Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order Approving Proposed Rule Change as Modified by Amendment No. 2 Thereto To Establish a Pilot Program for NASDAQ Basic Data Feeds, 12423-12426 [E9-6398]
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Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Notices
available for inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of the filing will also be available
for inspection and copying at the
principal office of the self-regulatory
organization. All comments received
will be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number
NYSEALTR–2009–28 and should be
submitted on or before April 14, 2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–6405 Filed 3–23–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59582; File No. SR–
NASDAQ–2008–102]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Approving Proposed Rule Change as
Modified by Amendment No. 2 Thereto
To Establish a Pilot Program for
NASDAQ Basic Data Feeds
March 16, 2009.
mstockstill on PROD1PC66 with NOTICES
I. Introduction
On December 23, 2008, The NASDAQ
Stock Market LLC (‘‘NASDAQ’’ or
‘‘Exchange’’) 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 to
establish a five-month pilot to offer a
real-time data feed combining both
NASDAQ’s Best Bid and Offer
(‘‘QBBO’’) and the ‘‘NASDAQ Last Sale’’
(collectively, ‘‘NASDAQ Basic’’). On
January 8, 2009, NASDAQ filed
Amendment No. 1 to the proposed rule
change. On January 12, 2009, NASDAQ
replaced the original filing and
Amendment No. 1 by filing Amendment
No. 2 to the proposed rule change. The
proposed rule change, as amended, was
published for comment in the Federal
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Register on January 22, 2009.3 The
Commission received one comment
letter on the proposal.4 NASDAQ
responded to the comment letter on
March 3, 2009.5 This order approves the
proposed rule change, as modified by
Amendment No 2.
II. Description of the Proposal
NASDAQ proposes to establish
NASDAQ Basic, a five-month pilot to
offer real-time quotation data in
combination with last sale data solely
from the NASDAQ Market Center. There
will be no fees for NASDAQ Basic for
the first month of the pilot.
NASDAQ Basic is a ‘‘Level 1’’ product
containing two data elements: (1)
Quotation information from the
NASDAQ Market Center and (2) last sale
data from the NASDAQ Market Center.
NASDAQ Basic will be available in
three forms, NASDAQ Basic for
NASDAQ, NASDAQ Basic for NYSE,
and NASDAQ Basic for Alternext.
NASDAQ stated that it designed
NASDAQ Basic to meet the needs of
current and prospective subscribers that
do not need or are unwilling to pay for
the consolidated data provided by the
consolidated Level 1 products.
NASDAQ proposes to charge each
professional user of the NASDAQ Basic
product, a per subscriber monthly
charge of $10 for NASDAQ-listed stocks,
$5 for NYSE-listed stocks, and $5 for
Alternext-listed stocks, and charge each
non-professional subscriber a per
subscriber monthly charge of $0.50 for
NASDAQ-listed stocks, $0.25 for NYSElisted stocks, and $0.25 for Alternextlisted stocks. For users that do not
require a monthly subscription, there
will be a per query option available for
NASDAQ Basic, with a fee of $0.0025
for NASDAQ-listed stocks, $0.0015 for
NYSE-listed stocks, and $0.0015 for
Alternext-listed stocks. Vendors that
report per query usage to NASDAQ are
permitted to convert to monthly
subscriptions when the cost of
individual users’ queries exceeds the
cost of the monthly subscription.
As with the distribution of other
NASDAQ proprietary products, all
distributors of NASDAQ Basic will be
assessed a monthly Distributor Fee in
addition to any applicable usage fees.
3 See Securities Exchange Act Release No. 59244
(January 13, 2009), 74 FR 4065 (January 22, 2009)
(‘‘Notice’’).
4 See Letter from Ira D. Hammerman, Senior
Managing Director and General Counsel, Securities
Industry and Financial Markets Association, to
Elizabeth Murphy, Secretary, Commission, dated
February 12, 2009 (‘‘SIFMA Letter’’).
5 See Letter from Jeffrey S. Davis, Vice President
and Deputy General Counsel, NASDAQ, to
Elizabeth Murphy, Secretary, Commission, dated
March 3, 2009 (‘‘NASDAQ Response’’).
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Each Distributor of NASDAQ Basic for
NASDAQ-listed stocks shall pay a
monthly fee of $1,500 for either internal
or external distribution or both. Each
Distributor of NASDAQ Basic for NYSElisted stocks will pay a fee of $250 per
month for internal distribution or $625
per month external distribution. Each
Distributor of NASDAQ Basic for
Alternext-listed stocks will pay a fee of
$250 per month for internal distribution
or $625 per month external distribution.
Distributors that pay the fee for external
distribution of NASDAQ Basic for NYSE
and Alternext may distribute the same
data internally for no additional fee. In
addition, each Distributor that receives
Direct Access to the NASDAQ Basic will
also pay a monthly fee of $2,000 for
NASDAQ-listed stocks, $1,000 for
NYSE-listed stocks, and $1,000 for
Alternext-listed stocks.
