need to separately identify and track those

terminals receiving one or the other covered service. This should

minimize the potential for billing disputes between vendors and their

customers, and simplify the process by which vendors authorize (or

deauthorize) subscriber devices for receipt of real-time quotation and

transaction information on Nasdaq and OTC issues, Second, it will

increase market transparency by ensuring that all subscribers to NSMI's

comprehensive quotation data (i.e., the quotations on Nasdaq and OTCBB

issues that Level 1 subscribers currently receive) will receive trade-

by-trade information for the same universe of quoted securities. Thus,

the vendors' customers will automatically have access to more expansive

data that can be used to gauge market trends and facilitate investment

decisions. And third, implementation of this proposal will materially

advance NSMI's efforts to simplify and update its fee structure, with a

view toward reducing the administrative burdens and costs incurred by

vendors that distribute quotation and transaction data from the Nasdaq

and OTC markets, respectively.\2\ In this regard, the NASD notes that

the SEC previously approved a similar initiative that linked the

subscription of quotation and transaction data services for New York

Stock Exchange (``NYSE'') listed issues and established unified

subscriber fees. This was accomplished by certain amendments to the

Consolidated Tape and Consolidated Quotation Plans.\3\

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\2\The action proposed in this filing is one of a number of

steps contemplated in the process of responding to vendor and

subscriber concerns respecting the administration of information

display, utilization and entitlement.

\3\See Release No. 34-24130 (February 20, 1987); 52 FR 6413

(March 3, 1987). While the NYSE initiative resulted in decreased

payments for a majority of subscribers with one display device, the

Commission noted that some subscribers with one display device would

pay increased charges and that certain smaller firms that had

currently received transaction information only would experience a

fee increase. The Commission, in its approval order encouraged the

CTA and CQ Plan participants to monitor the operation of its revised

structure to determine if relief for smaller firms is practicable.

Id.

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The NASD and NSMI believe that that proposed rule change is

consistent with the requirements of Section 15A(b)(5) of the Act.

Section 15A(b)(5) specifies that the rules of a national securities

association shall provide for the equitable allocation of reasonable

dues, fees and other charges among members, issuers and other persons

using any facility or system that the association operates or controls.

The proposed change in fee structure effects the consolidation of two

existing services into a single service, priced at the current levels

of the constituent services. As such, the proposal does not constitute

a fee increase for those subscribers receiving the most comprehensive

service. However, its implementation will require that Level 1

subscribers who had not previously received last sale data also pay for

receipt of complete last sale data. In terms of the universe of Level 1

terminals currently supported, this segment accounts for about 6.5% of

the terminal population. It should be noted that this percentage has

been declining in recent years, apparently reflecting the enhanced

value of last sale data that now includes all Nasdaq-listed securities

and thousands of OTC equity securities. The NASD believes that the

additional cost of $9.75 that some subscribers will incur will be

partially offset by the administrative savings.\4\ In particular, large

subscribers will no longer have to verify the accuracy of billings by

tracking terminals that receive only one of the covered services.

Administrative savings should also accrue to vendors with large

populations of subscribers receiving Nasdaq market data. Moreover, the

instant proposal will effect a simplification in the fee structure

applicable to receipt of two major data services supported by NSMI.

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\4\To the extent that some small volume subscribers to the

current Level 1 service do not wish to receive the consolidated

service they may subscribe to a vendor service offering the same

categories of information on a delayed basis. NSMI imposes no

subscriber charge for delayed market data.

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The NASD and NSMI also believe that this proposal is consistent

with certain national market system objectives expressed by Congress in

adopting Section 11A(a)(1) of the Act in 1975. Specifically, the

Congress found that the efficiency of the nation's securities markets

would be advanced by the broad dissemination of reliable quotation and

transaction information to brokers, dealers, and investors. In other

words, the Congress sought to increase market transparency by fostering

opportunities for electronic delivery of current market data to the

constituencies served by the various securities markets. The NASD

submits that its proposal is consistent with Section 11A(a)(1) because

it will optimize the distribution of real-time quotation and

transaction data from the Nasdaq and OTC markets to market

professionals handling customer orders. As a result, registered

representatives using desk-top terminals to supply current market data

on Nasdaq or OTC equities will automatically be able to furnish their

customers with insider bids/offers as well as last sale prices for

these securities. Hence, consolidation of the Level 1 and Last Sale

services translates to expanded access to market data for retail

investors who depend on their brokers for current market information

Finally, the NASD notes that the Commission previously approved

amendments to the Consolidated Tape and Consolidated Quotation Plans

that effected a bundling of quotation and last sale data services (and

the establishment of unified subscriber fees) respecting NYSE-listed

securities covered by these national market system plans. Based on

these factors, the NASD reiterates its belief that the instant proposal

is fully consistent with the data distribution objectives contained in

Section 11A(a)(1) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

The NASD believes that the 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

The NASD did not solicit or receive written comments on this rule

proposal.

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

proceeding 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. 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.

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 the file number in the caption

above and should be submitted by January 3, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\5\

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\5\17 C.F.R. 200.30-3(a)(12)

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-30517 Filed 12-12-94; 8:45 am]

BILLING CODE 8010-01-M