Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Approving Proposed Rule Change To Create the Nasdaq Market Pathfinders Service and Establish Fees for the Service, 4799-4800 [E9-1674]

Download as PDF Federal Register / Vol. 74, No. 16 / Tuesday, January 27, 2009 / Notices Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–BX–2009–001 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59266; File No. SR– NASDAQ–2008–016] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Approving Proposed Rule Change To Create the Nasdaq Market Pathfinders Service and Establish Fees for the Service January 16, 2009. mstockstill on PROD1PC66 with NOTICES6 I. Introduction and Description of the Proposal On June 27, 2008, The NASDAQ Stock Market LLC (‘‘Nasdaq’’) filed with All submissions should refer to File the Securities and Exchange Number SR–BX–2009–001. This file Commission (‘‘Commission’’), pursuant number should be included on the to Section 19(b)(1) of the Securities subject line if e-mail is used. To help the Exchange Act of 1934 (‘‘Act’’) 1 and Rule Commission process and review your 19b–4 thereunder,2 a proposed rule comments more efficiently, please use change that would establish the Nasdaq only one method. The Commission will Market Pathfinders Service (‘‘Service’’) post all comments on the Commission’s and establish fees for the Service. The Internet Web site (https://www.sec.gov/ Service will allow subscribers to view a rules/sro.shtml). Copies of the real time data product that tracks the aggregated market activity of certain submission, all subsequent market participants who are amendments, all written statements aggressively buying and/or selling. with respect to the proposed rule Nasdaq proposes to offer new change that are filed with the subscribers a 30-day waiver of the user Commission, and all written fees for the Service. After the conclusion communications relating to the of the waiver period, subscribers may proposed rule change between the Commission and any person, other than avail themselves of three different subscription options at varying prices. those that may be withheld from the The proposed rule change was public in accordance with the published in the Federal Register on provisions of 5 U.S.C. 552, will be July 17, 2008.3 The Commission available for inspection and copying in received one comment on the proposal.4 the Commission’s Public Reference Nasdaq responded to the comment letter Room on official business days between on September 18, 2008.5 The the hours of 10 a.m. and 3 p.m. Copies Commission is approving the proposed of such filing also will be available for rule change. inspection and copying at the principal II. Summary of Comment Letter office of the Exchange. All comments The commenter suggests that the received will be posted without change; Commission cannot approve the the Commission does not edit personal proposed rule change for the following identifying information from reasons: submissions. You should submit only —Nasdaq is proposing to make information that you wish to make commercial use of data supplied to it available publicly. in Nasdaq’s capacity as a regulatory All submissions should refer to File body, despite the Commission’s Number SR–BX–2009–001 and should previous statement that, with regard be submitted on or before February 17, 2009. 1 15 U.S.C. 78s(b)(1). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.14 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–1671 Filed 1–26–09; 8:45 am] BILLING CODE 8011–01–P 14 17 CFR 200.30–3(a)(12). VerDate Nov<24>2008 17:20 Jan 26, 2009 Jkt 217001 2 17 CFR 240.19b–4. Securities Exchange Act Release No. 58145 (July 11, 2008), 73 FR 41143. 4 See August 7, 2008 letter from Ira D. Hammerman, Senior Managing Director and General Counsel, Securities Industry and Financial Markets Association (‘‘SIFMA’’), to Florence Harmon, Acting Secretary, Commission (‘‘SIFMA Letter’’). 5 See September 18, 2008 letter from Jeffrey S. Davis, Deputy General Counsel and Vice President, Nasdaq, to Florence Harmon, Acting Secretary, Commission (‘‘Nasdaq Letter’’). 3 See PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 4799 to OATS information, it does not believe such data should be used for non-regulatory purposes unless the data is made available to other market participants on the same terms under which it is provided to Nasdaq.6 —Nasdaq has failed to provide a detailed discussion of the data or analytics to be included in the Service. SIFMA stated that several firms have expressed concern with the proposal’s potential to compromise the confidentiality of the transacting party’s trading strategies or provide misinformation as to a transacting party. —SIFMA questions whether the Service will provide a means to reverse engineer the algorithms and strategies Nasdaq members have created, or whether the impact on such algorithms and strategies will be such as to render them useless. —SIFMA also raised a procedural concern, stating that Nasdaq is proposing to create a proprietary product that uses data its members are required to submit without compensation; no other exchange or market data vendor can replicate this product because necessary elements are not available to anyone but Nasdaq; and no cost data is provided to allow an opportunity to determine if the fees are fair and reasonable. III. Nasdaq’s Response to the Comment Letter In response to the SIFMA Letter, Nasdaq made the following points: —SIFMA inaccurately claims that Nasdaq is collecting data in its capacity as a regulatory body and using it for commercial purposes, stating that the Service does not use OATS information, but instead relies on trade information sent directly and only from the Nasdaq Matching Engine. —The Service will not operate in a manner that permits users to distinguish between short and long sales; the Service will not compromise the confidentiality of the transacting party’s trading strategies, nor provide misinformation as to a transacting party because there are filters in place to prevent this from occurring. —The Service will not provide a means to reverse engineer the algorithms and strategies Nasdaq members have created, nor will it affect those 6 SIFMA Letter at 2, quoting the Commission’s order approving Nasdaq’s exchange application. See Securities Exchange Act Release No. 