III. Summary of Comments Received
and NASDAQ’s Responses
The Commission received one
comment letter from the Market Data
Subcommittee of the Securities Industry
and Financial Markets Association
(‘‘SIFMA’’) opposing NASDAQ’s
proposed rule change.6 As an initial
matter, SIFMA objects to NASDAQ’s
application of the ‘‘fair and reasonable’’
test announced in the NYSE Arca
Order 7 to NASDAQ Basic’s fees.8
NASDAQ notes that the NYSE Arca
Order is a valid agency action; therefore,
NASDAQ believes it is proper to apply
the ‘‘fair and reasonable’’ test to the
NASDAQ Basic proposal.9 SIFMA notes
that SIFMA members that sign up for
NASDAQ’s new market data feeds will
still be required to purchase the
consolidated data for trading
purposes,10 and, if the other exchanges
also repackage their own best bids and
offers and last sale prices, adding
together all of these fees could result in
firms paying more, not less, for overall
market data, and could potentially cause
considerable technological and
administrative burdens.11 NASDAQ
agrees that NASDAQ Basic is not a
substitute for consolidated data when
trading and order routing decisions can
be implemented,12 but rather a less
expensive alternative to consolidated
data when consolidated data is not
required to be displayed, including
portfolio measurement, back-office
6 Id.
7 See
infra note 27.
SIFMA Letter at 2.
9 See NASDAQ Response at 1.
10 17 CFR 242.603(c).
11 See SIFMA Letter at 2.
12 17 CFR 242.603(c).
8 See
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Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Notices
operations, and certain communications
with the public.13
SIFMA also argues that NASDAQ’s
classification of this data as ‘‘non-core’’
is inaccurate and that the resulting
application of the ‘‘subject to significant
competitive forces’’ test announced in
the NYSE Arca Order for meeting the
fair and reasonable requirements of the
Act is misplaced. SIFMA argues that
best bids and offers and last sale
prices—whether offered directly by an
exchange or through a consolidating
processor—should be classified as ‘‘core
data.’’ 14 NASDAQ notes that in the
NYSE Arca Order the Commission states
that core data is only the data that
Commission rules require to be
consolidated and distributed to the
public by a single central processor.
NASDAQ notes that it produces
NASDAQ Basic data voluntarily, and
while NASDAQ Basic contains a subset
of core data that overlap does not
transform it into core data.15 In
addition, SIFMA disagrees with
NASDAQ’s assertion that this is a new
and innovative market data product
resulting from ‘‘competitive’’ forces.16
NASDAQ notes that even though the
price of consolidated data is not subject
to competitive forces, NASDAQ Basic is
nevertheless competitively constrained
by the price of consolidated data.17
SIFMA finally notes that, in contrast
with the NYSE OpenBook Ultra filing,18
NASDAQ has not attempted to simplify
administrative burdens by modernizing
its unit of count for assessing fees, nor
has it adopted enterprise pricing for
NASDAQ Basic that would address
longstanding issues that SIFMA
identifies, such as the ‘‘onerous’’
application of the ‘‘professional’’
definition to online investors seeking
per query (non-streaming) quotes.
SIFMA urges the Commission, the
Consolidated Tape Association, the
NASDAQ UTP Plan, NASDAQ, and the
other individual exchanges to
implement a uniform unit of count
working in cooperation with its
committee to avoid the administrative
burdens of different exchanges applying
different units of count.19 NASDAQ
acknowledges SIFMA’s suggestion to
decrease the administrative burden of
purchasing NASDAQ market data, but
notes that the issue is unrelated to the
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13 See
NASDAQ Response at 1–2.
SIFMA Letter at 2–3.
15 See NASDAQ Response at 2.
16 See SIFMA Letter at 3.
17 See NASDAQ Response at 2.
18 See Securities Exchange Act Release No. 59198
(January 5, 2009), 74 FR 1268 (January 12, 2009)
(SR–NYSE–2008–131).
19 See SIFMA Letter at 3.
14 See
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Commission’s review of the NASDAQ
Basic proposal.20
IV. Discussion
The Commission 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.21 In particular, it is consistent
with Section 6(b)(4) of the Act,22 which
requires that the rules of a national
securities exchange provide for the
equitable allocation of reasonable dues,
fees, and other charges among its
members and issuers and other parties
using its facilities, and Section 6(b)(5) of
the Act,23 which requires, among other
things, that the rules of a national
securities exchange be designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system and, in general, to protect
investors and the public interest, and
not be designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The Commission also finds that the
proposed rule change is consistent with
the provisions of Section 6(b)(8) of the
Act,24 which requires that the rules of
an exchange not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. Finally, the
Commission finds that the proposed
rule change is consistent with Rule
603(a) of Regulation NMS,25 adopted
under Section 11A(c)(1) of the Act,
which requires an exclusive processor
that distributes information with respect
to quotations for or transactions in an
NMS stock to do so on terms that are
fair and reasonable and that are not
unreasonably discriminatory.26
The Commission has reviewed the
proposal using the approach set forth in
the NYSE Arca Order for non-core
market data fees.27 In the NYSE Arca
NASDAQ Response at 2.
approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
22 15 U.S.C. 78f(b)(4).
23 15 U.S.C. 78f(b)(5).
24 15 U.S.C. 78f(b)(6).
25 17 CFR 242.603(a).
26 NASDAQ is an exclusive processor of
NASDAQ Basic data under Section 3(a)(22)(B) of
the Act, 15 U.S.C. 78c(a)(22)(B), which defines an
exclusive processor as, among other things, an
exchange that distributes information with respect
to quotations or transactions on an exclusive basis
on its own behalf.
