Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Link Market Data Fees and Transaction Execution Fees, 4970-4978 [2011-1711]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 76, Number 18 (Thursday, January 27, 2011)]
[Notices]
[Pages 4970-4978]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-1711]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63745; File No. SR-NASDAQ-2011-010]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Link Market Data Fees and Transaction Execution Fees

January 20, 2011.
    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 January 10, 2011, 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 reduce market data fees and transaction 
execution fees for retail investors. NASDAQ, like the Commission, ``is 
particularly focused on the interests of long-term investors.'' \3\ 
Retail investors' orders are often executed away from well-regulated 
public exchanges that offer pre-trade transparency. The Commission has 
noted that absent extraordinary conditions such as those occurring on 
May 6, 2010, retail orders are generally executed by internalizers away 
from exchanges and without pre-trade transparency, exposure or order 
interaction.\4\ In NASDAQ's view, the likelihood that retail investors' 
orders are executed away from exchanges is impacted by disparities in 
regulation between lit markets such as those operated by exchanges \5\ 
on one hand and broker systems or dark markets operated as Alternative 
Trading Systems on the other. One such disparity provides dark markets 
great flexibility to price differentiate between subscribers, while 
denying exchanges the same flexibility to differentiate between 
members. Furthermore, although exchanges and dark markets compete for 
the same order flow and for the same transactions, exchanges must file 
proposed fee schedules and changes, while other markets have no such 
burden. The result is that proposed rule changes that impact NASDAQ's 
ability to compete for order flow, transactions, and market data, such 
as the current proposal, are subject to significant scrutiny and 
potential delay while similar conduct by other markets is subject to no 
public filing requirement, no regulatory delay, and for dark markets is 
opaque to investors and competitors alike.
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    \3\ See Exchange Act Release 61358, Concept Release on Equity 
Market Structure (Jan. 14, 2010), at p. 33.
    \4\ See Findings Regarding The Market Events Of May 6, 2010, 
Report Of The Staffs Of The CFTC And SEC To The Joint Advisory 
Committee On Emerging Regulatory Issues, September 30, 2010, at p. 
56. It is often contended that dark markets serve the interests of 
large investors whose order sizes give rise to the potential for 
adverse market movements. Such potential does not exist in the case 
of smaller retail orders.
    \5\ Alternative Trading Systems that meet the five percent 
display threshold under Regulation ATS also qualify as lit markets 
with higher regulatory requirements. NASDAQ is not aware that any 
ATS is operating under these conditions today.
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    This filing is an attempt by NASDAQ to compete to attract retail 
investors' orders and to improve the experience of retail investors on 
NASDAQ's public market. NASDAQ is reducing fees for members that serve 
retail investors. Specifically, NASDAQ is reducing the costs of 
executing trades and of providing ``depth of book'' data products for 
NASDAQ member firms that service ``non-professional'' users with which 
the firm has a brokerage relationship. The more NASDAQ data a firm 
provides to retail investors, and the more that firm trades on NASDAQ, 
the lower its fees will be. This is an optional pricing proposal 
designed to benefit non-professional investors by providing an 
incentive for them to trade in the well-regulated, publicly-displayed 
market that NASDAQ operates.
    NASDAQ will implement the proposed change on January 3, 2011. The 
text of the proposed rule change is available at https://nasdaq.cchwallstreet.com/, at NASDAQ's principal office, and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, 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. NASDAQ 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    This filing reduces prices for NASDAQ market data and for trading 
on NASDAQ. The proposed price reduction is targeted at retaining the 
business of members that represent retail investors and that 
redistribute market data to them in a non-professional capacity. NASDAQ 
believes that this proposal thereby promotes NASDAQ's and the 
Commission's goal of better serving long-term, retail investors and 
restoring confidence in public capital markets. The participation of 
these investors in NASDAQ's market benefits NASDAQ, its listed 
companies, its market quality, and the quality of its data products. 
The proposal is also a competitive response to other trading venues 
that have used

[[Page 4971]]

price discounts to entice firms to shift order flow and data 
consumption, and that may continue to do so in the future. In short, 
NASDAQ is attempting to compete on price for the business of customers 
that are highly valued to NASDAQ and important to the health of U.S. 
capital markets.
Description of the Pricing Proposal
    NASDAQ is proposing a discount for its depth-of-book data products 
and an enhanced liquidity provider rebate based upon the extent to 
which a NASDAQ member both consumes NASDAQ market data and also 
contributes to the quality of NASDAQ data through liquidity provision. 
