Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order Approving Proposed Rule Change To Establish New Fees for Services Available to Members and Non-Members, 14604-14607 [E9-7085]
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Federal Register / Vol. 74, No. 60 / Tuesday, March 31, 2009 / Notices
to them generally in connection with
their purchase and sale of securities
under that Rule in the ordinary course
of their business. In particular, the
Insurance Companies (or any of their
affiliates) cannot effect the proposed
transactions at a price that is
disadvantageous to any of the
Replacement Funds. Although the
transactions may not be entirely for
cash, each will be effected based upon
(1) the independent market price of the
portfolio securities valued as specified
in paragraph (b) of Rule 17a–7, and (2)
the net asset value per share of each
fund involved valued in accordance
with the procedures disclosed in its
respective investment company
registration statement and as required
by Rule 22c–1 under the Act. No
brokerage commission, fee, or other
remuneration will be paid to any party
in connection with the proposed in kind
purchase transactions.
28. The sale of shares of Replacement
Funds for investment securities, as
contemplated by the proposed
Insurance Company in-kind purchases,
is consistent with the investment
policies and restrictions of the
Investment Companies and the
Replacement Funds because (a) the
shares are sold at their net asset value,
and (b) the portfolio securities are of the
type and quality that the Replacement
Funds would each have acquired with
the proceeds from share sales had the
shares been sold for cash. To assure that
the second of these conditions is met,
Met Investors Advisory, LLC, MetLife
Advisers, LLC and the sub-adviser, as
applicable, will examine the portfolio
securities being offered to each
Replacement Fund and accept only
those securities as consideration for
shares that it would have acquired for
each such fund in a cash transaction.
29. The Section 17 Applicants submit
that the proposed Insurance Company
in-kind purchases are consistent with
the general purposes of the Act as stated
in the Findings and Declaration of
Policy in Section 1 of the Act and that
the proposed transactions do not
present any of the conditions or abuses
that the Act was designed to prevent.
30. The Section 17 Applicants
represent that the proposed in-kind
purchases meet all of the requirements
of Section 17(b) of the Act and request
that the Commission issue an order
pursuant to Section 17(b) of the Act
exempting the Separate Accounts, the
Insurance Companies, MIST, Met Series
Fund and each Replacement Fund from
the provisions of Section 17(a) of the
Act to the extent necessary to permit the
Insurance Companies on behalf of the
Separate Accounts to carry out, as part
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of the substitutions, the in-kind
purchase of shares of the Replacement
Funds which may be deemed to be
prohibited by Section 17(a) of the Act.
Conclusion
Applicants assert that for the reasons
summarized above that the proposed
substitutions and related transactions
meet the standards of Section 26(c) of
the Act and are consistent with the
standards of Section 17(b) of the Act
and that the requested orders should be
granted.
For the Commission, by the Division of
Investment Management pursuant to
delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–7086 Filed 3–30–09; 8:45 am]
BILLING CODE
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59615; File No. SR–BX–
2009–005]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Order
Approving Proposed Rule Change To
Establish New Fees for Services
Available to Members and NonMembers
March 20, 2009.
I. Introduction
On January 14, 2009, NASDAQ OMX
BX, Inc. (‘‘BX’’ or the ‘‘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 adopt fees applicable to
members and non-members in
connection with its cash equities trading
business. The proposed rule change was
published for comment in the Federal
Register on February 4, 2009.3 The
Commission did not receive any
comment letters on the proposal. This
order approves the proposed rule
change.
II. Description of the Proposal
Pursuant to SR–BSE–2008–48, the
Exchange adopted a new rulebook with
rules governing membership, the
regulatory obligations of members,
listing, and equities trading.4 The new
1 15
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 59307
(January 28, 2009), 74 FR 6069 (SR–BX–2009–005).
4 Securities Exchange Act Release No. 59154
(December 23, 2008), 73 FR 80468 (December 31,
2008) (SR–BSE–2008–48).
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rules, which are designated as the
‘‘Equity Rules,’’ are substantially based
on the rules of The NASDAQ Stock
Market LLC (the ‘‘NASDAQ Exchange’’).
Through this proposal, the Exchange
seeks to establish non-member and
member fees for its cash equities trading
business.5 The Exchange states that the
proposed fee schedule is similar to the
NASDAQ Exchange but differs in that it
omits several fees that are not pertinent
to the Exchange’s business and differs in
the level of certain fees.