27 Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770 (December 9,
2008) (SR–NYSEArca–2006–21) (‘‘NYSE Arca
Order’’). In the NYSE Arca Order, the Commission
Order, the Commission stated that
‘‘when possible, 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.’’ 28 It noted that 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.’’ 29 If an exchange ‘‘was
subject to significant competitive forces
in setting the terms of a proposal,’’ the
Commission will approve a proposal
unless it 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.’’ 30
As noted in the NYSE Arca Order, the
standards in Section 6 of the Act and
Rule 603 of Regulation NMS do not
differentiate between types of data and
therefore apply to exchange proposals to
distribute both core data and non-core
data. Core data is the best-priced
quotations and comprehensive last-sale
reports of all markets that the
Commission, pursuant to Rule 603(b),
requires a central processor to
consolidate and distribute to the public
pursuant to joint-SRO plans.31 In
contrast, individual exchanges and
other market participants distribute
non-core data voluntarily. The
mandatory nature of the core data
disclosure regime leaves little room for
competitive forces to determine
products and fees. Non-core data
products and their fees are, by contrast,
much more sensitive to competitive
forces. The Commission therefore is able
to use competitive forces in its
determination of whether an exchange’s
proposal to distribute non-core data
meets the standards of Section 6 and
Rule 603. Because NASDAQ’s instant
proposal relates to the distribution of
20 See
21 In
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describes in great detail the competitive factors that
apply to depth-of-book market data products. The
Commission hereby incorporates by reference the
data and analysis from the NYSE Arca Order into
this order.
28 Id. at 74771.
29 Id. at 74782.
30 Id. at 74781.
31 See 17 CFR 242.603(b). (‘‘Every national
securities exchange on which an NMS stock is
traded and national securities association shall act
jointly pursuant to one or more effective national
market system plans to disseminate consolidated
information, including a national best bid and
national best offer, on quotations for and
transactions in NMS stocks. Such plan or plans
shall provide for the dissemination of all
consolidated information for an individual NMS
stock through a single plan processor.’’)
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Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Notices
non-core data, the Commission will
apply the market-based approach set
forth in the NYSE Arca Order.
In the NYSE Arca Order, the
Commission discussed two broad types
of competitive forces that generally
apply to exchanges in their distribution
of a non-core data product—the need to
attract order flow and the availability of
data alternatives. These forces also
applied to NASDAQ in setting the terms
of this proposal for the NASDAQ Basic
data product: (i) NASDAQ’s compelling
need to attract order flow from market
participants; and (ii) the availability to
market participants of alternatives to
purchasing NASDAQ ’s data.
Table 1 below provides a recent
snapshot of the state of competition in
the U.S. equity markets in the month of
January 2009: 32
TABLE 1—REPORTED SHARE VOLUME IN U.S.
Listed Equities during January 2009 (percent)
Trading venue
All stocks
NASDAQ ....................................................................................................................
All Non-Exchange ......................................................................................................
NYSE Arca .................................................................................................................
NYSE .........................................................................................................................
BATS ..........................................................................................................................
International Stock Exchange ....................................................................................
National Stock Exchange ..........................................................................................
Chicago Stock Exchange ..........................................................................................
CBOE Stock Exchange .............................................................................................
NYSE Alternext ..........................................................................................................
NASDAQ OMX BX ....................................................................................................
NYSE-Listed
27.1
26.7
17.9
14.8
10.7
1.3
0.6
0.4
0.2
0.1
0.0
20.5
26.2
15.7
26.2
9.0
1.4
0.7
0.4
0.0
0.0
0.0
NASDAQ-Listed
39.9
31.0
15.8
0.0
10.8
1.4
0.7
0.3
0.1
0.0
0.0
competition in non-core data products.
As Table 1 illustrates, share volume in
U.S.-listed equities is widely dispersed
among trading venues, and these venues
are able to offer competitive data
products as alternatives to NASDAQ
Basic. The Commission believes that the
availability of those alternatives, as well
as the NASDAQ’s compelling need to
attract order flow, imposed significant
competitive pressure on the NASDAQ to
act equitably, fairly, and reasonably in
setting the terms of its proposal.
Because NASDAQ was subject to
significant competitive forces in setting
the terms of the proposal, the
Commission will approve the proposal
in the absence of a substantial
countervailing basis to find that its
terms nevertheless fail to meet an
applicable requirement of the Act or the
rules thereunder. An analysis of the
proposal and the comment letter does
not provide such a basis.
mstockstill on PROD1PC66 with NOTICES
The market share percentages in Table
1 strongly indicate that NASDAQ must
compete vigorously for order flow to
maintain its share of trading volume.
The need to attract order flow imposes
significant pressure on NASDAQ to act
reasonably in setting its fees for
NASDAQ market data, particularly
given that the market participants that
must pay such fees often will be the
same market participants from whom
NASDAQ must attract order flow. These
market participants particularly include
the large broker-dealer firms that control
the handling of a large volume of
customer and proprietary order flow.
Given the portability of order flow from
one trading venue to another, any
exchange that sought to charge
unreasonably high data fees would risk
alienating many of the same customers
on whose orders it depends for
competitive survival. Moreover,
distributing data widely among
investors, and thereby promoting
familiarity with the exchange and its
services, is an important exchange
strategy for attracting order flow.33
In addition to the need to attract order
flow, the availability of alternatives to
NASDAQ Basic significantly affect the
terms on which NASDAQ can distribute
this market data.34 In setting the fees for
its NASDAQ Basic service, NASDAQ
must consider the extent to which
market participants would choose one
or more alternatives instead of
purchasing the exchange’s data. For
example, although the NASDAQ Basic
data feed is separate from the core data
feed made available pursuant to the
joint-SRO plans,35 all the information
available in NASDAQ Basic is included
in the core data feed. This core data
must be provided to customers when
trading and order-routing decisions can
be implemented.36 Data users will have
a choice of purchasing NASDAQ Basic
data for those contexts where core data
is not required to be displayed, such as
portfolio management, or simply
providing core data in all contexts.
