Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish an Optional Depth Data Enterprise License Fee, 57321-57326 [2010-23386]
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Federal Register / Vol. 75, No. 181 / Monday, September 20, 2010 / Notices
accurate clearance and settlement of
securities. NSCC further states that the
proposal is consistent with the CPSS/
IOSCO Recommendations for Central
Counterparties (specifically
Recommendation 12) in that in addition
to the additional efficiencies noted
above, the UTC will also provide for
cost-effectively meeting the
requirements of NSCC’s members.
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
NSCC believes that the proposed rule
change will not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act.
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
NSCC has not solicited or received
written comments relating to the
proposed rule change. NSCC will notify
the Commission of any written
comments it receives.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
All submissions should refer to File No.
SR–NSCC–2010–09. This file number
should be included on the subject line
if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C 552, will be
available for Web site viewing and
printing 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 such filing
also will be available for inspection and
copying at NSCC’s principal office and
NSCC’s Web site (https://www.dtcc.com/
legal/rule_filings/nscc/2010.php). 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 No.
SR–NSCC–2010–09 and should be
submitted October 12, 2010.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.7
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–23372 Filed 9–17–10; 8:45 am]
BILLING CODE 8010–01–P
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
• Electronic comments may be
submitted by using the Commission’s
Internet comment form (https://
www.sec.gov/rules/sro.shtml), or send
an e-mail to rule-comment@sec.gov.
Please include File No. SR–NSCC–
2010–09 on the subject line.
• Paper comments should be sent in
triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington DC 20549–1090.
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62908; File No. SR–
NASDAQ–2010–111]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Establish an
Optional Depth Data Enterprise
License Fee
September 14, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
7 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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notice is hereby given that on
September 7, 2010, The NASDAQ Stock
Market LLC (‘‘NASDAQ’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASDAQ proposes to establish an
optional Depth Data Enterprise License
Fee for external distribution of depth-ofbook data to non-professional users. The
text of the proposed rule change is
below. Proposed new language is in
italics; proposed deletions are in
brackets.3
*
*
*
*
*
7023. NASDAQ TotalView
(a) TotalView Entitlement
The TotalView entitlement allows a
subscriber to see all individual
NASDAQ Market Center participant
orders and quotes displayed in the
system as well as the aggregate size of
such orders and quotes at each price
level in the execution functionality of
the NASDAQ Market Center, including
the NQDS feed.
(1)
(A) Except as provided in (a)(1)(B)
and (C), for the TotalView entitlement
there shall be a $70 monthly charge for
each controlled device.
(B) Except as provided in (a)(1)(C), a
non-professional subscriber, as defined
in Rule 7011(b), shall pay $14 per
month for each controlled device.
(C) As an alternative to (a)(1)(A) and
(B), a broker-dealer distributor may
purchase an enterprise license at a rate
of $25,000 for non-professional
subscribers or $100,000 per month for
both professional and non-professional
subscribers. The enterprise license
entitles a distributor to provide
TotalView and OpenView to an
unlimited number of internal users,
whether such users receive the data
directly or through third-party vendors,
and external users with whom the firm
has a brokerage relationship. The
enterprise license shall not apply to
relevant Level 1 and NQDS fees.
(D) As an alternative to (a)(1)(A), (B)
and (C), a market participant may
purchase an enterprise license at a rate
3 Changes are marked to the rule text that appears
in the electronic manual of Nasdaq found at
https://nasdaqomx.cchwallstreet.com.
1 15
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Federal Register / Vol. 75, No. 181 / Monday, September 20, 2010 / Notices
of $30,000 per month for internal use of
non-display data. The enterprise license
entitles a distributor to provide
TotalView and OpenView to an
unlimited number of non-display
devices within its firm. The enterprise
license shall not apply to relevant Level
1 fees.
(E) As an alternative to (a)(1)(A), (B),
and (C), a broker-dealer distributor may
purchase an enterprise license at a rate
of $300,000 for non-professional
subscribers. The enterprise license
entitles a distributor to provide NQDS
(as set forth in Rule 7017), TotalView
and OpenView to an unlimited number
of internal users, whether such users
receive the data directly or through
third-party vendors, and external users
with whom the firm has a brokerage
relationship. The enterprise license
shall not apply to relevant Level 1 fees.
(2) 30-Day Free-Trial Offer. NASDAQ
shall offer all new individual
subscribers and potential new
individual subscribers a 30-day waiver
of the user fees for TotalView. This
waiver shall not include the incremental
fees assessed for the NQDS-only service,
which are $30 for professional users and
$9 for non-professional users per month.
This fee waiver period shall be applied
on a rolling basis, determined by the
date on which a new individual
subscriber or potential individual
subscriber is first entitled by a
distributor to receive access to
TotalView. A distributor may only
provide this waiver to a specific
individual subscriber once.
For the period of the offer, the
TotalView fee of $40 per professional
user and $5 per non-professional user
per month shall be waived.
(b) No change.
(c) No change.
(d) No change.
*
*
*
*
*
(b) Not applicable.
(c) Not applicable.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NASDAQ included statements
concerning the purpose of, and basis for,
the proposed rule change. The text of
these statements may be examined at
the places specified in Item III below,
and is set forth in Sections A, B, and C
below.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
NASDAQ disseminates market data
feeds in two capacities. First, NASDAQ
disseminates consolidated or ‘‘core’’ data
in its capacity as Securities Information
Processor (‘‘SIP’’) for the national market
system plan governing securities listed
on NASDAQ as a national securities
exchange (‘‘NASDAQ UTP Plan’’).4
Second, NASDAQ separately
disseminates proprietary or ‘‘non-core’’
data in its capacity as a registered
national securities exchange. Non-core
data is any data generated by the
NASDAQ Market Center Execution
System that is voluntarily disseminated
by NASDAQ separate and apart from the
consolidated data.5 NASDAQ has
numerous proprietary data products,
such as NASDAQ TotalView, NASDAQ
Last Sale, and NASDAQ Basic.
NASDAQ continues to seek broader
distribution of non-core data and to
reduce the cost of providing non-core
data to larger numbers of investors. In
the past, NASDAQ has accomplished
this goal in part by offering similar
enterprise licenses for professional and
non-professional usage of TotalView
which contains the full depth of book
data for the NASDAQ Market Center
Execution System. NASDAQ believes
that the adoption of enterprise licenses
has led to greater distribution of market
data, particularly among nonprofessional users.
Based on input from market
participants, NASDAQ believes that this
increase in distribution is attributable in
part to the relief it provides distributors
from the NASDAQ requirement that
distributors count and report each nonprofessional user of NASDAQ
proprietary data. In addition to
increased administrative flexibility,
enterprise licenses also encourage
broader distribution by firms that are
currently over the fee cap as well as
those that are approaching the cap and
wish to take advantage of the benefits of
the program. Further, NASDAQ believes
that capping fees in this manner creates
goodwill with broker-dealers and
increases transparency for retail
investors.