A. Market Data
The Exchange proposes to establish
fees for its BX TotalView data product.
Like NASDAQ TotalView, BX
TotalView will provide all displayed
quotes and orders in the market, with
attribution to the relevant market
participant, at every price level, as well
as total displayed anonymous interest at
every price level. In recognition of the
start-up nature of the new market, the
data feed will be provided free of charge
to subscribers and distributors for the
first year of operation.
After the initial free period,
subscribers to BX TotalView will pay a
monthly charge of $20; however, new
subscribers receiving BX TotalView for
the first time after the expiration of the
one-year introductory period will be
able to use the product free of charge for
an individual 30-day trial period.6
Distributors of BX TotalView will pay a
$1,000 monthly fee to receive the data
directly from the Exchange, since the
Exchange incurs costs to support the
connection to each direct distributor;
indirect distributors (i.e., those
receiving data from a direct distributor)
would not pay this charge.7 Distributors
will also pay a $500 monthly fee to
distribute the data feed internally (i.e.,
to employees) and a $1,250 monthly fee
to distribute to external customers.8
All of the foregoing fees will be
waived during the initial free period.
Upon approval of this filing, however,
the Exchange will begin to assess a
limited number of fees in connection
with data provision. Specifically,
extranet providers that connect to the
Exchange to provide direct access
connectivity to market data will be
charged a monthly access fee of $750 for
each technical configuration used to
provide a connection to a recipient’s
site.9 In addition, data distributors will
5 The Exchange previously adopted fees
applicable solely to its members. See Securities
Exchange Act Release No. 59337 (February 2, 2009),
74 FR 6441 (February 9, 2009) (SR–BX–2009–004).
6 See proposed Equity Rule 7023.
7 See proposed Equity Rule 7019.
8 Id.
9 See proposed Equity Rule 7025.
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Federal Register / Vol. 74, No. 60 / Tuesday, March 31, 2009 / Notices
pay an annual administrative fee of
$500 for delayed distribution of data,
and $1,000 for real-time distribution.10
The Exchange is establishing the
foregoing fee structure to be similar to
the structure for NASDAQ TotalView,
but at lower overall levels than fees for
NASDAQ TotalView. The Exchange
states that the lower fee levels reflect the
start-up nature of the Exchange’s new
equities trading platform, and will help
to promote competition among
exchanges with respect to the quoting
and trading services. Specifically, the
Exchange believes that the fees it sets
for BX TotalView will help to attract
order flow to the Exchange. At
inception, the Exchange will have zero
market share. The Exchange believes
that it must set its fees, including data
fees, with a view to attracting order flow
to increase market share. The Exchange
states that due to the existence of
alternatives for market participants to
determine market depth—such as other
depth of book products that may be
associated with markets with more
liquidity, or order routing strategies
designed to ascertain market depth—the
Exchange has incentives to ensure that
its fees for BX TotalView are set
reasonably.
The Exchange believes that proposed
fee structure for BX TotalView is not
unreasonably discriminatory, since the
fees for subscribers are uniform for all
subscribers, and the fees for distributors
are uniform except with respect to
reasonable distinctions between internal
and external distribution and direct and
indirect receipt of data. The Exchange
also believes that the fees are fair and
reasonable in that they compare
favorably to fees charged by other
exchanges for comparable products.
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B. Port Fees
In order to receive BX TotalView,
subscribers must establish connectivity
to the Exchange through extranets,
direct connection, and Internet-based
virtual private networks. The Exchange
proposes to charge fees for the ports
required to establish these connections,
just as it will charge for access ports
used to enter orders into the market.11
A port used for order entry cannot also
be used to receive data; thus, a member
seeking to enter orders and receive data
would require at least two port pairs.
10 See proposed Equity Rule 7035. These annual
administrative fees can be waived for colleges and
universities receiving the data for research and
educational purposes.
11 See Securities Exchange Act Release No. 59337
(February 2, 2009), 74 FR 6441 (February 9, 2009)
(SR–BX–2009–004) (establishing Equity Rule 7015
to charge fees for ports used by members to enter
orders).