The various self-regulatory
organizations, the several Trade
Reporting Facilities of FINRA, and ECNs
that produce proprietary data, as well as
the core data feed, are all sources of
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,37 that the
proposed rule change (SR–NASDAQ–
32 Source: ArcaVision (available at
www.arcavision.com).
33 See NYSE Arca Order, 73 FR at 74784 nn. 218–
219 and accompanying text (noting exchange
strategy of offering data for free as a means to gain
visibility in the market place).
34 See Richard Posner, Economic Analysis of Law
§ 9.1 (5th ed. 1998) (discussing the theory of
monopolies and pricing). See also U.S. Dep’t of
Justice & Fed’l Trade Comm’n, Horizontal Merger
Guidelines § 1.11 (1992), as revised (1997)
(explaining the importance of alternatives to the
presence of competition and the definition of
markets and market power). Courts frequently refer
to the Department of Justice and Federal Trade
Commission merger guidelines to define product
markets and evaluate market power. See, e.g., FTC
v. Whole Foods Market, Inc., 502 F. Supp. 2d 1
(D.D.C. 2007); FTC v. Arch Coal, Inc., 329 F. Supp.
2d 109 (D.D.C. 2004). In considering antitrust
issues, courts have recognized the value of
competition in producing lower prices. See, e.g.,
Leegin Creative Leather Products v. PSKS, Inc., 127
S. Ct. 2705 (2007); Atlanta Richfield Co. v. United
States Petroleum Co., 495 U.S. 328 (1990);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574 (1986); State Oil Co. v. Khan, 522 U.S.
3 (1997); Northern Pacific Railway Co. v. U.S., 356
U.S. 1 (1958).
35 The three joint-industry plans are (1) the CTA
Plan, which disseminates transaction information
for securities primarily listed on an exchange other
than Nasdaq, (2) the CQ Plan, which disseminates
consolidated quotation information for securities
primarily listed on an exchange other than Nasdaq,
and (3) the Nasdaq UTP Plan, which disseminates
consolidated transaction and quotation information
for securities primarily listed on Nasdaq.
36 Rule 603(c) of Regulation NMS requires brokerdealers, if they provide any data to customers, also
to provide core data in a context in which a trading
or order-routing decision can be implemented. 17
CFR 242.603(c). The Commission emphasizes that
NASDAQ Basic may not be used as a substitute for
the distribution of core data that is required under
Rule 603(c).
37 15 U.S.C. 78s(b)(2).
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V. Conclusion
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Federal Register / Vol. 74, No. 55 / Tuesday, March 24, 2009 / Notices
2008–102), as modified by Amendment
No. 2, be, and it hereby is, approved on
a five month pilot basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–6398 Filed 3–23–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59591; File No. SR–NSX–
2009–01]
Self-Regulatory Organizations;
National Stock Exchange, Inc.; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change To Amend
NSX Fee Schedule To Implement a
Program To Award Rebates for
Liquidity Adding Zero Display Orders
and Clarify the Definition of ‘‘Liquidity
Adding Average Daily Volume’’
March 17, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on February
27, 2009, National Stock Exchange, Inc.
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 the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
mstockstill on PROD1PC66 with NOTICES
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
National Stock Exchange, Inc.
(‘‘NSX® ’’ or ‘‘Exchange’’) is proposing
to amend the Fee and Rebate Schedule
(the ‘‘Fee Schedule’’) issued pursuant to
Exchange Rule 16.1(c) in order to (i)
provide a rebate for adding liquidity in
Zero Display Orders at one dollar or
above in the Automatic Execution Mode
of order interaction in the event that
certain volume thresholds are achieved,
(ii) provide a rebate for adding liquidity
in Zero Display Orders at one dollar or
above in the Order Delivery Mode of
order interaction in the event that
certain volume thresholds are
achieved,3 and (iii) clarify the definition
38 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Exchange has represented that it will
submit a similar proposed rule change to adopt a
corresponding rebate for displayed orders in Order
1 15
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of ‘‘Liquidity Adding Average Daily
Volume’’ to account for partial calendar
months.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://www.nsx.com, at the principal
office of the Exchange, 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
Exchange 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
Exchange 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
1. Purpose
With this rule change, the Exchange is
proposing to provide a liquidity
provider rebate for Zero Display (or
‘‘Dark’’) Orders 4 entered in each of the
Automatic Execution Mode of order
interaction (‘‘AutoEx’’) and the Order
Delivery Mode of order interaction
(‘‘Order Delivery’’ or ‘‘O/D’’).5 In each
case, the rebates apply only to securities
priced one dollar and higher, and only
after certain volume thresholds are
achieved.
AutoEx Liquidity Adding Zero Display
Order Rebate
For securities trading at one dollar or
higher in AutoEx, this rule change
proposes to provide a progressively
higher rebate applicable to shares
executed as liquidity providing Zero
Display Orders of ETP Holders who
achieve both a ‘‘Liquidity Adding
Average Daily Volume’’ (‘‘Liquidity
Adding ADV’’) of at least 50,000 and, in
the same period, achieve ‘‘Total Average
Daily Trading Volumes’’ (‘‘Total ADV’’)
Delivery Mode. The rebate on displayed orders will
be the same as the rebate contained in this proposed
rule change. Telephone conversation on March 12,
2009 between Richard Holley III, Senior Special
Counsel, Division of Trading and Markets
(‘‘Division’’), Commission; David Michehl, Special
Counsel, Division, Commission; Sara Hawkins,
Special Counsel, Division, Commission; James
Yong, Chief Regulatory Officer, NSX; and Phil Pinc,
Vice President and Counsel, NSX.