This program focuses on non-professional use of ``NASDAQ Depth Data 
Product Fees'' which are the non-professional fees for NQDS (Rule 
7017), and TotalView and OpenView (Rule 7023), including fees for usage 
(Rule 7026) and enterprise license fees. It also focuses on average 
daily liquidity provision to the NASDAQ Market Center as that activity 
is measured today in NASDAQ Rule 7018. This pricing is completely 
optional; no member is required to participate or excluded from 
participating.
    The market data discount provided through the proposal is for fees 
incurred by NASDAQ members in providing NASDAQ depth-of-book data to 
non-professional users. A member incurs non-professional fees when it 
offers depth-of-book data to natural persons that are not acting in a 
capacity that subjects them to financial industry regulation (e.g., 
retail customers).\6\ NASDAQ seeks to encourage wide distribution of 
market data to non-professional users, because it believes that this 
will encourage more order flow from investors whose trading volumes are 
elastic and therefore influenced by factors such as the availability of 
data. NASDAQ also expects that some of the benefit of the fee 
reductions offered through the proposal will be passed on to brokerage 
customers. For this reason, NASDAQ already provides a discounted rate 
for non-professional data, whether it is sold directly to a non-
professional user or distributed to the user through a broker. NASDAQ 
believes that non-professional users that are able to make use of depth 
data also have a degree of knowledge about market structure that would 
cause them to favor limit orders, rather than market orders, when 
buying and selling. Thus, through the proposal, NASDAQ hopes to 
encourage a ``virtuous circle'' in which firms route more liquidity-
providing orders to NASDAQ and consume and distribute more data in 
order to receive the discount, with increased data distribution in turn 
encouraging still more liquidity provision. NASDAQ also hopes to 
encourage additional firms to provide depth-of-book to their customers.
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    \6\ NASDAQ Rule 7017(c) defines a non-professional as a natural 
person who is neither:
    (1) Registered or qualified in any capacity with the Commission, 
the Commodities Futures Trading Commission, any State securities 
agency, any securities exchange or association, or any commodities 
or futures contract market or association;
    (2) Engaged as an ``investment adviser'' as that term is defined 
in Section 201(11) of the Investment Advisors Act of 1940 (whether 
or not registered or qualified under that Act); nor
    (3) Employed by a bank or other organization exempt from 
registration under Federal or State securities laws to perform 
functions that would require registration or qualification if such 
functions were performed for an organization not so exempt.
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    The program has three tiers, each with two requirements, one based 
on liquidity provision and the other based on data consumption. A 
member will qualify as a ``Tier 1 Firm'' for purposes of the discount 
during a particular month if it (i) has an average daily volume of 12 
million or more shares of liquidity provided through the NASDAQ Market 
Center in all securities during the month; and (ii) incurs NASDAQ Depth 
Data Product Fees (as defined above) during the month of $150,000 or 
more (prior to applying the discount provided by this proposal). A 
member will qualify as a ``Tier 2 Firm'' for purposes of the discount 
during a particular month if it (i) has an average daily volume of 35 
million or more shares of liquidity provided through the NASDAQ Market 
Center in all securities during the month; and (ii) incurs NASDAQ Depth 
Data Product Fees during the month of $300,000 or more (prior to 
applying the discount provided by this proposal). A member will qualify 
as a ``Tier 3 Firm'' for purposes of the discount during a particular 
month if it (i) has an average daily volume of 65 million or more 
shares of liquidity provided through the NASDAQ Market Center in all 
securities during the month; and (ii) incurs NASDAQ Depth Data Product 
Fees during the month of $500,000 or more (prior to applying the 
discount provided by this proposal).
    Firms that qualify as Tier 1, Tier 2, or Tier 3 Firms will receive 
discounted market NASDAQ Depth Data Product Fees and, in the case of 
Tier 1 Firms, increased liquidity provider credits. With respect to 
market data fees, Tier 1 Firms will receive a 15% discount on non-
professional fees for NASDAQ Depth Data Products charged to them. Tier 
2 Firms will receive a 35% discount on non-professional fees for NASDAQ 
Depth Data Products charged to them. Tier 3 Firms will receive a 50% 
discount on non-professional fees charged to them.\7\ The discounted 
NASDAQ Depth Data Product Fees are tailored to benefit firms that 
provide a high quantity of data to non-professional retail investors 
and that also contribute significantly to the quality of NASDAQ data.
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    \7\ Since the eligibility of a member for the discount is 
determined on a month-by-month basis, data fees that are paid on an 
annual basis, such as the annual administrative fee for market data 
distributors under Rule 7019(a), are not covered by the definition 
of NASDAQ Depth Data Product Fees, and are therefore not counted in 
determining a firm's status as a Tier 1, Tier 2 or Tier 3 Firm.