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Prior to approval of this filing, the
Exchange will provide data ports free of
charge. Thereafter, the Exchange will
generally charge the same fees for data
ports that it charges for order entry
ports: $400 per month per port pair,
plus an additional $200 per month for
each Internet port that requires
additional bandwidth due to the
demands of the particular subscriber. In
addition, subscribers wishing to obtain
data will also have the option of
obtaining a Multicast ITCH® port pair at
a fee of $1000 per month.12 The
differences between these two options
relate to speed and processes for
verifying completeness of the data. The
standard port pair option provides one
copy of the data and uses procedures
under which the system receiving the
data communicates back to the
Exchange to verify completeness of the
information. Under the Multicast ITCH
option, two copies of the data are
provided without these verification
processes, and consequently at a higher
rate of speed. Because the recipient of
the data receives two copies, it can, if
it wishes, undertake its own verification
by programming its systems to compare
the two copies. The fees for data ports
are identical to the comparable fees
charged by the NASDAQ Exchange.
C. Testing
The Exchange proposes to establish
fees for its testing facility, to be set at
levels identical to the fees for the
NASDAQ Exchange’s testing facility.13
In general, the Exchange will charge
$285 per hour for an active connection
during the facility’s normal operating
hours and $333 per hour for an active
connection at other times. Because the
fees are waived for testing of new,
enhanced, or modified services and/or
software offered by the Exchange, as
well as for modifications initiated by the
Exchange and for a 30-day period for
new subscribers to existing services, the
testing fees will not be charged until the
later of (i) approval of this filing, or (ii)
30 days after the launch of the NASDAQ
OMX BX Equities System. Thereafter, as
provided in the rule, the fees will be
waived for a 30-day period for each new
market participant.
12 Equity
13 See
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Rule 7015.
proposed Equity Rule 7030(d).
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14605
D. Other Fees
Other fee rules relate to special data
requests 14 and partial month charges 15
and are comparable to corresponding
NASDAQ Exchange rules.
III. Discussion
The Commission has reviewed
carefully the proposed rule change 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.16 In particular, it is
consistent with Section 6(b)(4) of the
Act,17 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,18 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,19 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,20 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.21
14 See proposed Equity Rule 7030(b). This
provision allows the Exchange to recoup costs
associated with responding to ad hoc requests for
market data, such as requests that may be made by
news reporters or academic researchers.
15 See proposed Equity Rule 7031. This provision
provides that market data distributors may elect to
be billed on a prorated basis during the month of
initiation or termination of service.
16 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).
17 15 U.S.C. 78f(b)(4).
18 15 U.S.C. 78f(b)(5).
19 15 U.S.C. 78f(b)(8).
20 17 CFR 242.603(a).
21 BX is an exclusive processor of BX depth-ofbook data under Section 3(a)(22)(B) of the Act, 15
Continued
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A. BX Market Data & Port Fees
The Commission has reviewed the
proposal using the approach set forth in
the NYSE Arca Order for non-core
market data fees.22 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.’’ 23 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.’’ 24 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.’’ 25
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.26 In
contrast, individual exchanges and
other market participants distribute
non-core data voluntarily.27 The
mandatory nature of the core data
disclosure regime leaves little room for
competitive forces to determine
products and fees.28 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 603.29 Because BX’s instant
proposal relates to the distribution of
non-core data, the Commission will
apply the market-based approach set
forth in the NYSE Arca Order.
The proposal before the Commission,
in part, relates to fees for BX TotalView
which are non-core, depth of book
market data products, and as in the
Commission’s NYSE Arca Order
analysis at least two broad types of
significant competitive forces applied to
BX in setting the terms of this proposal:
(i) BX’s compelling need to attract order
flow from market participants; and (ii)
the availability to market participants of
alternatives to purchasing BX’s depthof-book order data.
Attracting order flow is the core
competitive concern of any equity
exchange, including BX. Attracting
order flow is an essential part of a
national securities exchange’s
competitive success. If a national
securities exchange cannot attract order
flow to its market, it will not be able to
execute transactions. If a national
securities exchange cannot execute
transactions on its market, it will not
generate transaction revenue. If a
national securities exchange cannot
attract orders or execute transactions on
its market, it will not have market data
to distribute, for a fee or otherwise, and
will not earn market data revenue and
thus not be competitive with other
exchanges that have this ability. Table 1
below provides a useful recent snapshot
of the state of competition in the U.S.
equity markets in the month of January
2009: 30
TABLE 1—REPORTED SHARE VOLUME IN U.S.-LISTED EQUITIES DURING JANUARY 2009
[%]
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 ......................................................................................................................