4 As specified in Rule 11.11(c)(2)(A).
5 The Exchange’s two modes of order interaction
are described in NSX Rule 11.13(b).
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of 1 million,6 15 million 7 and 30
million 8 shares (any such rebate
hereinafter referred to as an ‘‘AutoEx
Liquidity Adding Zero Display Order
Rebate’’).
An ETP Holder needs to achieve two
volume eligibility thresholds before
receiving the proposed AutoEx
Liquidity Adding Zero Display Order
Rebate. First, an ETP Holder must
achieve at least 50,000 shares of
Liquidity Adding ADV in the applicable
time period. Liquidity Adding ADV
means, with respect to an ETP Holder,
‘‘the number of shares such ETP Holder
has executed as a liquidity provider on
average per trading day (excluding
partial trading days and securities under
one dollar) across all tapes on NSX for
the calendar month (or partial month, as
applicable) in which the executions
occurred’’ (see the Explanatory
Endnotes to the Fee Schedule). Second,
and only after the first threshold is met,
an ETP Holder must achieve a Total
ADV of at least 1 million shares. Total
ADV means, with respect to an ETP
Holder, ‘‘the number of shares such ETP
Holder has executed as a liquidity
provider, liquidity taker and router of
executed trades on average per trading
day (excluding partial trading days and
securities under one dollar) across all
tapes on NSX for the calendar month (or
partial month, as applicable) in which
the executions occurred’’ (see the
Explanatory Endnotes to the Fee
Schedule). If both the foregoing
eligibility thresholds are achieved, an
ETP Holder will be entitled to
progressively higher rebates ($0.0022,
$0.0023 and $0.0025) on its shares
executed in AutoEx as liquidity adding
Zero Display Orders depending on the
Total ADV volumes achieved (at least 1
million but less than 15 million, at least
15 million but less than 30 million, and
at least 30 million, respectively).
For purposes of clarity, if an ETP
Holder fails to achieve Liquidity Adding
ADV of at least 50,000 shares, or fails to
achieve Total ADV of at least 1 million
shares, in the same month (or partial
month, as applicable), then no AutoEx
Liquidity Adding Zero Display Order
Rebate applies. In addition, for purposes
of calculating an ETP Holder’s Total
ADV, all such ETP Holder’s orders
6 The first tier is $0.0022 per share (applicable to
shares executed in AutoEx which added liquidity
as Zero Display Orders), where Total ADV is greater
than or equal to 1 million and less than 15 million.
7 The second tier is $0.0023 per share (applicable
to shares executed in AutoEx which added liquidity
as Zero Display Orders), where Total ADV is greater
than or equal to 15 million and less than 30 million.
8 The third tier is $0.0025 per share (applicable
to shares executed in AutoEx which added liquidity
as Zero Display Orders), where Total ADV is greater
than or equal to 30 million.
E:\FR\FM\24MRN1.SGM
24MRN1
]]>Agencies
[Federal Register Volume 74, Number 55 (Tuesday, March 24, 2009)]
[Notices]
[Pages 12423-12426]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-6398]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59582; File No. SR-NASDAQ-2008-102]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Order Approving Proposed Rule Change as Modified by Amendment No. 2
Thereto To Establish a Pilot Program for NASDAQ Basic Data Feeds
March 16, 2009.
I. Introduction
On December 23, 2008, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') 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 to establish a five-month pilot to offer a real-
time data feed combining both NASDAQ's Best Bid and Offer (``QBBO'')
and the ``NASDAQ Last Sale'' (collectively, ``NASDAQ Basic''). On
January 8, 2009, NASDAQ filed Amendment No. 1 to the proposed rule
change. On January 12, 2009, NASDAQ replaced the original filing and
Amendment No. 1 by filing Amendment No. 2 to the proposed rule change.
The proposed rule change, as amended, was published for comment in the
Federal Register on January 22, 2009.\3\ The Commission received one
comment letter on the proposal.\4\ NASDAQ responded to the comment
letter on March 3, 2009.\5\ This order approves the proposed rule
change, as modified by Amendment No 2.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 59244 (January 13,
2009), 74 FR 4065 (January 22, 2009) (``Notice'').
\4\ See Letter from Ira D. Hammerman, Senior Managing Director
and General Counsel, Securities Industry and Financial Markets
Association, to Elizabeth Murphy, Secretary, Commission, dated
February 12, 2009 (``SIFMA Letter'').
\5\ See Letter from Jeffrey S. Davis, Vice President and Deputy
General Counsel, NASDAQ, to Elizabeth Murphy, Secretary, Commission,
dated March 3, 2009 (``NASDAQ Response'').
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II. Description of the Proposal
NASDAQ proposes to establish NASDAQ Basic, a five-month pilot to
offer real-time quotation data in combination with last sale data
solely from the NASDAQ Market Center. There will be no fees for NASDAQ
Basic for the first month of the pilot.