Accordingly, NASDAQ is seeking to
establish the Depth Data Enterprise
License Fee, an optional $300,000 per
month non-professional enterprise
license for external distributors of any
4 See Securities Exchange Act Release No. 59039
(Dec. 2, 2008) at p. 41.
5 Id.
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NASDQ depth-of-book data product
including the National Quotation
Dissemination Service or NQDS (Rule
7017) and TotalView and OpenView,
(Rule 7023) (collectively, ‘‘NASDAQ
Depth Data’’). This Depth Data
Enterprise License Fee will include nonprofessional usage, but will not include
distributor fees.6 This program will be
available only to broker-dealers
registered under the Securities
Exchange Act of 1934, and would cover
all usage fees with respect to both
internal usage and re-distribution to
customers with whom the firm has a
brokerage relationship. Non-brokerdealer vendors and application service
providers would not be eligible for the
enterprise license; such firms typically
pass through the cost of market data
user fees to their customers.
The Depth Data Enterprise License
Fee will cover usage fees for NASDAQ
Depth Data received directly from
NASDAQ as well as data received from
third-party vendors (e.g., Bloomberg,
Reuters, etc.). Upon joining the program,
firms may inform third-party market
data vendors they utilize (through a
NASDAQ-provided form) that, going
forward, non-professional depth data
usage by the broker-dealer may be
reported to NASDAQ on a non-billable
basis. Such a structure attempts to
address a long-standing concern that
broker-dealers are over-billed for market
data consumed by one person through
multiple market-data display devices.
At the same time, the proposed billing
structure will continue to provide
NASDAQ with accurate reporting
information for purposes of usage
monitoring and auditing.
The proposed Depth Data Enterprise
License Fee is completely optional and
does not replace existing enterprise
license fee alternatives set forth in Rule
7023. Additionally, the proposal does
not impact individual usage fees for any
product or in any way raise the costs of
any user of any NASDAQ data product.
To the contrary, it provides brokerdealers with an additional approach to
providing more NASDAQ data at a
lower cost.
2. Statutory Basis
NASDAQ believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,7 in
general, and with Section 6(b)(4) of the
Act,8 in particular, in that it provides an
equitable allocation of reasonable fees
6 Distributors who utilize the enterprise license
would still be liable for the applicable distributor
fees.
7 15 U.S.C. 78f.
8 15 U.S.C. 78f(b)(4).
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among users and recipients of NASDAQ
data. In adopting Regulation NMS, the
Commission granted self-regulatory
organizations and broker-dealers
increased authority and flexibility to
offer new and unique market data to the
public. It was believed that this
authority would expand the amount of
data available to consumers, and also
spur innovation and competition for the
provision of market data.
The Commission concluded that
Regulation NMS—by deregulating the
market in proprietary data—would itself
further the Act’s goals of facilitating
efficiency and competition:
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[E]fficiency is promoted when brokerdealers who do not need the data beyond the
prices, sizes, market center identifications of
the NBBO and consolidated last sale
information are not required to receive (and
pay for) such data. The Commission also
believes that efficiency is promoted when
broker-dealers may choose to receive (and
pay for) additional market data based on their
own internal analysis of the need for such
data.9
By removing ‘‘unnecessary regulatory
restrictions’’ on the ability of exchanges
to sell their own data, Regulation NMS
advanced the goals of the Act and the
principles reflected in its legislative
history. If the free market should
determine whether proprietary data is
sold to broker-dealers at all, it follows
that the price at which such data is sold
should be set by the market as well.
NQDS, TotalView and OpenView are
precisely the sort of market data product
that the Commission envisioned when it
adopted Regulation NMS.
On July 21, 2010, President Barak
Obama signed into law H.R. 4173, the
Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010
(‘‘Dodd-Frank Act’’), which amended
Section 19 of the Act. Among other
things, Section 916 of the Dodd-Frank
Act amended paragraph (A) of Section
19(b)(3) of the Act by inserting the
phrase ‘‘on any person, whether or not
the person is a member of the selfregulatory organization’’ after ‘‘due, fee
or other charge imposed by the selfregulatory organization.’’ As a result, all
SRO rule proposals establishing or
changing dues, fees, or other charges are
immediately effective upon filing
regardless of whether such dues, fees, or
other charges are imposed on members
of the SRO, non-members, or both.
Section 916 further amended paragraph
(C) of Section 19(b)(3) of the Exchange
Act to read, in pertinent part, ‘‘At any
time within the 60-day period beginning
on the date of filing of such a proposed
9 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
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rule change in accordance with the
provisions of paragraph (1) [of Section
19(b)], the Commission summarily may
temporarily suspend the change in the
rules of the self-regulatory organization
made thereby, if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of this title. If the Commission
takes such action, the Commission shall
institute proceedings under paragraph
(2)(B) [of Section 19(b)] to determine
whether the proposed rule should be
approved or disapproved.’’
NASDAQ believes that these
amendments to Section 19 of the Act
reflect Congress’s intent to allow the
Commission to rely upon the forces of
competition to ensure that fees for
market data are reasonable and
equitably allocated. Although Section
19(b) had formerly authorized
immediate effectiveness for a ‘‘due, fee
or other charge imposed by the selfregulatory organization,’’ the
Commission adopted a policy and
subsequently a rule stipulating that fees
for data and other products available to
persons that are not members of the selfregulatory organization must be
approved by the Commission after first
being published for comment. At the
time, the Commission supported the
adoption of the policy and the rule by
pointing out that unlike members,
whose representation in self-regulatory
organization governance was mandated
by the Act, non-members should be
given the opportunity to comment on
fees before being required to pay them,
and that the Commission should
specifically approve all such fees.
NASDAQ believes that the amendment
to Section 19 reflects Congress’s
conclusion that the evolution of selfregulatory organization governance and
competitive market structure have
rendered the Commission’s prior policy
on non-member fees obsolete.
Specifically, many exchanges have
evolved from member-owned not-forprofit corporations into for-profit
investor-owned corporations (or
subsidiaries of investor-owned
corporations). Accordingly, exchanges
no longer have narrow incentives to
manage their affairs for the exclusive
benefit of their members, but rather
have incentives to maximize the appeal
of their products to all customers,
whether members or non-members, so
as to broaden distribution and grow
revenues. Moreover, we believe that the
change also reflects an endorsement of
the Commission’s determinations that
reliance on competitive markets is an
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appropriate means to ensure equitable
and reasonable prices. Simply put, the
change reflects a presumption that all
fee changes should be permitted to take
effect immediately, since the level of all
fees are constrained by competitive
forces.
The recent decision of the United
States Court of Appeals for the District
of Columbia Circuit in NetCoaliton v.