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006) (File No. 10–131), in text following footnote 136. E:\FR\FM\27JAN1.SGM 27JAN1 4800 Federal Register / Vol. 74, No. 16 / Tuesday, January 27, 2009 / Notices algorithms and strategies in such a way as to render them useless. —The Service is a sentiment indicator that would provide users with an indication of how a specific type of market participant feels about certain securities, making available to the public information that is sometimes referred to as ‘‘the word on the street’’ as compiled from order flow on the trading desks of large broker-dealers. —Nasdaq believes that it has provided adequate justification for the fees. Commission does not believe that the Pathfinder Service will allow reverse engineering of the algorithms and strategies created by Nasdaq members; Nasdaq has explained the various ways the information is filtered, and has stated that such filtering will prevent this from occurring. It is therefore ordered, pursuant to Section 19(b)(2) of the Act 10, that the proposed rule change (SR–NASDAQ– 2008–016) be, and it hereby is, approved. IV. Discussion and Commission Findings The Commission has reviewed carefully the proposed rule change, the comment letter, and Nasdaq’s response to the comment letter, and finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange 7 and, in particular, Section 6(b)(4) of the Act,8 which requires, among other things, that Nasdaq’s rules 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 Nasdaq operates or controls, and that it not unfairly discriminate between customers, issuers, brokers or dealers. The Commission believes that the proposed rule change is consistent with these statutory standards. Nasdaq has represented that the Service is a voluntary one, and that the information provided to subscribers is not comprised of data that brokerdealers are obligated to provide to Nasdaq for regulatory purposes because of Nasdaq’s status as a self-regulatory organization. Additionally, brokerdealers do not need the Service to perform their duties, so the decision to purchase the Service is truly voluntary and dependent upon each brokerdealer’s business model. Finally, because the Service is voluntary, Nasdaq has met the statutory standard by pricing the Service according to free market principles; indeed, if Nasdaq priced the Service too high, brokerdealers could simply opt not to purchase the Service. The Commission believes that Nasdaq’s fees for the Service are both reasonable and equitably allocated.9 Additionally, the For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Florence E. Harmon, Deputy Secretary. [FR Doc. E9–1674 Filed 1–26–09; 8:45 am] mstockstill on PROD1PC66 with NOTICES6 7 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 8 15 U.S.C. 78f(b)(4). 9 The proposal meets the criteria, formulated by the Commission in connection with the petition filed by NetCoalition, for approval of proposed rule changes concerning the distribution of non-core VerDate Nov<24>2008 17:20 Jan 26, 2009 Jkt 217001 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59264; File No. SR– NYSEArca–2009–02] Self-Regulatory Organizations; Notice of Filing of and Immediate Effectiveness of Proposed Rule Change by NYSE Arca, Inc. To Amend or Eliminate Unnecessary Rule Text January 16, 2009. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on January 8, 2009, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared market data. See Securities Exchange Act Release Nos. 59039 (December 2, 2008), 73 FR 74770 (December 9, 2008) (SR–NYSEArca–2006–21) and 55011 (December 27, 2006) (order granting petition for review of SR–NYSEArca–2006–21). In its order issued in connection with the NetCoalition petition, the Commission stated that ‘‘reliance on competitive forces is the most appropriate and effective means to assess whether the terms for the distribution of non-core data are equitable, fair and reasonable, and not unreasonably discriminatory.’’ 73 FR at 74781–82. As such, the ‘‘existence of significant competition provides a substantial basis for finding that the terms of an exchange’s fee proposal are equitable, fair, reasonable, and not unreasonably or unfairly discriminatory.’’ Id. at 74782. If an exchange ‘‘was subject to significant competitive forces in setting the terms of a proposal,’’ a proposal will be approved unless the Commission determines that ‘‘there is a substantial countervailing basis to find that the terms nevertheless fail to meet an applicable requirement of the Exchange Act or the rules thereunder.’’ Id. at 74781. 10 15 U.S.C. 78s(b)(2). 11 17 CFR 200.30–3(a)(12). 1 15 U.S.C.78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 by the self-regulatory organization. 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 The Exchange proposes to amend or eliminate several of its rules in order to remove unnecessary rule text related to terms or systems that are now obsolete. The text of the proposed rule change is attached to the proposed rule change as Exhibit 5. A copy of this filing is available on the Exchange’s Web site at https://www.nyse.com, at the Exchange’s principal office and at the Commission’s Public Reference Room. 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 self-regulatory organization 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 those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this filing by NYSE Arca is to correct certain NYSE Arca cross-references and remove obsolete and unnecessary rule text. By abolishing these out-dated references and correcting cross-references, the Exchange is not changing or altering any obligation, rights, policies or practices enumerated within its rules. The specific proposed changes are discussed in further detail below. • Rule 5.3(g). Criteria for Underlying Securities: The Exchange is changing the numbering within the rule because two separate rule filings were approved at different times which affected the numbering within the rule.4 4 See SR–NYSEArca–2008–108, Securities Exchange Act Release No. 34–59004 [sic] (November 24, 2008) 73 FR 207 [sic] (October 24, 2008) [sic] (filing seeking approval for listing and trading of options on Managed Fund Shares) and SR–NYSEArca–2008–66, Securities [sic] Act Release No. 34–59055 [sic] (December 4, 2008) 73 FR 238 [sic] (December 10, 2008) (filing seeking approval for Listing and Trading Options on Shares of the iShares COMEX Gold Trust and the iShares Silver Trust). E:\FR\FM\27JAN1.SGM 27JAN1