NASDAQ Basic is a ``Level 1'' product containing two data elements:
(1) Quotation information from the NASDAQ Market Center and (2) last
sale data from the NASDAQ Market Center. NASDAQ Basic will be available
in three forms, NASDAQ Basic for NASDAQ, NASDAQ Basic for NYSE, and
NASDAQ Basic for Alternext. NASDAQ stated that it designed NASDAQ Basic
to meet the needs of current and prospective subscribers that do not
need or are unwilling to pay for the consolidated data provided by the
consolidated Level 1 products.
NASDAQ proposes to charge each professional user of the NASDAQ
Basic product, a per subscriber monthly charge of $10 for NASDAQ-listed
stocks, $5 for NYSE-listed stocks, and $5 for Alternext-listed stocks,
and charge each non-professional subscriber a per subscriber monthly
charge of $0.50 for NASDAQ-listed stocks, $0.25 for NYSE-listed stocks,
and $0.25 for Alternext-listed stocks. For users that do not require a
monthly subscription, there will be a per query option available for
NASDAQ Basic, with a fee of $0.0025 for NASDAQ-listed stocks, $0.0015
for NYSE-listed stocks, and $0.0015 for Alternext-listed stocks.
Vendors that report per query usage to NASDAQ are permitted to convert
to monthly subscriptions when the cost of individual users' queries
exceeds the cost of the monthly subscription.
As with the distribution of other NASDAQ proprietary products, all
distributors of NASDAQ Basic will be assessed a monthly Distributor Fee
in addition to any applicable usage fees. Each Distributor of NASDAQ
Basic for NASDAQ-listed stocks shall pay a monthly fee of $1,500 for
either internal or external distribution or both. Each Distributor of
NASDAQ Basic for NYSE-listed stocks will pay a fee of $250 per month
for internal distribution or $625 per month external distribution. Each
Distributor of NASDAQ Basic for Alternext-listed stocks will pay a fee
of $250 per month for internal distribution or $625 per month external
distribution. Distributors that pay the fee for external distribution
of NASDAQ Basic for NYSE and Alternext may distribute the same data
internally for no additional fee. In addition, each Distributor that
receives Direct Access to the NASDAQ Basic will also pay a monthly fee
of $2,000 for NASDAQ-listed stocks, $1,000 for NYSE-listed stocks, and
$1,000 for Alternext-listed stocks.
III. Summary of Comments Received and NASDAQ's Responses
The Commission received one comment letter from the Market Data
Subcommittee of the Securities Industry and Financial Markets
Association (``SIFMA'') opposing NASDAQ's proposed rule change.\6\ As
an initial matter, SIFMA objects to NASDAQ's application of the ``fair
and reasonable'' test announced in the NYSE Arca Order \7\ to NASDAQ
Basic's fees.\8\ NASDAQ notes that the NYSE Arca Order is a valid
agency action; therefore, NASDAQ believes it is proper to apply the
``fair and reasonable'' test to the NASDAQ Basic proposal.\9\ SIFMA
notes that SIFMA members that sign up for NASDAQ's new market data
feeds will still be required to purchase the consolidated data for
trading purposes,\10\ and, if the other exchanges also repackage their
own best bids and offers and last sale prices, adding together all of
these fees could result in firms paying more, not less, for overall
market data, and could potentially cause considerable technological and
administrative burdens.\11\ NASDAQ agrees that NASDAQ Basic is not a
substitute for consolidated data when trading and order routing
decisions can be implemented,\12\ but rather a less expensive
alternative to consolidated data when consolidated data is not required
to be displayed, including portfolio measurement, back-office
[[Page 12424]]
operations, and certain communications with the public.\13\
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\6\ Id.
\7\ See infra note 27.
\8\ See SIFMA Letter at 2.
\9\ See NASDAQ Response at 1.
\10\ 17 CFR 242.603(c).
\11\ See SIFMA Letter at 2.
\12\ 17 CFR 242.603(c).
\13\ See NASDAQ Response at 1-2.
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SIFMA also argues that NASDAQ's classification of this data as
``non-core'' is inaccurate and that the resulting application of the
``subject to significant competitive forces'' test announced in the
NYSE Arca Order for meeting the fair and reasonable requirements of the
Act is misplaced. SIFMA argues that best bids and offers and last sale
prices--whether offered directly by an exchange or through a
consolidating processor--should be classified as ``core data.'' \14\
NASDAQ notes that in the NYSE Arca Order the Commission states that
core data is only the data that Commission rules require to be
consolidated and distributed to the public by a single central
processor. NASDAQ notes that it produces NASDAQ Basic data voluntarily,
and while NASDAQ Basic contains a subset of core data that overlap does
not transform it into core data.\15\ In addition, SIFMA disagrees with
NASDAQ's assertion that this is a new and innovative market data
product resulting from ``competitive'' forces.\16\ NASDAQ notes that
even though the price of consolidated data is not subject to
competitive forces, NASDAQ Basic is nevertheless competitively
constrained by the price of consolidated data.\17\
---------------------------------------------------------------------------
\14\ See SIFMA Letter at 2-3.
\15\ See NASDAQ Response at 2.
\16\ See SIFMA Letter at 3.
\17\ See NASDAQ Response at 2.