27.1
26.7
17.9
14.8
10.7
1.3
0.6
0.4
0.2
0.1
0.0
NYSE-Listed
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
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The market share percentages in Table
1 strongly indicate that BX must
compete vigorously for order flow to
maintain its share of trading volume.
This compelling need to attract order
flow imposes significant pressure on BX
to act reasonably in setting its fees for
BX market data, particularly given that
the market participants that must pay
such fees often will be the same market
participants from whom BX must attract
order flow. These market participants
particularly include the large brokerdealer 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
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.
22 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 non-core market data products. The
Commission hereby incorporates by reference the
data and analysis from the NYSE Arca Order into
this order.
23 Id. at 74771.
24 Id. at 74782.
25 Id. at 74781.
26 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.’’).
27 See NYSE Arca Order at 74779.
28 Id.
29 Id.
30 Source: ArcaVision (available at https://
www.arcavision.com).
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the same customers on whose orders it
depends for competitive survival.31
In addition to the need to attract order
flow, the availability of alternatives to
BX’s TotalView data significantly affect
the terms on which BX can distribute
this market data.32 In setting the fees for
its BX TotalView data, BX must
consider the extent to which market
participants would choose one or more
alternatives instead of purchasing the
exchange’s data.33 Of course, the most
basic source of information generally
available at an exchange is the complete
record of an exchange’s transactions that
is provided in the core data feeds.34 In
this respect, the core data feeds that
include an exchange’s own transaction
information are a significant alternative
to the exchange’s market data product.35
For more specific information
concerning depth, market participants
can choose among products offered by
the various exchanges and ECNs.36 The
various self-regulatory organizations,
the several Trade Reporting Facilities of
FINRA, and ECNs that produce
proprietary data are all sources of
competition. In addition, market
participants can assess depth with tools
other than market data, such as
‘‘pinging’’ orders that search out both
displayed and nondisplayed size at all
price points within an order’s limit
price.37
In sum, there are a variety of
alternative sources of information that
impose significant competitive
pressures on the BX in setting the terms
for distributing its depth-of-book order
data. The Commission believes that the
availability of those alternatives, as well
as the BX’s compelling need to attract
order flow, imposed significant
31 See
NYSE Arca Order at 74783.
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).
33 See NYSE Arca Order at 74783.
34 Id.
35 Id.
36 See NYSE Arca Order at 74784.
37 Id.
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32 See
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competitive pressure on the BX to act
equitably, fairly, and reasonably in
setting the terms of its proposal.
Because the BX 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 does not provide such a basis.
Further, the Commission did not receive
any comment letters raising concerns of
a substantial countervailing basis that
the terms of the proposal failed to meet
the requirements of the Act or the rules
thereunder.
The Commission notes that BX is
effectively entering the competitive
markets for equities trading as a start-up
venture. If its fees are not set at a level
that will promote competition in these
markets, potential users will simply
continue to obtain services from the
Exchange’s multiple competitors.
Accordingly, the Exchange must set fees
for market data and transaction
executions that promote the Exchange
as a trading venue. If its fees are set at
inappropriately high levels, market
participants will seek to avoid using the
Exchange, and the Exchange’ market
data will have little value to market
participants. Thus, consistent with the
analysis set forth in the NYSE Arca
Order, the Exchange’s operations,
products and services must be designed
to promote competition in order to
succeed and provide market
participants with viable and costeffective alternatives to existing
competitors.
B. Testing and Other Fees
The Exchange proposes to establish
new fees for its testing facility at the
rates of $285 per hour for an active
connection during the facility’s normal
operating hours and $333 per hour for
an active connection at other times.