SEC, No. 09–1042 (DC Cir. 2010),
although reviewing a Commission
decision made prior to the effective date
of the Dodd-Frank Act, upheld the
Commission’s reliance upon
competitive markets to set reasonable
and equitably allocated fees for market
data. ‘‘In fact, the legislative history
indicates that the Congress intended
that the market system ‘evolve through
the interplay of competitive forces as
unnecessary regulatory restrictions are
removed’ and that the SEC wield its
regulatory power ‘in those situations
where competition may not be
sufficient,’ such as in the creation of a
‘consolidated transactional reporting
system.’ ’’ NetCoaltion, at 15 (quoting
H.R. Rep. No. 94–229, at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 321,
323). The court’s conclusions about
Congressional intent are therefore
reinforced by the Dodd-Frank Act
amendments, which create a
presumption that exchange fees,
including market data fees, may take
effect immediately, without prior
Commission approval, and that the
Commission should take action to
suspend a fee change and institute a
proceeding to determine whether the fee
change should be approved or
disapproved only where the
Commission has concerns that the
change may not be consistent with the
Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
NASDAQ does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
Notwithstanding its determination that
the Commission may rely upon
competition to establish fair and
equitably allocated fees for market data,
the NetCoaltion court found that the
Commission had not, in that case,
compiled a record that adequately
supported its conclusion that the market
for the data at issue in the case was
competitive. For the reasons discussed
above, NASDAQ believes that the DoddFrank Act amendments to Section 19
materially alter the scope of the
Commission’s review of future market
data filings, by creating a presumption
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that all fees may take effect
immediately, without prior analysis by
the Commission of the competitive
environment. Even in the absence of
this important statutory change,
however, NASDAQ believes that a
record may readily be established to
demonstrate the competitive nature of
the market in question.
There is intense competition between
trading platforms that provide
transaction execution and routing
services and proprietary data products.
Transaction execution and proprietary
data products are complementary in that
market data is both an input and a
byproduct of the execution service. In
fact, market data and trade execution are
a paradigmatic example of joint
products with joint costs. The decision
whether and on which platform to post
an order will depend on the attributes
of the platform where the order can be
posted, including the execution fees,
data quality and price and distribution
of its data products. Without the
prospect of a taking order seeing and
reacting to a posted order on a particular
platform, the posting of the order would
accomplish little. Without trade
executions, exchange data products
cannot exist. Data products are valuable
to many end users only insofar as they
provide information that end users
expect will assist them or their
customers in making trading decisions.
The costs of producing market data
include not only the costs of the data
distribution infrastructure, but also the
costs of designing, maintaining, and
operating the exchange’s transaction
execution platform and the cost of
regulating the exchange to ensure its fair
operation and maintain investor
confidence. The total return that a
trading platform earns reflects the
revenues it receives from both products
and the joint costs it incurs. Moreover,
an exchange’s customers view the costs
of transaction executions and of data as
a unified cost of doing business with the
exchange. A broker-dealer will direct
orders to a particular exchange only if
the expected revenues from executing
trades on the exchange exceed net
transaction execution costs and the cost
of data that the broker-dealer chooses to
buy to support its trading decisions (or
those of its customers). The choice of
data products is, in turn, a product of
the value of the products in making
profitable trading decisions. If the cost
of the product exceeds its expected
value, the broker-dealer will choose not
to buy it. Moreover, as a broker-dealer
chooses to direct fewer orders to a
particular exchange, the value of the
product to that broker-dealer decreases,
for two reasons. First, the product will
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contain less information, because
executions of the broker-dealer’s orders
will not be reflected in it. Second, and
perhaps more important, the product
will be less valuable to that brokerdealer because it does not provide
information about the venue to which it
is directing its orders. Data from the
competing venue to which the brokerdealer is directing orders will become
correspondingly more valuable.
Thus, a super-competitive increase in
the fees charged for either transactions
or data has the potential to impair
revenues from both products. ‘‘No one
disputes that competition for order flow
is ‘fierce’.’’ NetCoalition at 24. However,
the existence of fierce competition for
order flow implies a high degree of price
sensitivity on the part of broker-dealers
with order flow, since they may readily
reduce costs by directing orders toward
the lowest-cost trading venues. A
broker-dealer that shifted its order flow
from one platform to another in
response to order execution price
differentials would both reduce the
value of that platform’s market data and
reduce its own need to consume data
from the disfavored platform. Similarly,
if a platform increases its market data
fees, the change will affect the overall
cost of doing business with the
platform, and affected broker-dealers
will assess whether they can lower their
trading costs by directing orders
elsewhere and thereby lessening the
need for the more expensive data.
Analyzing the cost of market data
distribution in isolation from the cost of
all of the inputs supporting the creation
of market data will inevitably
underestimate the cost of the data. Thus,
because it is impossible to create data
without a fast, technologically robust,
and well-regulated execution system,
system costs and regulatory costs affect
the price of market data. It would be
equally misleading, however, to
attribute all of the exchange’s costs to
the market data portion of an exchange’s
joint product. Rather, all of the
exchange’s costs are incurred for the
unified purposes of attracting order
flow, executing and/or routing orders,
and generating and selling data about
market activity. The total return that an
exchange earns reflects the revenues it
receives from the joint products and the
total costs of the joint products.
Competition among trading platforms
can be expected to constrain the
aggregate return each platform earns
from the sale of its joint products, but
different platforms may choose from a
range of possible, and equally
reasonable, pricing strategies as the
means of recovering total costs. For
example, some platform may choose to
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pay rebates to attract orders, charge
relatively low prices for market
information (or provide information free
of charge) and charge relatively high
prices for accessing posted liquidity.
Other platforms may choose a strategy
of paying lower rebates (or no rebates)
to attract orders, setting relatively high
prices for market information, and
setting relatively low prices for
accessing posted liquidity. In this
environment, there is no economic basis
for regulating maximum prices for one
of the joint products in an industry in
which suppliers face competitive
constraints with regard to the joint
offering. This would be akin to strictly
regulating the price that an automobile
manufacturer can charge for car sound
systems despite the existence of a highly
competitive market for cars and the
availability of after-market alternatives
to the manufacturer-supplied system.
The market for market data products
is competitive and inherently
contestable because there is fierce
competition for the inputs necessary to
the creation of proprietary data and
strict pricing discipline for the
proprietary products themselves.
Numerous exchanges compete with
each other for listings, trades, and
market data itself, providing virtually
limitless opportunities for entrepreneurs
who wish to produce and distribute
their own market data. This proprietary
data is produced by each individual
exchange, as well as other entities, in a
vigorously competitive market.
Broker-dealers currently have
numerous alternative venues for their
order flow, including ten self-regulatory
organization (‘‘SRO’’) markets, as well as
internalizing broker-dealers (‘‘BDs’’) and
various forms of alternative trading
systems (‘‘ATSs’’), including dark pools
and electronic communication networks
(‘‘ECNs’’). Each SRO market competes to
produce transaction reports via trade
executions, and two FINRA-regulated
Trade Reporting Facilities (‘‘TRFs’’)
compete to attract internalized
transaction reports. Competitive markets
for order flow, executions, and
transaction reports provide pricing
discipline for the inputs of proprietary
data products.