---------------------------------------------------------------------------
SIFMA finally notes that, in contrast with the NYSE OpenBook Ultra
filing,\18\ NASDAQ has not attempted to simplify administrative burdens
by modernizing its unit of count for assessing fees, nor has it adopted
enterprise pricing for NASDAQ Basic that would address longstanding
issues that SIFMA identifies, such as the ``onerous'' application of
the ``professional'' definition to online investors seeking per query
(non-streaming) quotes. SIFMA urges the Commission, the Consolidated
Tape Association, the NASDAQ UTP Plan, NASDAQ, and the other individual
exchanges to implement a uniform unit of count working in cooperation
with its committee to avoid the administrative burdens of different
exchanges applying different units of count.\19\ NASDAQ acknowledges
SIFMA's suggestion to decrease the administrative burden of purchasing
NASDAQ market data, but notes that the issue is unrelated to the
Commission's review of the NASDAQ Basic proposal.\20\
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 59198 (January 5,
2009), 74 FR 1268 (January 12, 2009) (SR-NYSE-2008-131).
\19\ See SIFMA Letter at 3.
\20\ See NASDAQ Response at 2.
---------------------------------------------------------------------------
IV. Discussion
The Commission 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.\21\ In
particular, it is consistent with Section 6(b)(4) of the Act,\22\ which
requires that the rules of a national securities exchange provide for
the equitable allocation of reasonable dues, fees, and other charges
among its members and issuers and other parties using its facilities,
and Section 6(b)(5) of the Act,\23\ which requires, among other things,
that the rules of a national securities exchange be designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, to protect investors and the public interest,
and not be designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
---------------------------------------------------------------------------
\21\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\22\ 15 U.S.C. 78f(b)(4).
\23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission also finds that the proposed rule change is
consistent with the provisions of Section 6(b)(8) of the Act,\24\ which
requires that the rules of an exchange not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act. Finally, the Commission finds that the proposed rule change
is consistent with Rule 603(a) of Regulation NMS,\25\ adopted under
Section 11A(c)(1) of the Act, which requires an exclusive processor
that distributes information with respect to quotations for or
transactions in an NMS stock to do so on terms that are fair and
reasonable and that are not unreasonably discriminatory.\26\
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\24\ 15 U.S.C. 78f(b)(6).
\25\ 17 CFR 242.603(a).
\26\ NASDAQ is an exclusive processor of NASDAQ Basic data under
Section 3(a)(22)(B) of the Act, 15 U.S.C. 78c(a)(22)(B), which
defines an exclusive processor as, among other things, an exchange
that distributes information with respect to quotations or
transactions on an exclusive basis on its own behalf.
---------------------------------------------------------------------------
The Commission has reviewed the proposal using the approach set
forth in the NYSE Arca Order for non-core market data fees.\27\ In the
NYSE Arca Order, the Commission stated that ``when possible, 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.''
\28\ It noted that 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.'' \29\ If an exchange ``was subject to
significant competitive forces in setting the terms of a proposal,''
the Commission will approve a proposal unless it 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.'' \30\
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\27\ Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE
Arca Order''). In the NYSE Arca Order, the Commission describes in
great detail the competitive factors that apply to depth-of-book
market data products. The Commission hereby incorporates by
reference the data and analysis from the NYSE Arca Order into this
order.
\28\ Id. at 74771.
\29\ Id. at 74782.
\30\ Id. at 74781.
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As noted in the NYSE Arca Order, the standards in Section 6 of the
Act and Rule 603 of Regulation NMS do not differentiate between types
of data and therefore apply to exchange proposals to distribute both
core data and non-core data. Core data is the best-priced quotations
and comprehensive last-sale reports of all markets that the Commission,
pursuant to Rule 603(b), requires a central processor to consolidate
and distribute to the public pursuant to joint-SRO plans.\31\ In
contrast, individual exchanges and other market participants distribute
non-core data voluntarily. The mandatory nature of the core data
disclosure regime leaves little room for competitive forces to
determine products and fees. Non-core data products and their fees are,
by contrast, much more sensitive to competitive forces. The Commission
therefore is able to use competitive forces in its determination of
whether an exchange's proposal to distribute non-core data meets the
standards of Section 6 and Rule 603. Because NASDAQ's instant proposal
relates to the distribution of
[[Page 12425]]
non-core data, the Commission will apply the market-based approach set
forth in the NYSE Arca Order.
---------------------------------------------------------------------------
\31\ See 17 CFR 242.603(b). (``Every national securities
exchange on which an NMS stock is traded and national securities
association shall act jointly pursuant to one or more effective
national market system plans to disseminate consolidated
information, including a national best bid and national best offer,
on quotations for and transactions in NMS stocks. Such plan or plans
shall provide for the dissemination of all consolidated information
for an individual NMS stock through a single plan processor.'')
---------------------------------------------------------------------------
In the NYSE Arca Order, the Commission discussed two broad types of
competitive forces that generally apply to exchanges in their
distribution of a non-core data product--the need to attract order flow
and the availability of data alternatives. These forces also applied to
NASDAQ in setting the terms of this proposal for the NASDAQ Basic data
product: (i) NASDAQ's compelling need to attract order flow from market
participants; and (ii) the availability to market participants of
alternatives to purchasing NASDAQ 's data.
Table 1 below provides a recent snapshot of the state of
competition in the U.S. equity markets in the month of January 2009:
\32\
---------------------------------------------------------------------------
\32\ Source: ArcaVision (available at www.arcavision.com).
Table 1--Reported Share Volume in U.S.