Under the proposal, the Exchange will
waive fees for testing of new, enhanced,
or modified services and/or software
offered by the Exchange, as well as for
modifications initiated by the Exchange
and for a 30-day period for new
subscribers to existing services, the
testing fees will not be charged until the
later of (i) approval of this filing, or (ii)
30 days after the launch of the NASDAQ
OMX BX Equities System. Thereafter,
fees will be waived for a 30-day period
for each new market participant. The
Commission notes that the Exchanges’s
new fees for its testing facility are at
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14607
levels identical to the fees for the
NASDAQ Exchange’s testing facility.38
In addition, the Exchange proposes
new fee rules related to special data
requests to allow the Exchange to
recoup costs associated with responding
to ad hoc requests for market data, such
as requests that may be made by news
reporters or academic researchers.39 The
Exchange also proposes fees for partial
month charges to enable market data
distributors to elect to be billed on a
prorated basis during the month of
initiation or termination of service.40
The Commission notes that these new
fees for special data requests and partial
month charges are similar to
corresponding NASDAQ Exchange
rules.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,41 that the
proposed rule change (SR–BX–2009–
005) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–7085 Filed 3–30–09; 8:45 am]
BILLING CODE
DEPARTMENT OF STATE
[Public Notice 6562]
60-Day Notice of Proposed Information
Collection: DS–0174, Application for
Employment as a Locally Employed
Staff or Family Member, OMB Control
Number 1405–XXXX
ACTION: Notice of request for public
comments.
SUMMARY: The Department of State is
seeking Office of Management and
Budget (OMB) approval for the
information collection described below.
The purpose of this notice is to allow 60
days for public comment in the Federal
Register preceding submission to OMB.
We are conducting this process in
accordance with the Paperwork
Reduction Act of 1995.
• Title of Information Collection:
Department of State Application for
Employment as a Locally Employed
Staff or Family Member.
• OMB Control Number: 1405–XXXX.
• Type of Request: New collection.
38 See
proposed Equity Rule 7030(d).
proposed Equity Rule 7030(b).
40 See proposed Equity Rule 7031.
41 15 U.S.C. 78s(b)(2).
42 17 CFR 200.30–3(a)(12).
39 See
E:\FR\FM\31MRN1.SGM
31MRN1
]]>Agencies
[Federal Register Volume 74, Number 60 (Tuesday, March 31, 2009)]
[Notices]
[Pages 14604-14607]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-7085]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59615; File No. SR-BX-2009-005]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order
Approving Proposed Rule Change To Establish New Fees for Services
Available to Members and Non-Members
March 20, 2009.
I. Introduction
On January 14, 2009, NASDAQ OMX BX, Inc. (``BX'' or the
``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 adopt fees applicable to members and non-
members in connection with its cash equities trading business. The
proposed rule change was published for comment in the Federal Register
on February 4, 2009.\3\ The Commission did not receive any comment
letters on the proposal. This order approves the proposed rule change.
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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. 59307 (January 28,
2009), 74 FR 6069 (SR-BX-2009-005).
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II. Description of the Proposal
Pursuant to SR-BSE-2008-48, the Exchange adopted a new rulebook
with rules governing membership, the regulatory obligations of members,
listing, and equities trading.\4\ The new rules, which are designated
as the ``Equity Rules,'' are substantially based on the rules of The
NASDAQ Stock Market LLC (the ``NASDAQ Exchange''). Through this
proposal, the Exchange seeks to establish non-member and member fees
for its cash equities trading business.\5\ The Exchange states that the
proposed fee schedule is similar to the NASDAQ Exchange but differs in
that it omits several fees that are not pertinent to the Exchange's
business and differs in the level of certain fees.
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\4\ Securities Exchange Act Release No. 59154 (December 23,
2008), 73 FR 80468 (December 31, 2008) (SR-BSE-2008-48).
\5\ The Exchange previously adopted fees applicable solely to
its members. See Securities Exchange Act Release No. 59337 (February
2, 2009), 74 FR 6441 (February 9, 2009) (SR-BX-2009-004).
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A. Market Data
The Exchange proposes to establish fees for its BX TotalView data
product. Like NASDAQ TotalView, BX TotalView will provide all displayed
quotes and orders in the market, with attribution to the relevant
market participant, at every price level, as well as total displayed
anonymous interest at every price level. In recognition of the start-up
nature of the new market, the data feed will be provided free of charge
to subscribers and distributors for the first year of operation.
