Self-Regulatory Organizations; Notice of Proposed Rule Change by National Association of Securities Dealers, Inc. Relating To a Query- Based Vendor Fee for Distribution of Certain Market Information

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35393; File No. SR-NASD-95-7]

Self-Regulatory Organizations; Notice of Proposed Rule Change by

National Association of Securities Dealers, Inc. Relating To a Query-

Based Vendor Fee for Distribution of Certain Market Information

Feburary 17, 1995.

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

(``Act''),\1\ notice is hereby given that on February 3, 1995 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. [[Page 10625]]

\1\15 U.S.C. 78s(b)(1) (1988).

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

of the Proposed Rule Change

The NASD hereby files a proposed rule change to establish a vendor

fee of $.01/query for delivery of certain market information, on a non-

continuous basis, to the vendor's subscribers. In this context, the

term ``vendor'' may include an NASD member firm, or a non-member

engaged in the business of supplying financial data. The information

being distributed would be real-time market data consisting of inside

bid/ask and last sale information for securities listed on The Nasdaq

Stock market (``Nasdaq''), various Nasdaq indices, and similar

quotation and transaction information on over-the-counter (``OTC'')

equity securities.\2\ The proposed fee would take effect within 90 days

of the Commission's approval of this rule change, and be incorporated

into Schedule D to the NASD By-Laws, Part VIII, Section C. The full

text of the proposed rule change is set forth below. New language is

italicized.

\2\The computer facilities that support the operations of Nasdaq

are owned and operated by The Nasdaq Stock Market, Inc. (``NSMI''),

a wholly-owned subsidiary of the NASD. Among other things, NSMI is

responsible for the collection, processing, and the distribution of

real-time quotation and transaction data originated by broker-dealer

participants in Nasdaq and the OTC Bulletin Board (``OTCBB'')

service.

PART VIII--Schedule of NASD Charges for Services and Equipment

* * * *

* * *

C. Special Options

1.--4. No Change

5. Non-Continuous Access Permits vendor to process $.01/query.

to Nasdaq Level 1 and and distribute Nasdaq

Last Sale Information. Level 1 and Last Sale

information to its

subscribers on a non-

continuous or query-

response basis.

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

next 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 sole purpose of this rule change is to establish a single fee

for vendors wishing to provide basic, real-time market data to low

volume users. In recent years, the NASD has been approached by several

member firms that wished to provide retail customers with a cost-

effective alternative to calling their brokers for current market

information. Advances in telecommunications and personal computers

(``PCs'') have prompted firms to offer ``snapshots'' of real-time

information through (i) telephonic, voice-responsive services, (ii)

dial-up PC services, (iii) display phones, and (iv) pagers. The typical

users of such services are individual investors who may be monitoring

the value of a portfolio, tracking intra-day activity in a given stock

to facilitate an investment decision, or observing a market trend based

on periodic queries for the current level of a popular stock index. In

some instances, the member firm will levy a modest charge on its

customers who elect to access current market information through these

devices. In sum, the market data needs of the target users do not

warrant their subscription to a bundled service offered by a commercial

vendor which service frequently includes analytic information, ticker

displays, and dynamically-updated quotation and transaction

information.

To date, the parties most interested in providing basic market data

directly to investors have been NASD members with a large base of

retail clients. This proposal is intended to accommodate the business

needs of such firms at a price that should prove attractive to many

small investors. Nevertheless, any commercial data vendors that might

wish to offer this type of service will also be accommodated. The

service covered by this proposal would be limited to ``snapshots'' of

real-time information furnished in response to a discrete query by the

end user. The information provided through the query-response process

would not be dynamically updated. Hence, the end user would have to

make individual queries to obtain, for example, the most current

quotation/last sale information on his/her portfolio of securities at

various times during the trading day. This characteristic

differentiates the instant service from most vendor offerings, which

provide a continuous broadcast of real-time information with dynamic

updating to authorized display devices. On the other hand, the instant

service does not require the end user to have a costly piece of

hardware to obtain current quotation/transaction prices on a given

Nasdaq stock.

Interested vendors would provide the service pursuant to a contract

with NSMI. Under this contract, the vendor would be responsible for

monitoring query traffic and paying the appropriate amount to NSMI. The

contract would permit periodic audits by NSMI to ensure payment of all

monies due.

The NASD believes that the proposed rule change is consistent with

the requirements of Sections 11A(a)(1)\3\ and 15A(b)(5)\4\ of the Act.

Section 11A(a)(1) contains the Congressional findings and objectives

respecting a national market system. Among other things, the

[[Page 10626]] Congress advocated the application of new technologies

to effect the widespread dissemination of quotation and transaction

information to investors. Section 15A(b)(5) requires the equitable

allocation of reasonable dues, fees, or other charges among persons

using any facility or system which the NASD operates or controls.

\3\15 U.S.C. 78k-1(a)(1).

\4\Id. 78o-3(b)(5).

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The proposed service and fee are specifically designed to

accommodate the information needs of individual investors, particularly

small investors who do not require the breadth of market data and

analytic information that an institutional investor or market maker

would need. This initiative would enable any end user to receive

selected, real-time market data for a fee of $.01/query (payable by the

vendor to NSMI) without the user having to acquire an expensive piece

of hardware. Although the NASD (through NSMI) already has a non-

professional subscriber fee of $4/month/interrogation device for

receipt of inside bid/ask and last sale prices,\5\ the cost of vendor

supplied equipment and the fixed level of these fees ($13 for access to

information from all markets) tends to discourage subscription by low-

volume users. Some of these end users instead choose to pay (to the

vendor only) for electronic access to delayed market data; Nasdaq does

not charge for delayed information. The instant proposal would provide

a superior option to small investors wishing to access current market

information, on demand, for either Nasdaq or OTC equities. Accordingly,

the NASD posits that this proposal will facilitate broader

dissemination of Nasdaq and OTC market data to retail investors.

\5\NASD Manual, Schedules to the By-Laws, Schedule D, Part VIII,

Sec. A(8)(a), (CCH para.1850).

Further, the NASD submits that the proposal is consistent with the

requirements of Section 15A(b)(5) in that $.01/query fee is believed to

be readily affordable to small investors, the most likely end users. As

noted above, some of these individuals may now pay a fee to vendors to

access delayed market data via telephonic voice response systems. The

proposed fee is structured to strike a balance between affordability

and the provision of real-time market data in response to discrete

queries by end users. Based on these factors, the NASD reiterates the

belief that this proposal is consistent with the requirements of

Section 15A(b)(5).

(B) Self-Regulatory Organization's Statement on Burden on Competition

The NASD 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.

(C) Self-Regulatory Organization's Statement on Comments on the

Proposed Rule Change Received From Members, Participants, or Others

Comments were neither solicited nor received.

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 NASD 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. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, NW., Washington, DC 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 File Number SR-NASD-95-7 and

should be submitted by March 20, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\6\

\6\17 CFR 200.30-3(a)(12) (1994).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-4649 Filed 2-24-95; 8:45 am]

BILLING CODE 8010-01-M