The large number of SROs, TRFs, BDs,
and ATSs that currently produce
proprietary data or are currently capable
of producing it provides further pricing
discipline for proprietary data products.
Each SRO, TRF, ATS, and BD is
currently permitted to produce
proprietary data products, and many
currently do or have announced plans to
do so, including NASDAQ, NYSE,
NYSE Amex, NYSEArca, and BATS.
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jdjones on DSK8KYBLC1PROD with NOTICES
Federal Register / Vol. 75, No. 181 / Monday, September 20, 2010 / Notices
Any ATS or BD can combine with any
other ATS, BD, or multiple ATSs or BDs
to produce joint proprietary data
products. Additionally, order routers
and market data vendors can facilitate
single or multiple broker-dealers’
production of proprietary data products.
The potential sources of proprietary
products are virtually limitless.
The fact that proprietary data from
ATSs, BDs, and vendors can by-pass
SROs is significant in two respects.
First, non-SROs can compete directly
with SROs for the production and sale
of proprietary data products, as BATS
and Arca did before registering as
exchanges by publishing proprietary
book data on the Internet. Second,
because a single order or transaction
report can appear in an SRO proprietary
product, a non-SRO proprietary
product, or both, the data available in
proprietary products is exponentially
greater than the actual number of orders
and transaction reports that exist in the
marketplace.
Market data vendors provide another
form of price discipline for proprietary
data products because they control the
primary means of access to end users.
Vendors impose price restraints based
upon their business models. For
example, vendors such as Bloomberg
and Reuters that assess a surcharge on
data they sell may refuse to offer
proprietary products that end users will
not purchase in sufficient numbers.
Internet portals, such as Yahoo, impose
a discipline by providing only data that
will enable them to attract ‘‘eyeballs’’
that contribute to their advertising
revenue. Retail broker-dealers, such as
Schwab and Fidelity, offer their
customers proprietary data only if it
promotes trading and generates
sufficient commission revenue.
Although the business models may
differ, these vendors’ pricing discipline
is the same: they can simply refuse to
purchase any proprietary data product
that fails to provide sufficient value.
NASDAQ and other producers of
proprietary data products must
understand and respond to these
varying business models and pricing
disciplines in order to market
proprietary data products successfully.
In addition to the competition and
price discipline described above, the
market for proprietary data products is
also highly contestable because market
entry is rapid, inexpensive, and
profitable. The history of electronic
trading is replete with examples of
entrants that swiftly grew into some of
the largest electronic trading platforms
and proprietary data producers:
Archipelago, Bloomberg Tradebook,
Island, RediBook, Attain, TracECN,
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BATS Trading and Direct Edge. A
proliferation of dark pools and other
ATSs operate profitably with
fragmentary shares of consolidated
market volume.
Regulation NMS, by deregulating the
market for proprietary data, has
increased the contestability of that
market. While broker-dealers have
previously published their proprietary
data individually, Regulation NMS
encourages market data vendors and
broker-dealers to produce proprietary
products cooperatively in a manner
never before possible. Multiple market
data vendors already have the capability
to aggregate data and disseminate it on
a profitable scale, including Bloomberg,
and Thomson-Reuters.
The court in NetCoalition concluded
that the Commission had failed to
demonstrate that the market for market
data was competitive based on the
reasoning of the Commission’s
NetCoalition order because, in the
court’s view, the Commission had not
adequately demonstrated that the depthof-book data at issue in the case is used
to attract order flow. NASDAQ believes,
however, that evidence not before the
court clearly demonstrates that
availability of depth data attracts order
flow. For example, NASDAQ submits
that in and of itself, NASDAQ’s decision
voluntarily to cap fees on existing
products, as is the effect of an enterprise
license, is evidence of market forces at
work. In fact, the instant proposal
creates a second enterprise license for
non-professional usage of depth data to
complement the existing enterprise
license set forth at NASDAQ Rule
7023(a)(1)(C).
Competition among platforms has
driven NASDAQ continually to improve
its platform data offerings and to cater
to customers’ data needs. For example,
NASDAQ has developed and
maintained multiple delivery
mechanisms (IP, multi-cast, and
compression) that enable customers to
receive data in the form and manner
they prefer and at the lowest cost to
them. NASDAQ offers front end
applications such as its ‘‘Bookviewer’’ to
help customers utilize data. NASDAQ
has created new products like
TotalView Aggregate to complement
TotalView ITCH and Level 2, because
offering data in multiple formatting
allows NASDAQ to better fit customer
needs. NASDAQ offers data via multiple
extranet providers, thereby helping to
reduce network and total cost for its
data products. NASDAQ has developed
an online administrative system to
provide customers transparency into
their data feed requests and streamline
data usage reporting. NASDAQ has also
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expanded its Enterprise License options
that reduce the administrative burden
and costs to firms that purchase market
data.
Despite these enhancements and a
dramatic increase in message traffic,
NASDAQ’s fees for depth-of-book data
have remained flat. In fact, as a percent
of total customer costs, NASDAQ data
fees have fallen relative to other data
usage costs—including bandwidth,
programming, and infrastructure—that
have risen. The same holds true for
execution services; despite numerous
enhancements to NASDAQ’s trading
platform, absolute and relative trading
costs have declined. Platform
competition has intensified as new
entrants have emerged, constraining
prices for both executions and for data.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.10 At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2010–111 on the
subject line.
10 15
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U.S.C. 78s(b)(3)(a)(ii).
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Federal Register / Vol. 75, No. 181 / Monday, September 20, 2010 / Notices
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2010–111. This
file number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, on official business
days between the hours of 10 a.m. and
3 p.m. Copies of the filing also will be
available for inspection and copying at
the principal office of the Exchange. 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 SR–NASDAQ–2010–111 and
should be submitted on or before
October 12, 2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–23386 Filed 9–17–10; 8:45 am]
BILLING CODE 8010–01–P
DEPARTMENT OF STATE
jdjones on DSK8KYBLC1PROD with NOTICES
[Public Notice 7160]
Request for Comments and
Suggestions for Environmental
Cooperation Pursuant to the United
States-Oman Memorandum of
Understanding on Environmental
Cooperation
Notice of preparation of the
2011–2014 U.S.-Oman Environmental
ACTION:
11 17
CFR 200.30–3(a)(12).
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Cooperation Plan of Action and request
for comments.
The Department of State
invites the public, including NGOs,
educational institutions, private sector
enterprises and other interested persons,
to submit written comments or
suggestions regarding items for
inclusion in a new Plan of Action for
implementing the United States-Oman
Memorandum of Understanding on
Environmental Cooperation (MOU)
signed on February 20, 2006. We
encourage submitters to refer to: (1) The
U.S.-Oman MOU, (2) the U.S.-Oman
2006–2008 Environmental Cooperation
Work Program, (3) the Environment
Chapter (17) of the U.S.-Oman Free
Trade Agreement, and (4) the
Environmental Review of the U.S.Oman Free Trade Agreement.