After the initial free period, subscribers to BX TotalView will pay
a monthly charge of $20; however, new subscribers receiving BX
TotalView for the first time after the expiration of the one-year
introductory period will be able to use the product free of charge for
an individual 30-day trial period.\6\ Distributors of BX TotalView will
pay a $1,000 monthly fee to receive the data directly from the
Exchange, since the Exchange incurs costs to support the connection to
each direct distributor; indirect distributors (i.e., those receiving
data from a direct distributor) would not pay this charge.\7\
Distributors will also pay a $500 monthly fee to distribute the data
feed internally (i.e., to employees) and a $1,250 monthly fee to
distribute to external customers.\8\
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\6\ See proposed Equity Rule 7023.
\7\ See proposed Equity Rule 7019.
\8\ Id.
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All of the foregoing fees will be waived during the initial free
period.
Upon approval of this filing, however, the Exchange will begin to
assess a limited number of fees in connection with data provision.
Specifically, extranet providers that connect to the Exchange to
provide direct access connectivity to market data will be charged a
monthly access fee of $750 for each technical configuration used to
provide a connection to a recipient's site.\9\ In addition, data
distributors will
[[Page 14605]]
pay an annual administrative fee of $500 for delayed distribution of
data, and $1,000 for real-time distribution.\10\
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\9\ See proposed Equity Rule 7025.
\10\ See proposed Equity Rule 7035. These annual administrative
fees can be waived for colleges and universities receiving the data
for research and educational purposes.
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The Exchange is establishing the foregoing fee structure to be
similar to the structure for NASDAQ TotalView, but at lower overall
levels than fees for NASDAQ TotalView. The Exchange states that the
lower fee levels reflect the start-up nature of the Exchange's new
equities trading platform, and will help to promote competition among
exchanges with respect to the quoting and trading services.
Specifically, the Exchange believes that the fees it sets for BX
TotalView will help to attract order flow to the Exchange. At
inception, the Exchange will have zero market share. The Exchange
believes that it must set its fees, including data fees, with a view to
attracting order flow to increase market share. The Exchange states
that due to the existence of alternatives for market participants to
determine market depth--such as other depth of book products that may
be associated with markets with more liquidity, or order routing
strategies designed to ascertain market depth--the Exchange has
incentives to ensure that its fees for BX TotalView are set reasonably.
The Exchange believes that proposed fee structure for BX TotalView
is not unreasonably discriminatory, since the fees for subscribers are
uniform for all subscribers, and the fees for distributors are uniform
except with respect to reasonable distinctions between internal and
external distribution and direct and indirect receipt of data. The
Exchange also believes that the fees are fair and reasonable in that
they compare favorably to fees charged by other exchanges for
comparable products.
B. Port Fees
In order to receive BX TotalView, subscribers must establish
connectivity to the Exchange through extranets, direct connection, and
Internet-based virtual private networks. The Exchange proposes to
charge fees for the ports required to establish these connections, just
as it will charge for access ports used to enter orders into the
market.\11\ A port used for order entry cannot also be used to receive
data; thus, a member seeking to enter orders and receive data would
require at least two port pairs. Prior to approval of this filing, the
Exchange will provide data ports free of charge. Thereafter, the
Exchange will generally charge the same fees for data ports that it
charges for order entry ports: $400 per month per port pair, plus an
additional $200 per month for each Internet port that requires
additional bandwidth due to the demands of the particular subscriber.
In addition, subscribers wishing to obtain data will also have the
option of obtaining a Multicast ITCH[supreg] port pair at a fee of
$1000 per month.\12\ The differences between these two options relate
to speed and processes for verifying completeness of the data. The
standard port pair option provides one copy of the data and uses
procedures under which the system receiving the data communicates back
to the Exchange to verify completeness of the information. Under the
Multicast ITCH option, two copies of the data are provided without
these verification processes, and consequently at a higher rate of
speed. Because the recipient of the data receives two copies, it can,
if it wishes, undertake its own verification by programming its systems
to compare the two copies. The fees for data ports are identical to the
comparable fees charged by the NASDAQ Exchange.
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\11\ See Securities Exchange Act Release No. 59337 (February 2,
2009), 74 FR 6441 (February 9, 2009) (SR-BX-2009-004) (establishing
Equity Rule 7015 to charge fees for ports used by members to enter
orders).
\12\ Equity Rule 7015.