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    With respect to liquidity provider credits, Tier 1 Firms will 
qualify for a credit of $0.0028 per share of displayed liquidity 
provided and a $0.0015 per share of non-displayed liquidity. These 
rates are higher than the $0.0020 and $0.0010 per share of displayed 
and non-displayed liquidity provider credit available to firms that 
provide the same 12 million shares of liquidity per day without also 
consuming NASDAQ Depth Data Products sufficient to qualify for Tier 1 
as defined here.\8\ These credits are not incrementally higher than the 
credit currently available to firms providing 35 and 65 million shares 
of liquidity daily. In other words, the benefit available to Tier 2 and 
Tier 3 Firms under this program is limited to the discount for NASDAQ 
Depth Data Products described above.
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    \8\ Tier 2 and Tier 3 Firms will receive the current liquidity 
provider credit of $0.00295 per share of displayed liquidity and 
$0.00015 per share of non-displayed liquidity. There is no 
enhancement to these liquidity provider credits at this time.
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    The proposal is designed to recognize the benefits to NASDAQ, its 
listed companies, its market quality, and the quality of its 
proprietary data products that are provided by member firms that both 
post retail liquidity on NASDAQ and redistribute data to their 
customers. The proposal is also a direct competitive response to other 
trading venues that have used price discounts to entice firms to shift 
order flow and data consumption, and that may continue to do so in the 
future. Firms that are eligible for the discount are key contributors 
to market quality, by providing liquidity to support rapid execution of 
incoming orders with minimal price impact. These firms are able to 
shift their business immediately to competing exchanges, which requires 
NASDAQ to offer competitive responses to keep the business of these 
valued customers. NASDAQ currently recognizes the value of liquidity 
provision by offering liquidity provider credits that rise with the 
volume of

[[Page 4972]]

liquidity provided. For companies listed on NASDAQ, liquidity provision 
dampens volatility by allowing higher volumes to trade at a consistent 
price.
Single Platform, Joint Products
    NASDAQ is offering a joint discount on market information and 
executions because, as described in greater detail in the attached 
Statement of Ordover and Bamberger (Exhibit 3), The NASDAQ Market 
Center is a single trading platform that unavoidably produces joint 
products: execution services and market data. Every execution of a 
trade automatically produces market information about that trade 
including the price and quantity traded. Every execution requires 
posted and taking orders, which in turn produce market data in the form 
of quotations, including top-of-book and depth-of-book quotations. 
Market information and executions are inextricably linked; each is both 
an input and a byproduct of the other and neither can exist without the 
other.
    The operation of The NASDAQ Market Center and the production of 
joint products (executions and market information) require NASDAQ to 
incur joint costs. NASDAQ's costs to produce market information and 
executions are inseparable in that most of them are not uniquely 
incurred on behalf of either of the services provided by the exchange. 
To operate its trading platform, NASDAQ must incur high fixed costs 
before accepting a single order, executing a single trade, or producing 
a single element of market information. Each year, NASDAQ spends 
millions of dollars on market infrastructure such as servers, 
processors, line handlers, software, and personnel; data intake, 
processing and dissemination equipment and networking hardware and 
software; and regulatory and surveillance systems of both a manual and 
automated nature. NASDAQ incurs these high costs to operate the 
platform and to produce both executions and market information. In 
other words, without these costs, neither product is produced, but with 
them, both products are unavoidably produced.\9\
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    \9\ This point was recognized over a century ago by the British 
economist Alfred Marshall, who noted the inextricability of 
producing wool and mutton and the inextricable nature of the costs 
associated with such production.
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    NASDAQ recaptures the cost of operating its platform through the 
sale of both executions and market information. The total return that 
NASDAQ or any trading platform earns reflects the revenues it receives 
from the sale of these joint products and other services, net of the 
joint and other costs (i.e., those limited costs that can be directly 
attributed to one of the relevant products) it incurs. Different 
platforms choose different pricing strategies and ways of recovering 
total costs. NASDAQ pays rebates to attract orders, charges relatively 
low prices for market information and charges relatively high prices 
for accessing posted liquidity. Other platforms may choose a strategy 
of paying lower liquidity rebates to attract orders, setting relatively 
low prices for accessing posted liquidity, and setting relatively high 
prices for market information. Still others may provide most data free 
of charge and rely exclusively on transaction fees to recover their 
costs. Finally, some platforms may incentivize use by providing 
opportunities for equity ownership, which may allow them to charge 
lower direct fees for executions and data.\10\ These strategies can 
vary over time in response to changing market and regulatory 
factors.\11\
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    \10\ See, e.g., Securities Exchange Act Release No. 62358 (June 
22, 2010), 75 FR 37861 (June 30, 2010) (SR-NSX-2010-06). It has also 
been reported that NYSE Amex has offered equity incentives to active 
members. While Nasdaq is aware of no Amex rule filing with the 
Commission, Amex consistently refers publicly to the ``semi-
mutualization.'' program. See, e.g., NYSE Euronext Brings Partners 
Into Options Market (Dow Jones Newswires, September 9, 2009); 
Comments of Duncan Neiderauer at NYSE Euronext Q3 2009 Earnings Call 
(October 30, 2009).