(Documents are available at: https://
www.state.gov/g/oes/env/trade/oman/
index.htm).
DATES: To be assured of timely
consideration, all written comments or
suggestions are requested no later than
October 20, 2010.
ADDRESSES: Written comments or
suggestions should be e-mailed
(LindsayA@state.gov) or faxed to Abby
Lindsay at (202) 647–5947, Office of
Environmental Policy, Bureau of Oceans
and International Environmental and
Scientific Affairs, U.S. Department of
State, with the subject line ‘‘U.S.-Oman
Environmental Cooperation 2011–2014
Plan of Action.’’ If you have access to
the Internet and wish to view and make
comment on this Public Notice, you
may do so by going to:) https://
www.regulations.gov/search/Regs/
home.html#home.
FOR FURTHER INFORMATION, CONTACT:
Abby Lindsay, telephone (202) 647–
8772. Office of Environmental Policy,
Bureau of Oceans and International
Environmental and Scientific Affairs,
U.S. Department of State.
SUPPLEMENTARY INFORMATION: In the
U.S.-Oman Memorandum of
Understanding on Environmental
Cooperation, the Governments (1)
recognize ‘‘the importance of
strengthening capacity to protect the
environment while promoting
sustainable development in concert
with the expanded bilateral trade
relationship that will accompany the
United States-Oman Free Trade
Agreement (FTA)’’ and (2) indicate their
intent ‘‘to cooperate in the field of
environmental and natural resource
protection and sustainable
development.’’ In the Environment
Chapter of the U.S.-Oman Free Trade
Agreement (Chapter 17), the
SUMMARY:
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Governments likewise ‘‘recognize the
importance of strengthening their
capacity to protect the environment and
to promote sustainable development in
concert with strengthening bilateral
trade and investment relations.’’ The
Governments commit to ‘‘undertaking
cooperative environmental activities
pursuant to’’ the MOU.
In Section 2 of the MOU, the
Governments set forth plans to establish
the Joint Forum on Environmental
Cooperation (JFEC) to coordinate and
review environmental cooperation
activities. As envisioned in the MOU,
the JFEC will ‘‘develop a Plan of Action;
review and assess cooperative
environmental activities undertaken
pursuant to the Plan of Action;
recommend ways to improve
cooperation; and undertake such other
activities as the Governments may deem
to be appropriate.’’ The Plan of Action
is a tool to identify and establish goals,
objectives and areas for cooperation,
including short-, medium- and longterm bilateral and/or regional projects
and activities. Through this notice, the
United States seeks to ‘‘solicit, and take
into account as appropriate, the views of
its public with respect to the Plan of
Action.’’
In March 2007, the Governments
agreed to the 2006–2008 U.S.-Oman
Work Program on environmental
cooperation. The main areas of
cooperation under the 2006–2008 Work
Program were: (1) Environmental Laws
and Regulations; (2) Environmental
Impact Assessments; (3) Environmental
Incentives; (4) Public Participation in
Environmental Protection; (5) Integrated
Water Resources Management and
Protection; (6) Coastal Protection and
Preservation of Marine Resources; (7)
Protected Area Management and
Conservation of Flora and Fauna; (8)
Improved Environmental Performance
in the Productive Sector; and (9)
Chemical and Hazardous Waste
Management and Disposal.
The United States anticipates building
upon the cooperative work initiated in
the 2006–2008 Work Program. We are
requesting ideas and suggestions that
may be considered for inclusion in the
next Plan of Action.
For additional information: https://
www.state.gov/g/oes/env/trade/oman/
index.htm.
Disclaimer: This Public Notice is a request
for comments and suggestions and is not a
request for applications. No granting or
money is directly associated with this request
for suggestions for the Plan of Action. There
is no expectation of resources or funding
associated with any comments or suggestions
provided for the 2011–2014 Plan of Action.
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]]>Agencies
[Federal Register Volume 75, Number 181 (Monday, September 20, 2010)]
[Notices]
[Pages 57321-57326]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-23386]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62908; File No. SR-NASDAQ-2010-111]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Establish an Optional Depth Data Enterprise License Fee
September 14, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on September 7, 2010, The NASDAQ Stock Market LLC (``NASDAQ'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASDAQ proposes to establish an optional Depth Data Enterprise
License Fee for external distribution of depth-of-book data to non-
professional users. The text of the proposed rule change is below.
Proposed new language is in italics; proposed deletions are in
brackets.\3\
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\3\ Changes are marked to the rule text that appears in the
electronic manual of Nasdaq found at https://nasdaqomx.cchwallstreet.com.
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* * * * *
7023. NASDAQ TotalView
(a) TotalView Entitlement
The TotalView entitlement allows a subscriber to see all individual
NASDAQ Market Center participant orders and quotes displayed in the
system as well as the aggregate size of such orders and quotes at each
price level in the execution functionality of the NASDAQ Market Center,
including the NQDS feed.
(1)
(A) Except as provided in (a)(1)(B) and (C), for the TotalView
entitlement there shall be a $70 monthly charge for each controlled
device.
(B) Except as provided in (a)(1)(C), a non-professional subscriber,
as defined in Rule 7011(b), shall pay $14 per month for each controlled
device.
(C) As an alternative to (a)(1)(A) and (B), a broker-dealer
distributor may purchase an enterprise license at a rate of $25,000 for
non-professional subscribers or $100,000 per month for both
professional and non-professional subscribers. The enterprise license
entitles a distributor to provide TotalView and OpenView to an
unlimited number of internal users, whether such users receive the data
directly or through third-party vendors, and external users with whom
the firm has a brokerage relationship. The enterprise license shall not
apply to relevant Level 1 and NQDS fees.
(D) As an alternative to (a)(1)(A), (B) and (C), a market
participant may purchase an enterprise license at a rate
[[Page 57322]]
of $30,000 per month for internal use of non-display data. The
enterprise license entitles a distributor to provide TotalView and
OpenView to an unlimited number of non-display devices within its firm.
The enterprise license shall not apply to relevant Level 1 fees.
(E) As an alternative to (a)(1)(A), (B), and (C), a broker-dealer
distributor may purchase an enterprise license at a rate of $300,000
for non-professional subscribers. The enterprise license entitles a
distributor to provide NQDS (as set forth in Rule 7017), TotalView and
OpenView to an unlimited number of internal users, whether such users
receive the data directly or through third-party vendors, and external
users with whom the firm has a brokerage relationship. The enterprise
license shall not apply to relevant Level 1 fees.
(2) 30-Day Free-Trial Offer. NASDAQ shall offer all new individual
subscribers and potential new individual subscribers a 30-day waiver of
the user fees for TotalView. This waiver shall not include the
incremental fees assessed for the NQDS-only service, which are $30 for
professional users and $9 for non-professional users per month. This
fee waiver period shall be applied on a rolling basis, determined by
the date on which a new individual subscriber or potential individual
subscriber is first entitled by a distributor to receive access to
TotalView. A distributor may only provide this waiver to a specific
individual subscriber once.