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C. Testing
The Exchange proposes to establish fees for its testing facility,
to be set at levels identical to the fees for the NASDAQ Exchange's
testing facility.\13\ In general, the Exchange will charge $285 per
hour for an active connection during the facility's normal operating
hours and $333 per hour for an active connection at other times.
Because the fees are waived for testing of new, enhanced, or modified
services and/or software offered by the Exchange, as well as for
modifications initiated by the Exchange and for a 30-day period for new
subscribers to existing services, the testing fees will not be charged
until the later of (i) approval of this filing, or (ii) 30 days after
the launch of the NASDAQ OMX BX Equities System. Thereafter, as
provided in the rule, the fees will be waived for a 30-day period for
each new market participant.
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\13\ See proposed Equity Rule 7030(d).
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D. Other Fees
Other fee rules relate to special data requests \14\ and partial
month charges \15\ and are comparable to corresponding NASDAQ Exchange
rules.
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\14\ See proposed Equity Rule 7030(b). This provision allows the
Exchange to recoup costs associated with responding to ad hoc
requests for market data, such as requests that may be made by news
reporters or academic researchers.
\15\ See proposed Equity Rule 7031. This provision provides that
market data distributors may elect to be billed on a prorated basis
during the month of initiation or termination of service.
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III. Discussion
The Commission has reviewed carefully the proposed rule change 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.\16\ In particular, it is consistent with
Section 6(b)(4) of the Act,\17\ 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,\18\ 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.
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\16\ 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).
\17\ 15 U.S.C. 78f(b)(4).
\18\ 15 U.S.C. 78f(b)(5).
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The Commission also finds that the proposed rule change is
consistent with the provisions of Section 6(b)(8) of the Act,\19\ 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,\20\ 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.\21\
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\19\ 15 U.S.C. 78f(b)(8).
\20\ 17 CFR 242.603(a).
\21\ BX is an exclusive processor of BX depth-of-book 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.
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[[Page 14606]]
A. BX Market Data & Port Fees
The Commission has reviewed the proposal using the approach set
forth in the NYSE Arca Order for non-core market data fees.\22\ 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.''
\23\ 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.'' \24\ 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.'' \25\
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\22\ 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 non-core market
data products. The Commission hereby incorporates by reference the
data and analysis from the NYSE Arca Order into this order.
\23\ Id. at 74771.
\24\ Id. at 74782.
\25\ 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.\26\ In
contrast, individual exchanges and other market participants distribute
non-core data voluntarily.\27\ The mandatory nature of the core data
disclosure regime leaves little room for competitive forces to
determine products and fees.\28\ 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.\29\ Because BX's
instant proposal relates to the distribution of non-core data, the
Commission will apply the market-based approach set forth in the NYSE
Arca Order.
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\26\ 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.'').
\27\ See NYSE Arca Order at 74779.
\28\ Id.
\29\ Id.
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The proposal before the Commission, in part, relates to fees for BX
TotalView which are non-core, depth of book market data products, and
as in the Commission's NYSE Arca Order analysis at least two broad
types of significant competitive forces applied to BX in setting the
terms of this proposal: (i) BX's compelling need to attract order flow
from market participants; and (ii) the availability to market
participants of alternatives to purchasing BX's depth-of-book order
data.
Attracting order flow is the core competitive concern of any equity
exchange, including BX. Attracting order flow is an essential part of a
national securities exchange's competitive success. If a national
securities exchange cannot attract order flow to its market, it will
not be able to execute transactions. If a national securities exchange
cannot execute transactions on its market, it will not generate
transaction revenue. If a national securities exchange cannot attract
orders or execute transactions on its market, it will not have market
data to distribute, for a fee or otherwise, and will not earn market
data revenue and thus not be competitive with other exchanges that have
this ability. Table 1 below provides a useful recent snapshot of the
state of competition in the U.S. equity markets in the month of January
2009: \30\
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\30\ Source: ArcaVision (available at https://www.arcavision.com).
Table 1--Reported Share Volume in U.S.-Listed Equities During January 2009
[%]
----------------------------------------------------------------------------------------------------------------
Trading venue All stocks NYSE-Listed NASDAQ-Listed
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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
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The market share percentages in Table 1 strongly indicate that BX
must compete vigorously for order flow to maintain its share of trading
volume. This compelling need to attract order flow imposes significant
pressure on BX to act reasonably in setting its fees for BX market
data, particularly given that the market participants that must pay
such fees often will be the same market participants from whom BX 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
[[Page 14607]]
the same customers on whose orders it depends for competitive
survival.\31\
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\31\ See NYSE Arca Order at 74783.