Agencies

[Federal Register Volume 74, Number 16 (Tuesday, January 27, 2009)]
[Notices]
[Pages 4799-4800]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-1674]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59266; File No. SR-NASDAQ-2008-016]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving Proposed Rule Change To Create the Nasdaq Market Pathfinders 
Service and Establish Fees for the Service

January 16, 2009.

I. Introduction and Description of the Proposal

    On June 27, 2008, The NASDAQ Stock Market LLC (``Nasdaq'') filed 
with the Securities and Exchange Commission (``Commission''), pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change that would 
establish the Nasdaq Market Pathfinders Service (``Service'') and 
establish fees for the Service. The Service will allow subscribers to 
view a real time data product that tracks the aggregated market 
activity of certain market participants who are aggressively buying 
and/or selling. Nasdaq proposes to offer new subscribers a 30-day 
waiver of the user fees for the Service. After the conclusion of the 
waiver period, subscribers may avail themselves of three different 
subscription options at varying prices.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published in the Federal Register on 
July 17, 2008.\3\ The Commission received one comment on the 
proposal.\4\ Nasdaq responded to the comment letter on September 18, 
2008.\5\ The Commission is approving the proposed rule change.
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    \3\ See Securities Exchange Act Release No. 58145 (July 11, 
2008), 73 FR 41143.
    \4\ See August 7, 2008 letter from Ira D. Hammerman, Senior 
Managing Director and General Counsel, Securities Industry and 
Financial Markets Association (``SIFMA''), to Florence Harmon, 
Acting Secretary, Commission (``SIFMA Letter'').
    \5\ See September 18, 2008 letter from Jeffrey S. Davis, Deputy 
General Counsel and Vice President, Nasdaq, to Florence Harmon, 
Acting Secretary, Commission (``Nasdaq Letter'').
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II. Summary of Comment Letter

    The commenter suggests that the Commission cannot approve the 
proposed rule change for the following reasons:

--Nasdaq is proposing to make commercial use of data supplied to it in 
Nasdaq's capacity as a regulatory body, despite the Commission's 
previous statement that, with regard to OATS information, it does not 
believe such data should be used for non-regulatory purposes unless the 
data is made available to other market participants on the same terms 
under which it is provided to Nasdaq.\6\
---------------------------------------------------------------------------

    \6\ SIFMA Letter at 2, quoting the Commission's order approving 
Nasdaq's exchange application. See Securities Exchange Act Release 
No. 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006) (File 
No. 10-131), in text following footnote 136.
---------------------------------------------------------------------------

--Nasdaq has failed to provide a detailed discussion of the data or 
analytics to be included in the Service. SIFMA stated that several 
firms have expressed concern with the proposal's potential to 
compromise the confidentiality of the transacting party's trading 
strategies or provide misinformation as to a transacting party.
--SIFMA questions whether the Service will provide a means to reverse 
engineer the algorithms and strategies Nasdaq members have created, or 
whether the impact on such algorithms and strategies will be such as to 
render them useless.
--SIFMA also raised a procedural concern, stating that Nasdaq is 
proposing to create a proprietary product that uses data its members 
are required to submit without compensation; no other exchange or 
market data vendor can replicate this product because necessary 
elements are not available to anyone but Nasdaq; and no cost data is 
provided to allow an opportunity to determine if the fees are fair and 
reasonable.