For the period of the offer, the TotalView fee of $40 per
professional user and $5 per non-professional user per month shall be
waived.
(b) No change.
(c) No change.
(d) No change.
* * * * *
(b) Not applicable.
(c) Not applicable.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASDAQ included statements
concerning the purpose of, and basis for, the proposed rule change. The
text of these statements may be examined at the places specified in
Item III below, and is set forth in Sections A, B, and C below.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
NASDAQ disseminates market data feeds in two capacities. First,
NASDAQ disseminates consolidated or ``core'' data in its capacity as
Securities Information Processor (``SIP'') for the national market
system plan governing securities listed on NASDAQ as a national
securities exchange (``NASDAQ UTP Plan'').\4\ Second, NASDAQ separately
disseminates proprietary or ``non-core'' data in its capacity as a
registered national securities exchange. Non-core data is any data
generated by the NASDAQ Market Center Execution System that is
voluntarily disseminated by NASDAQ separate and apart from the
consolidated data.\5\ NASDAQ has numerous proprietary data products,
such as NASDAQ TotalView, NASDAQ Last Sale, and NASDAQ Basic.
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\4\ See Securities Exchange Act Release No. 59039 (Dec. 2, 2008)
at p. 41.
\5\ Id.
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NASDAQ continues to seek broader distribution of non-core data and
to reduce the cost of providing non-core data to larger numbers of
investors. In the past, NASDAQ has accomplished this goal in part by
offering similar enterprise licenses for professional and non-
professional usage of TotalView which contains the full depth of book
data for the NASDAQ Market Center Execution System. NASDAQ believes
that the adoption of enterprise licenses has led to greater
distribution of market data, particularly among non-professional users.
Based on input from market participants, NASDAQ believes that this
increase in distribution is attributable in part to the relief it
provides distributors from the NASDAQ requirement that distributors
count and report each non-professional user of NASDAQ proprietary data.
In addition to increased administrative flexibility, enterprise
licenses also encourage broader distribution by firms that are
currently over the fee cap as well as those that are approaching the
cap and wish to take advantage of the benefits of the program. Further,
NASDAQ believes that capping fees in this manner creates goodwill with
broker-dealers and increases transparency for retail investors.
Accordingly, NASDAQ is seeking to establish the Depth Data
Enterprise License Fee, an optional $300,000 per month non-professional
enterprise license for external distributors of any NASDQ depth-of-book
data product including the National Quotation Dissemination Service or
NQDS (Rule 7017) and TotalView and OpenView, (Rule 7023) (collectively,
``NASDAQ Depth Data''). This Depth Data Enterprise License Fee will
include non-professional usage, but will not include distributor
fees.\6\ This program will be available only to broker-dealers
registered under the Securities Exchange Act of 1934, and would cover
all usage fees with respect to both internal usage and re-distribution
to customers with whom the firm has a brokerage relationship. Non-
broker-dealer vendors and application service providers would not be
eligible for the enterprise license; such firms typically pass through
the cost of market data user fees to their customers.
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\6\ Distributors who utilize the enterprise license would still
be liable for the applicable distributor fees.
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The Depth Data Enterprise License Fee will cover usage fees for
NASDAQ Depth Data received directly from NASDAQ as well as data
received from third-party vendors (e.g., Bloomberg, Reuters, etc.).
Upon joining the program, firms may inform third-party market data
vendors they utilize (through a NASDAQ-provided form) that, going
forward, non-professional depth data usage by the broker-dealer may be
reported to NASDAQ on a non-billable basis. Such a structure attempts
to address a long-standing concern that broker-dealers are over-billed
for market data consumed by one person through multiple market-data
display devices. At the same time, the proposed billing structure will
continue to provide NASDAQ with accurate reporting information for
purposes of usage monitoring and auditing.
The proposed Depth Data Enterprise License Fee is completely
optional and does not replace existing enterprise license fee
alternatives set forth in Rule 7023. Additionally, the proposal does
not impact individual usage fees for any product or in any way raise
the costs of any user of any NASDAQ data product. To the contrary, it
provides broker-dealers with an additional approach to providing more
NASDAQ data at a lower cost.
2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\7\ in general, and with Section
6(b)(4) of the Act,\8\ in particular, in that it provides an equitable
allocation of reasonable fees
[[Page 57323]]
among users and recipients of NASDAQ data. In adopting Regulation NMS,
the Commission granted self-regulatory organizations and broker-dealers
increased authority and flexibility to offer new and unique market data
to the public. It was believed that this authority would expand the
amount of data available to consumers, and also spur innovation and
competition for the provision of market data.
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\7\ 15 U.S.C. 78f.
\8\ 15 U.S.C. 78f(b)(4).
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The Commission concluded that Regulation NMS--by deregulating the
market in proprietary data--would itself further the Act's goals of
facilitating efficiency and competition:
[E]fficiency is promoted when broker-dealers who do not need the
data beyond the prices, sizes, market center identifications of the
NBBO and consolidated last sale information are not required to
receive (and pay for) such data. The Commission also believes that
efficiency is promoted when broker-dealers may choose to receive
(and pay for) additional market data based on their own internal
analysis of the need for such data.\9\
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\9\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496 (June 29, 2005).
By removing ``unnecessary regulatory restrictions'' on the ability of
exchanges to sell their own data, Regulation NMS advanced the goals of
the Act and the principles reflected in its legislative history. If the
free market should determine whether proprietary data is sold to
broker-dealers at all, it follows that the price at which such data is
sold should be set by the market as well. NQDS, TotalView and OpenView
are precisely the sort of market data product that the Commission
envisioned when it adopted Regulation NMS.
On July 21, 2010, President Barak Obama signed into law H.R. 4173,
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(``Dodd-Frank Act''), which amended Section 19 of the Act. Among other
things, Section 916 of the Dodd-Frank Act amended paragraph (A) of
Section 19(b)(3) of the Act by inserting the phrase ``on any person,
whether or not the person is a member of the self-regulatory
organization'' after ``due, fee or other charge imposed by the self-
regulatory organization.'' As a result, all SRO rule proposals
establishing or changing dues, fees, or other charges are immediately
effective upon filing regardless of whether such dues, fees, or other
charges are imposed on members of the SRO, non-members, or both.
Section 916 further amended paragraph (C) of Section 19(b)(3) of the
Exchange Act to read, in pertinent part, ``At any time within the 60-
day period beginning on the date of filing of such a proposed rule
change in accordance with the provisions of paragraph (1) [of Section
19(b)], the Commission summarily may temporarily suspend the change in
the rules of the self-regulatory organization made thereby, if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of this title. If the Commission takes
such action, the Commission shall institute proceedings under paragraph
(2)(B) [of Section 19(b)] to determine whether the proposed rule should
be approved or disapproved.''