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In addition to the need to attract order flow, the availability of
alternatives to BX's TotalView data significantly affect the terms on
which BX can distribute this market data.\32\ In setting the fees for
its BX TotalView data, BX must consider the extent to which market
participants would choose one or more alternatives instead of
purchasing the exchange's data.\33\ Of course, the most basic source of
information generally available at an exchange is the complete record
of an exchange's transactions that is provided in the core data
feeds.\34\ In this respect, the core data feeds that include an
exchange's own transaction information are a significant alternative to
the exchange's market data product.\35\
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\32\ 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).
\33\ See NYSE Arca Order at 74783.
\34\ Id.
\35\ Id.
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For more specific information concerning depth, market participants
can choose among products offered by the various exchanges and
ECNs.\36\ The various self-regulatory organizations, the several Trade
Reporting Facilities of FINRA, and ECNs that produce proprietary data
are all sources of competition. In addition, market participants can
assess depth with tools other than market data, such as ``pinging''
orders that search out both displayed and nondisplayed size at all
price points within an order's limit price.\37\
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\36\ See NYSE Arca Order at 74784.
\37\ Id.
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In sum, there are a variety of alternative sources of information
that impose significant competitive pressures on the BX in setting the
terms for distributing its depth-of-book order data. The Commission
believes that the availability of those alternatives, as well as the
BX's compelling need to attract order flow, imposed significant
competitive pressure on the BX to act equitably, fairly, and reasonably
in setting the terms of its proposal.
Because the BX 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 does not
provide such a basis. Further, the Commission did not receive any
comment letters raising concerns of a substantial countervailing basis
that the terms of the proposal failed to meet the requirements of the
Act or the rules thereunder.
The Commission notes that BX is effectively entering the
competitive markets for equities trading as a start-up venture. If its
fees are not set at a level that will promote competition in these
markets, potential users will simply continue to obtain services from
the Exchange's multiple competitors. Accordingly, the Exchange must set
fees for market data and transaction executions that promote the
Exchange as a trading venue. If its fees are set at inappropriately
high levels, market participants will seek to avoid using the Exchange,
and the Exchange' market data will have little value to market
participants. Thus, consistent with the analysis set forth in the NYSE
Arca Order, the Exchange's operations, products and services must be
designed to promote competition in order to succeed and provide market
participants with viable and cost-effective alternatives to existing
competitors.
B. Testing and Other Fees
The Exchange proposes to establish new fees for its testing
facility at the rates of $285 per hour for an active connection during
the facility's normal operating hours and $333 per hour for an active
connection at other times. Under the proposal, the Exchange will waive
fees for testing of new, enhanced, or modified services and/or software
offered by the Exchange, as well as for modifications initiated by the
Exchange and for a 30-day period for new subscribers to existing
services, the testing fees will not be charged until the later of (i)
approval of this filing, or (ii) 30 days after the launch of the NASDAQ
OMX BX Equities System. Thereafter, fees will be waived for a 30-day
period for each new market participant. The Commission notes that the
Exchanges's new fees for its testing facility are at levels identical
to the fees for the NASDAQ Exchange's testing facility.\38\
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\38\ See proposed Equity Rule 7030(d).
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In addition, the Exchange proposes new fee rules related to special
data requests to allow the Exchange to recoup costs associated with
responding to ad hoc requests for market data, such as requests that
may be made by news reporters or academic researchers.\39\ The Exchange
also proposes fees for partial month charges to enable market data
distributors to elect to be billed on a prorated basis during the month
of initiation or termination of service.\40\ The Commission notes that
these new fees for special data requests and partial month charges are
similar to corresponding NASDAQ Exchange rules.
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\39\ See proposed Equity Rule 7030(b).
\40\ See proposed Equity Rule 7031.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\41\ that the proposed rule change (SR-BX-2009-005) be, and hereby
is, approved.
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\41\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-7085 Filed 3-30-09; 8:45 am]
BILLING CODE