Listed Equities during January 2009 (percent)
----------------------------------------------------------------------------------------------------------------
Trading venue All stocks NYSE-Listed NASDAQ-Listed
----------------------------------------------------------------------------------------------------------------
NASDAQ................................................. 27.1 20.5 39.9
All Non-Exchange....................................... 26.7 26.2 31.0
NYSE Arca.............................................. 17.9 15.7 15.8
NYSE................................................... 14.8 26.2 0.0
BATS................................................... 10.7 9.0 10.8
International Stock Exchange........................... 1.3 1.4 1.4
National Stock Exchange................................ 0.6 0.7 0.7
Chicago Stock Exchange................................. 0.4 0.4 0.3
CBOE Stock Exchange.................................... 0.2 0.0 0.1
NYSE Alternext......................................... 0.1 0.0 0.0
NASDAQ OMX BX.......................................... 0.0 0.0 0.0
----------------------------------------------------------------------------------------------------------------
The market share percentages in Table 1 strongly indicate that
NASDAQ must compete vigorously for order flow to maintain its share of
trading volume. The need to attract order flow imposes significant
pressure on NASDAQ to act reasonably in setting its fees for NASDAQ
market data, particularly given that the market participants that must
pay such fees often will be the same market participants from whom
NASDAQ must attract order flow. These market participants particularly
include the large broker-dealer firms that control the handling of a
large volume of customer and proprietary order flow. Given the
portability of order flow from one trading venue to another, any
exchange that sought to charge unreasonably high data fees would risk
alienating many of the same customers on whose orders it depends for
competitive survival. Moreover, distributing data widely among
investors, and thereby promoting familiarity with the exchange and its
services, is an important exchange strategy for attracting order
flow.\33\
---------------------------------------------------------------------------
\33\ See NYSE Arca Order, 73 FR at 74784 nn. 218-219 and
accompanying text (noting exchange strategy of offering data for
free as a means to gain visibility in the market place).
---------------------------------------------------------------------------
In addition to the need to attract order flow, the availability of
alternatives to NASDAQ Basic significantly affect the terms on which
NASDAQ can distribute this market data.\34\ In setting the fees for its
NASDAQ Basic service, NASDAQ must consider the extent to which market
participants would choose one or more alternatives instead of
purchasing the exchange's data. For example, although the NASDAQ Basic
data feed is separate from the core data feed made available pursuant
to the joint-SRO plans,\35\ all the information available in NASDAQ
Basic is included in the core data feed. This core data must be
provided to customers when trading and order-routing decisions can be
implemented.\36\ Data users will have a choice of purchasing NASDAQ
Basic data for those contexts where core data is not required to be
displayed, such as portfolio management, or simply providing core data
in all contexts.
---------------------------------------------------------------------------
\34\ See Richard Posner, Economic Analysis of Law Sec. 9.1 (5th
ed. 1998) (discussing the theory of monopolies and pricing). See
also U.S. Dep't of Justice & Fed'l Trade Comm'n, Horizontal Merger
Guidelines Sec. 1.11 (1992), as revised (1997) (explaining the
importance of alternatives to the presence of competition and the
definition of markets and market power). Courts frequently refer to
the Department of Justice and Federal Trade Commission merger
guidelines to define product markets and evaluate market power. See,
e.g., FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1 (D.D.C.
2007); FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004). In
considering antitrust issues, courts have recognized the value of
competition in producing lower prices. See, e.g., Leegin Creative
Leather Products v. PSKS, Inc., 127 S. Ct. 2705 (2007); Atlanta
Richfield Co. v. United States Petroleum Co., 495 U.S. 328 (1990);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574
(1986); State Oil Co. v. Khan, 522 U.S. 3 (1997); Northern Pacific
Railway Co. v. U.S., 356 U.S. 1 (1958).
\35\ The three joint-industry plans are (1) the CTA Plan, which
disseminates transaction information for securities primarily listed
on an exchange other than Nasdaq, (2) the CQ Plan, which
disseminates consolidated quotation information for securities
primarily listed on an exchange other than Nasdaq, and (3) the
Nasdaq UTP Plan, which disseminates consolidated transaction and
quotation information for securities primarily listed on Nasdaq.
\36\ Rule 603(c) of Regulation NMS requires broker-dealers, if
they provide any data to customers, also to provide core data in a
context in which a trading or order-routing decision can be
implemented. 17 CFR 242.603(c). The Commission emphasizes that
NASDAQ Basic may not be used as a substitute for the distribution of
core data that is required under Rule 603(c).
---------------------------------------------------------------------------
The various self-regulatory organizations, the several Trade
Reporting Facilities of FINRA, and ECNs that produce proprietary data,
as well as the core data feed, are all sources of competition in non-
core data products. As Table 1 illustrates, share volume in U.S.-listed
equities is widely dispersed among trading venues, and these venues are
able to offer competitive data products as alternatives to NASDAQ
Basic. The Commission believes that the availability of those
alternatives, as well as the NASDAQ's compelling need to attract order
flow, imposed significant competitive pressure on the NASDAQ to act
equitably, fairly, and reasonably in setting the terms of its proposal.
Because NASDAQ was subject to significant competitive forces in
setting the terms of the proposal, the Commission will approve the
proposal in the absence of a substantial countervailing basis to find
that its terms nevertheless fail to meet an applicable requirement of
the Act or the rules thereunder. An analysis of the proposal and the
comment letter does not provide such a basis.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\37\ that the proposed rule change (SR-NASDAQ-
[[Page 12426]]
2008-102), as modified by Amendment No. 2, be, and it hereby is,
approved on a five month pilot basis.
---------------------------------------------------------------------------
\37\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
---------------------------------------------------------------------------
\38\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-6398 Filed 3-23-09; 8:45 am]
BILLING CODE 8010-01-P
