[Federal Register Volume 63, Number 201 (Monday, October 19, 1998)]
[Notices]
[Pages 55907-55908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27907]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40543; File No. SR-NASD-98-70]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc. To
Establish a Logon Identification Fee for Nasdaq's Mutual Fund Quotation
System
October 9, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on September 18, 1998 the
National Association of Securities Dealers, Inc. (``NASD'') 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. On October 1, 1998, the NASD
submitted Amendment No. 1 to the proposed rule change.\2\ 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\ See, letter from Robert E. Aber, Senior Vice President and
General Counsel, Nasdaq, to Katherine A. England, Assistant
Director, Commission (Oct. 1, 1998). In Amendment No. 1, Nasdaq
clarified its position that the proposed logon identification fee is
designed to cover only the cost of administering and maintaining the
Internet security system.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The NASD and Nasdaq are proposing to amend NASD Rule 7090 to add a
logon identification fee for subscribers to Nasdaq's Mutual Fund
Quotation System (``MFQS'' or ``Service'') that use the MFQS to
transmit to Nasdaq fund-pricing and other required information. Below
is the text of the proposed rule change. Additions are italicized.
* * * * *
7090. Mutual Fund Quotation Service
(a) Funds included in the Mutual Fund Quotation Service (``MFQS'')
shall be assessed an annual fee of $275 per fund authorized for the
News Media Lists and $200 per fund authorized for the Supplemental
List. Funds authorized during the course of an annual billing period
shall receive a proration of these fees but no credit or refund shall
accrue to funds terminated during an annual billing period. In
addition, there shall be a one-time application processing fee of $250
for each new fund authorized.
(b) Funds included in the MFQS and pricing agents designated by
such funds (``Subscriber''), shall be assessed a monthly fee of $75 for
each logon identification obtained by the Subscriber. A Subscriber may
use a logon identification to transmit to Nasdaq pricing and other
information that the Subscriber agrees to provide to Nasdaq.
* * * * *
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. Nasdaq has prepared summaries, set forth in Section 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 NASD and Nasdaq are proposing to amend NASD Rule 7090 to
establish a $75 monthly logon identification fee
[[Page 55908]]
for Nasdaq's Mutual Fund Quotation Service.
Currently, MFQS collects daily price and related data for open-end
funds and money market funds, and publicly disseminates the information
to the news media and market data vendors. Recently, Nasdaq amended its
rules to add closed-end funds to the MFQS.\3\ Previously, closed-end
funds could not be included because the Nasdaq Special Service Network
(``SSN'') on which the MFQS currently resides does not accommodate some
of the data attributes needed for closed-end funds. Nasdaq recently re-
designed and upgraded the MFQS to include closed-end funds and as part
of Nasdaq's plan to eliminate the outdated and outmoded SSN.
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\3\ See Securities Exchange Act Rel. No. 40519 (Oct. 5, 1998).
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The upgraded MFQS was developed using web-based technology. The
MFQS, which is scheduled to begin operation on or about October 26,
1998, will permit funds included in the Service or a pricing agent
designed by such funds (``Subscribers'') to transmit directly to Nasdaq
via an Internet connection the following: net asset value, offer price,
closing market price, as well as other information that Subscribers
agree to provide to Nasdaq.\4\ Nasdaq developed a multi-pronged
Internet security system to ensure the safety and integrity of the
information transmitted by Subscribers to Nasdaq. Specifically, Nasdaq
will assign to a Subscriber a logon identification(s) and will also
provide the Subscriber with ``certificate'' software. The certificate
software, when loaded onto a Subscriber's personal computer, will allow
the Subscriber to interface with the MFQS and to transmit data securely
to Nasdaq. A logon identification will allow one user at a Subscriber
to access the MFQS at a time.\5\ Each logon identification will be
unique and will allow a subscriber to review and update only the
Subscriber's pricing information.
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\4\ Each fund that is included in the MFQS signs an agreement
with Nasdaq pursuant to which the fund agrees to provide the
aforementioned information (as applicable) to Nasdaq on a daily
basis. See NASD Rule 6800(b)(2). Additionally, if a fund designates
a pricing agent to report pricing information to Nasdaq on behalf of
the fund, the pricing agent also signs the aforementioned agreement.
\5\ That is, the same logon identification cannot be use
simultaneously by more than one user at the Subscriber at a time,
although a logon identification may be used by more than one user at
a Subscriber so long as it is done on a non-simultaneous basis.
Thus, while more than one user at a Subscriber can share a logon
identification to update pricing information, Nasdaq's system will
not permit multiple users to logon simultaneously to the MFQS using
the same logon identification. A Subscriber may order multiple logon
identifications, each of which will be unique and which may be used
simultaneously with one another to access the MFQS.
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Nasdaq estimates that the MFQS's share of the on-going costs to
administer and maintain the Internet security system will be
$239,000.\6\ In order to recover the costs related to the
administration and maintenance of the MFQS's portion of the Internet
security system, the NASD and Nasdaq are proposing to establish a logon
identification fee for those who use the Service to report pricing
information. As proposed, a Subscriber will be assessed $75 per month
for each logon identification a Subscriber orders. Nasdaq will permit a
Subscriber to order a single or multiple logon identifications, each of
which will be unique to the Subscriber.
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\6\ At present, the security system is sized (hardware and
personnel) to handle only the users of the MFQS and the
NasdaqTrader.com web sites. (NasdaqTrader.com will be employing this
Internet security system, as this website soon will be adding
additional services that will provide members with certain
proprietary or sensitive information.) The administrative and
maintenance costs of the Internet security system will be allocated
between the MFQS and NasdaqTrader.com, based on the services'
proportionate cost. In the future, Nasdaq may use the Internet
security system with several NASD web-based services. See,
Securities Exchange Act Release No. 34-40542, (Oct. 9, 1998) SR-
NASD-98-71.
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2. Statutory Basis
The NASD and Nasdaq believe that the proposed rule change is
consistent with the provisions of Section 15A(b)(5) of the Act,\7\
which requires that the rules of the NASD 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. The NASD and Nasdaq believe that the logon fee is
a fair means of recovering the cost of providing security for the MFQS
because the fee is imposed directly and only on those who use the MFQS
and who benefit from the Internet security system that the fee is
intended to fund. Moreover, the proposed fee is designed to cover only
the administrative and maintenance costs of the MFQS security system.
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\7\ 15 U.S.C. 78o-3.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The NASD and Nasdaq do 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.
(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
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 proceedings to determine whether the proposed rule
change should be disapproved.\8\
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\8\ In Nasdaq's 19(b)(4) filing, Nasdaq asked for accelerated
approval. The Commission, however, has decided the proposed rule
should be subjected to the notice and comment period found in
Section 19(b)(2) of the Act.
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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
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. 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 No. SR-NASD 98-70 and should be
submitted by November 9, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ See 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27907 Filed 10-16-98; 8:45 am]
BILLING CODE 8010-01-M