NASDAQ believes that these amendments to Section 19 of the Act
reflect Congress's intent to allow the Commission to rely upon the
forces of competition to ensure that fees for market data are
reasonable and equitably allocated. Although Section 19(b) had formerly
authorized immediate effectiveness for a ``due, fee or other charge
imposed by the self-regulatory organization,'' the Commission adopted a
policy and subsequently a rule stipulating that fees for data and other
products available to persons that are not members of the self-
regulatory organization must be approved by the Commission after first
being published for comment. At the time, the Commission supported the
adoption of the policy and the rule by pointing out that unlike
members, whose representation in self-regulatory organization
governance was mandated by the Act, non-members should be given the
opportunity to comment on fees before being required to pay them, and
that the Commission should specifically approve all such fees. NASDAQ
believes that the amendment to Section 19 reflects Congress's
conclusion that the evolution of self-regulatory organization
governance and competitive market structure have rendered the
Commission's prior policy on non-member fees obsolete. Specifically,
many exchanges have evolved from member-owned not-for-profit
corporations into for-profit investor-owned corporations (or
subsidiaries of investor-owned corporations). Accordingly, exchanges no
longer have narrow incentives to manage their affairs for the exclusive
benefit of their members, but rather have incentives to maximize the
appeal of their products to all customers, whether members or non-
members, so as to broaden distribution and grow revenues. Moreover, we
believe that the change also reflects an endorsement of the
Commission's determinations that reliance on competitive markets is an
appropriate means to ensure equitable and reasonable prices. Simply
put, the change reflects a presumption that all fee changes should be
permitted to take effect immediately, since the level of all fees are
constrained by competitive forces.
The recent decision of the United States Court of Appeals for the
District of Columbia Circuit in NetCoaliton v. SEC, No. 09-1042 (DC
Cir. 2010), although reviewing a Commission decision made prior to the
effective date of the Dodd-Frank Act, upheld the Commission's reliance
upon competitive markets to set reasonable and equitably allocated fees
for market data. ``In fact, the legislative history indicates that the
Congress intended that the market system `evolve through the interplay
of competitive forces as unnecessary regulatory restrictions are
removed' and that the SEC wield its regulatory power `in those
situations where competition may not be sufficient,' such as in the
creation of a `consolidated transactional reporting system.' ''
NetCoaltion, at 15 (quoting H.R. Rep. No. 94-229, at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 321, 323). The court's conclusions about
Congressional intent are therefore reinforced by the Dodd-Frank Act
amendments, which create a presumption that exchange fees, including
market data fees, may take effect immediately, without prior Commission
approval, and that the Commission should take action to suspend a fee
change and institute a proceeding to determine whether the fee change
should be approved or disapproved only where the Commission has
concerns that the change may not be consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. Notwithstanding its
determination that the Commission may rely upon competition to
establish fair and equitably allocated fees for market data, the
NetCoaltion court found that the Commission had not, in that case,
compiled a record that adequately supported its conclusion that the
market for the data at issue in the case was competitive. For the
reasons discussed above, NASDAQ believes that the Dodd-Frank Act
amendments to Section 19 materially alter the scope of the Commission's
review of future market data filings, by creating a presumption
[[Page 57324]]
that all fees may take effect immediately, without prior analysis by
the Commission of the competitive environment. Even in the absence of
this important statutory change, however, NASDAQ believes that a record
may readily be established to demonstrate the competitive nature of the
market in question.
There is intense competition between trading platforms that provide
transaction execution and routing services and proprietary data
products. Transaction execution and proprietary data products are
complementary in that market data is both an input and a byproduct of
the execution service. In fact, market data and trade execution are a
paradigmatic example of joint products with joint costs. The decision
whether and on which platform to post an order will depend on the
attributes of the platform where the order can be posted, including the
execution fees, data quality and price and distribution of its data
products. Without the prospect of a taking order seeing and reacting to
a posted order on a particular platform, the posting of the order would
accomplish little. Without trade executions, exchange data products
cannot exist. Data products are valuable to many end users only insofar
as they provide information that end users expect will assist them or
their customers in making trading decisions.
The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's transaction execution
platform and the cost of regulating the exchange to ensure its fair
operation and maintain investor confidence. The total return that a
trading platform earns reflects the revenues it receives from both
products and the joint costs it incurs. Moreover, an exchange's
customers view the costs of transaction executions and of data as a
unified cost of doing business with the exchange. A broker-dealer will
direct orders to a particular exchange only if the expected revenues
from executing trades on the exchange exceed net transaction execution
costs and the cost of data that the broker-dealer chooses to buy to
support its trading decisions (or those of its customers). The choice
of data products is, in turn, a product of the value of the products in
making profitable trading decisions. If the cost of the product exceeds
its expected value, the broker-dealer will choose not to buy it.
Moreover, as a broker-dealer chooses to direct fewer orders to a
particular exchange, the value of the product to that broker-dealer
decreases, for two reasons. First, the product will contain less
information, because executions of the broker-dealer's orders will not
be reflected in it. Second, and perhaps more important, the product
will be less valuable to that broker-dealer because it does not provide
information about the venue to which it is directing its orders. Data
from the competing venue to which the broker-dealer is directing orders
will become correspondingly more valuable.
Thus, a super-competitive increase in the fees charged for either
transactions or data has the potential to impair revenues from both
products. ``No one disputes that competition for order flow is
`fierce'.'' NetCoalition at 24. However, the existence of fierce
competition for order flow implies a high degree of price sensitivity
on the part of broker-dealers with order flow, since they may readily
reduce costs by directing orders toward the lowest-cost trading venues.
A broker-dealer that shifted its order flow from one platform to
another in response to order execution price differentials would both
reduce the value of that platform's market data and reduce its own need
to consume data from the disfavored platform. Similarly, if a platform
increases its market data fees, the change will affect the overall cost
of doing business with the platform, and affected broker-dealers will
assess whether they can lower their trading costs by directing orders
elsewhere and thereby lessening the need for the more expensive data.
Analyzing the cost of market data distribution in isolation from
the cost of all of the inputs supporting the creation of market data
will inevitably underestimate the cost of the data. Thus, because it is
impossible to create data without a fast, technologically robust, and
well-regulated execution system, system costs and regulatory costs
affect the price of market data. It would be equally misleading,
however, to attribute all of the exchange's costs to the market data
portion of an exchange's joint product. Rather, all of the exchange's
costs are incurred for the unified purposes of attracting order flow,
executing and/or routing orders, and generating and selling data about
market activity. The total return that an exchange earns reflects the
revenues it receives from the joint products and the total costs of the
joint products.
