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90-28 Automated Confirmation Transaction (ACT) Service Fees

SUGGESTED ROUTING*

Senior Management
Internal Audit
Legal & Compliance
Operations
Systems
Trading

*These are suggested departments only. Others may be appropriate for your firm.

EXECUTIVE SUMMARY

In response to requests from members concerned about rising costs for comparison of negotiated trades, NASD Market Services, Inc. (MSI) is reducing the previously approved rates for the Automated Confirmation Transaction (ACT) service. Effective as of April 2, 1990, MSI is instituting a variable fee based on the size of the trade and is eliminating the late fee for trade-date entries into ACT. At the request of the MSI Board, revenues and costs will be reviewed at least annually so that appropriate rate adjustments can be considered.

BACKGROUND

Participation in the Automated Confirmation Transaction (ACT) service became mandatory March 1, 1990 for all self-clearing broker-dealers that are members of a registered clearing agency or have an access relationship with such a clearing-agency member (see Notice to Members 89-76). The ACT service is designed to shorten the comparison cycle for trades in NASDAQ securities that are eligible for comparison processing through registered clearing agencies.

In response to industry concerns regarding overall comparison costs for negotiated trades, MSI did not charge ACT fees for the month of March, and, effective April 2, is instituting a modified service charge for broker-dealers participating in ACT.

This change is made possible by altering the method of recovering development costs for ACT. Instead of recouping development expenditures over the traditional three-year period, MSI expanded the time frame to five years.

THE NEW ACT CHARGES

The resulting changes affect two components of the ACT service charge â€" the comparison charge and the charge for late reports submitted to the service on trade day.

The original ACT comparison charge was a fixed fee of 25 cents per side and was calculated to recoup ACT development costs over three years and to cover current operating costs. Because many participants in ACT execute trades in small transactions, the Board believes that a variable fee based on the size of the trade would recover costs more equitably. Therefore, the new comparison fee will be 1.25 cents per 100 shares, with a minimum and maximum range of 400 to 7,500 shares.

In addition to the variable comparison charge, MSI is eliminating the late fee for trade-date entries into ACT for the time being. The purpose of the late fee is to encourage timely reporting of transactions on trade day. However, late reporting of transactions in NASDAQ National Market System securities is a violation of NASD rules, and late reporting to ACT is a violation of ACT rules. Since the NASD recently submitted a proposal to the SEC emphasizing a member's trade-reporting obligations, MSI believes the late charge is not necessary at this time. The Board will review members' compliance with ACT reporting time frames and will consider charging late fees if necessary in the future.

ACT RATES IN THE FUTURE

The new rates for ACT were derived from projections of comparison traffic during the next five years. MSI should be able to recover development costs by that time if ACT traffic projections remain viable. The Board has directed the staff to monitor the actual ACT comparison traffic against the original projections to ensure cost recovery over the five-year period.

Should ACT volume permit, there could be additional reductions in ACT charges in the future. Conversely, if the Board determines that the volume of trades reported to ACT for comparison processing falls significantly short of the levels set for recovery of ACT expenses, the Board will consider other means of cost recovery.

For example, broker-dealers that use ACT for trade reporting, but send locked-in trades directly to clearing through the use of Qualified Special Representative (QSR) agreements with NSCC, in the future may have to pay a fee for transaction reporting through ACT. The Board intends to monitor closely members' use of ACT, whether for trade reporting alone or for both trade reporting and comparison, and anticipates future adjustments in ACT rates depending on the use made of the service.

RATE SCHEDULE AS OF APRIL 2, 1990

MSI will bill the ACT rates as of April 2, 1990. The entire schedule of service charges appears below and will also be in Schedule D to the NASD By-Laws.

ACT Service Charges

Comparison

$.0125/side per 100 shares (minimum 400 shares, maximum 7,500 shares)

Late Report â€" T+l

$.25/side

Browse/query

$.25/side*

Terminal Fee

$50/month (ACT-only terminals)

CTCI fee

$500/month

Service desk

$50/month**


*Each ACT query incurs the $.25 fee; however, the first accept or decline processed for a transaction is free, to ensure that no more than $.25 is charged per comparison. Subsequent queries for more data on the same security also will be processed free. Any subsequent query on a different security will incur the $.25 query charge.

**The ACT Service Desk is available to ACT participants that do not have access to NASDAQ equipment and that average five or fewer trades per day during the previous calendar quarter (see Notice to Members 90-9).

Questions regarding ACT fees may be directed to NASDAQ Subscriber Services at (301) 948-6162.


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