III. Nasdaq's Response to the Comment Letter

    In response to the SIFMA Letter, Nasdaq made the following points:

--SIFMA inaccurately claims that Nasdaq is collecting data in its 
capacity as a regulatory body and using it for commercial purposes, 
stating that the Service does not use OATS information, but instead 
relies on trade information sent directly and only from the Nasdaq 
Matching Engine.
--The Service will not operate in a manner that permits users to 
distinguish between short and long sales; the Service will not 
compromise the confidentiality of the transacting party's trading 
strategies, nor provide misinformation as to a transacting party 
because there are filters in place to prevent this from occurring.
--The Service will not provide a means to reverse engineer the 
algorithms and strategies Nasdaq members have created, nor will it 
affect those

[[Page 4800]]

algorithms and strategies in such a way as to render them useless.
--The Service is a sentiment indicator that would provide users with an 
indication of how a specific type of market participant feels about 
certain securities, making available to the public information that is 
sometimes referred to as ``the word on the street'' as compiled from 
order flow on the trading desks of large broker-dealers.
--Nasdaq believes that it has provided adequate justification for the 
fees.

IV. Discussion and Commission Findings

    The Commission has reviewed carefully the proposed rule change, the 
comment letter, and Nasdaq's response to the comment letter, and finds 
that the proposed rule change is consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to a 
national securities exchange \7\ and, in particular, Section 6(b)(4) of 
the Act,\8\ which requires, among other things, that Nasdaq's rules 
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 Nasdaq operates or controls, and that it not unfairly 
discriminate between customers, issuers, brokers or dealers. The 
Commission believes that the proposed rule change is consistent with 
these statutory standards.
---------------------------------------------------------------------------

    \7\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    Nasdaq has represented that the Service is a voluntary one, and 
that the information provided to subscribers is not comprised of data 
that broker-dealers are obligated to provide to Nasdaq for regulatory 
purposes because of Nasdaq's status as a self-regulatory organization. 
Additionally, broker-dealers do not need the Service to perform their 
duties, so the decision to purchase the Service is truly voluntary and 
dependent upon each broker-dealer's business model. Finally, because 
the Service is voluntary, Nasdaq has met the statutory standard by 
pricing the Service according to free market principles; indeed, if 
Nasdaq priced the Service too high, broker-dealers could simply opt not 
to purchase the Service. The Commission believes that Nasdaq's fees for 
the Service are both reasonable and equitably allocated.\9\ 
Additionally, the Commission does not believe that the Pathfinder 
Service will allow reverse engineering of the algorithms and strategies 
created by Nasdaq members; Nasdaq has explained the various ways the 
information is filtered, and has stated that such filtering will 
prevent this from occurring.
---------------------------------------------------------------------------

    \9\ The proposal meets the criteria, formulated by the 
Commission in connection with the petition filed by NetCoalition, 
for approval of proposed rule changes concerning the distribution of 
non-core market data. See Securities Exchange Act Release Nos. 59039 
(December 2, 2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-
2006-21) and 55011 (December 27, 2006) (order granting petition for 
review of SR-NYSEArca-2006-21). In its order issued in connection 
with the NetCoalition petition, the Commission stated that 
``reliance on competitive forces is the most appropriate and 
effective means to assess whether the terms for the distribution of 
non-core data are equitable, fair and reasonable, and not 
unreasonably discriminatory.'' 73 FR at 74781-82. As such, the 
``existence of significant competition provides a substantial basis 
for finding that the terms of an exchange's fee proposal are 
equitable, fair, reasonable, and not unreasonably or unfairly 
discriminatory.'' Id. at 74782. If an exchange ``was subject to 
significant competitive forces in setting the terms of a proposal,'' 
a proposal will be approved unless the Commission determines that 
``there is a substantial countervailing basis to find that the terms 
nevertheless fail to meet an applicable requirement of the Exchange 
Act or the rules thereunder.'' Id. at 74781.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\10\, that the proposed rule change (SR-NASDAQ-2008-016) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Florence E. Harmon,
Deputy Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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 [FR Doc. E9-1674 Filed 1-26-09; 8:45 am]
BILLING CODE 8011-01-P
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