Competition among trading platforms can be expected to constrain
the aggregate return each platform earns from the sale of its joint
products, but different platforms may choose from a range of possible,
and equally reasonable, pricing strategies as the means of recovering
total costs. For example, some platform may choose to pay rebates to
attract orders, charge relatively low prices for market information (or
provide information free of charge) and charge relatively high prices
for accessing posted liquidity. Other platforms may choose a strategy
of paying lower rebates (or no rebates) to attract orders, setting
relatively high prices for market information, and setting relatively
low prices for accessing posted liquidity. In this environment, there
is no economic basis for regulating maximum prices for one of the joint
products in an industry in which suppliers face competitive constraints
with regard to the joint offering. This would be akin to strictly
regulating the price that an automobile manufacturer can charge for car
sound systems despite the existence of a highly competitive market for
cars and the availability of after-market alternatives to the
manufacturer-supplied system.
The market for market data products is competitive and inherently
contestable because there is fierce competition for the inputs
necessary to the creation of proprietary data and strict pricing
discipline for the proprietary products themselves. Numerous exchanges
compete with each other for listings, trades, and market data itself,
providing virtually limitless opportunities for entrepreneurs who wish
to produce and distribute their own market data. This proprietary data
is produced by each individual exchange, as well as other entities, in
a vigorously competitive market.
Broker-dealers currently have numerous alternative venues for their
order flow, including ten self-regulatory organization (``SRO'')
markets, as well as internalizing broker-dealers (``BDs'') and various
forms of alternative trading systems (``ATSs''), including dark pools
and electronic communication networks (``ECNs''). Each SRO market
competes to produce transaction reports via trade executions, and two
FINRA-regulated Trade Reporting Facilities (``TRFs'') compete to
attract internalized transaction reports. Competitive markets for order
flow, executions, and transaction reports provide pricing discipline
for the inputs of proprietary data products.
The large number of SROs, TRFs, BDs, and ATSs that currently
produce proprietary data or are currently capable of producing it
provides further pricing discipline for proprietary data products. Each
SRO, TRF, ATS, and BD is currently permitted to produce proprietary
data products, and many currently do or have announced plans to do so,
including NASDAQ, NYSE, NYSE Amex, NYSEArca, and BATS.
[[Page 57325]]
Any ATS or BD can combine with any other ATS, BD, or multiple ATSs
or BDs to produce joint proprietary data products. Additionally, order
routers and market data vendors can facilitate single or multiple
broker-dealers' production of proprietary data products. The potential
sources of proprietary products are virtually limitless.
The fact that proprietary data from ATSs, BDs, and vendors can by-
pass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and sale of proprietary data
products, as BATS and Arca did before registering as exchanges by
publishing proprietary book data on the Internet. Second, because a
single order or transaction report can appear in an SRO proprietary
product, a non-SRO proprietary product, or both, the data available in
proprietary products is exponentially greater than the actual number of
orders and transaction reports that exist in the marketplace.
Market data vendors provide another form of price discipline for
proprietary data products because they control the primary means of
access to end users. Vendors impose price restraints based upon their
business models. For example, vendors such as Bloomberg and Reuters
that assess a surcharge on data they sell may refuse to offer
proprietary products that end users will not purchase in sufficient
numbers. Internet portals, such as Yahoo, impose a discipline by
providing only data that will enable them to attract ``eyeballs'' that
contribute to their advertising revenue. Retail broker-dealers, such as
Schwab and Fidelity, offer their customers proprietary data only if it
promotes trading and generates sufficient commission revenue. Although
the business models may differ, these vendors' pricing discipline is
the same: they can simply refuse to purchase any proprietary data
product that fails to provide sufficient value. NASDAQ and other
producers of proprietary data products must understand and respond to
these varying business models and pricing disciplines in order to
market proprietary data products successfully.
In addition to the competition and price discipline described
above, the market for proprietary data products is also highly
contestable because market entry is rapid, inexpensive, and profitable.
The history of electronic trading is replete with examples of entrants
that swiftly grew into some of the largest electronic trading platforms
and proprietary data producers: Archipelago, Bloomberg Tradebook,
Island, RediBook, Attain, TracECN, BATS Trading and Direct Edge. A
proliferation of dark pools and other ATSs operate profitably with
fragmentary shares of consolidated market volume.
Regulation NMS, by deregulating the market for proprietary data,
has increased the contestability of that market. While broker-dealers
have previously published their proprietary data individually,
Regulation NMS encourages market data vendors and broker-dealers to
produce proprietary products cooperatively in a manner never before
possible. Multiple market data vendors already have the capability to
aggregate data and disseminate it on a profitable scale, including
Bloomberg, and Thomson-Reuters.
The court in NetCoalition concluded that the Commission had failed
to demonstrate that the market for market data was competitive based on
the reasoning of the Commission's NetCoalition order because, in the
court's view, the Commission had not adequately demonstrated that the
depth-of-book data at issue in the case is used to attract order flow.
NASDAQ believes, however, that evidence not before the court clearly
demonstrates that availability of depth data attracts order flow. For
example, NASDAQ submits that in and of itself, NASDAQ's decision
voluntarily to cap fees on existing products, as is the effect of an
enterprise license, is evidence of market forces at work. In fact, the
instant proposal creates a second enterprise license for non-
professional usage of depth data to complement the existing enterprise
license set forth at NASDAQ Rule 7023(a)(1)(C).
Competition among platforms has driven NASDAQ continually to
improve its platform data offerings and to cater to customers' data
needs. For example, NASDAQ has developed and maintained multiple
delivery mechanisms (IP, multi-cast, and compression) that enable
customers to receive data in the form and manner they prefer and at the
lowest cost to them. NASDAQ offers front end applications such as its
``Bookviewer'' to help customers utilize data. NASDAQ has created new
products like TotalView Aggregate to complement TotalView ITCH and
Level 2, because offering data in multiple formatting allows NASDAQ to
better fit customer needs. NASDAQ offers data via multiple extranet
providers, thereby helping to reduce network and total cost for its
data products. NASDAQ has developed an online administrative system to
provide customers transparency into their data feed requests and
streamline data usage reporting. NASDAQ has also expanded its
Enterprise License options that reduce the administrative burden and
costs to firms that purchase market data.
Despite these enhancements and a dramatic increase in message
traffic, NASDAQ's fees for depth-of-book data have remained flat. In
fact, as a percent of total customer costs, NASDAQ data fees have
fallen relative to other data usage costs--including bandwidth,
programming, and infrastructure--that have risen. The same holds true
for execution services; despite numerous enhancements to NASDAQ's
trading platform, absolute and relative trading costs have declined.
Platform competition has intensified as new entrants have emerged,
constraining prices for both executions and for data.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\10\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
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\10\ 15 U.S.C. 78s(b)(3)(a)(ii).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2010-111 on the subject line.
[[Page 57326]]
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2010-111. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room, on
official business days between the hours of 10 a.m. and 3 p.m. Copies
of the filing also will be available for inspection and copying at the
principal office of the Exchange. 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 SR-NASDAQ-2010-111 and should be submitted on or before
October 12, 2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-23386 Filed 9-17-10; 8:45 am]
BILLING CODE 8010-01-P