    \11\ Similarly, Marshall's sheep farmer would be expected to 
cover his costs of production through the sale of both wool and 
mutton, and it would be unreasonable for sweater-wearers to demand 
free sweaters subsidized by consumers of mutton. Moreover, in 
contrast to sheep farming, consumption of each of NASDAQ's main 
products enables further production and consumption of the other--
more executions translate into more data, and more data usage 
encourages more executions. Accordingly, as discussed below, there 
is no basis in the Act for requiring these inextricably linked 
products to be priced in isolation from one another. Such a result 
makes no more economic sense than requiring the price of a live 
sheep to be divorced from the price of wool and mutton.
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    The Commission has acknowledged many times that trading platforms 
compete fiercely for executions. Platforms also compete for the sale of 
market data. For example, in June 2008, NASDAQ launched two proprietary 
``Last Sale'' products. In each case, the terms included subscription 
rates and an ``enterprise cap'' rate designed for Web portals. The 
enterprise cap rates for the two products were $100,000 per month and 
$50,000 per month for the two products (i.e., a total of $150,000 per 
month for customers who purchased both products). The majority of 
NASDAQ's sales were at the cap level. In early 2009, we understand that 
BATS offered an alternative product (BATS PITCH data) as a zero-cost 
alternative to the NASDAQ Last Sale products.\12\ Also in early 2009, 
NYSE Arca announced the launch of a competitive product with an 
enterprise price of $30,000 per month. In response, NASDAQ combined its 
two Last Sale products into one in April 2009, and reduced the 
enterprise cap to $50,000 per month (i.e., a reduction of $100,000 per 
month).
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    \12\ Subsequently, BATS has begun to charge for certain of its 
data products, signaling a shift in strategy to recover a greater 
percentage of its costs through data, rather than using data solely 
as a means to draw (fee-liable) orders to its market.
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    Given the joint nature of these products and the competitive 
markets in which they are offered, a bundled discount that is linked to 
total spending across the joint products is economically sensible for a 
single platform producing joint products. Bundling recognizes the value 
of liquidity provision and data distribution in creating the conditions 
that further encourage the creation of the trading platform's products. 
It also recognizes the fact that customers are differentiated on 
multiple dimensions in terms of their willingness to pay for data and 
for accessing liquidity. Platform pricing of market data and executions 
enables NASDAQ to design a plan that will appeal to a broader group of 
potential customers--in this case those serving retail investors--and 
stimulate overall sales of both data and trading. NASDAQ expects that 
bundling will be more appealing to its customers than offering 
discounts based only on the volume of one kind of activity or another, 
as it has done in the past. By conditioning the discount on two 
activities, NASDAQ can achieve improved participation from both retail 
brokers that distribute data and their order-providing customers, as 
compared to a disaggregated pricing approach.\13\
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    \13\ Bundled pricing is also evident--indeed, it arguably finds 
its most complete expression--in exchange programs to offer equity 
ownership to favored members. Equity allows its owner to participate 
in the upside of all aspects of an exchange's operations, including 
executions, data, and listings. Thus, equity shares offered in 
exchange for liquidity provision offset the costs of all exchange 
products that the favored member consumes, effectively translating 
into an across-the-board discount and encouraging further 
consumption that enhances the value of the equity. Moreover, 
participation in such programs is conditioned upon being a member 
that directs order flow to the exchange in question, thereby 
excluding non-members, such as non-broker data distributors, as well 
as members that choose to direct order flow elsewhere. Moreover, an 
equity distribution program cannot be open-ended without diluting 
its value to the first recipients. Accordingly, once the equity 
distribution program is closed, incumbent owners benefit on an 
ongoing basis and new members are frozen out.
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    Given the fierce competition between platforms, as evidenced by 
rapid shifts in order flow and price cutting behavior

[[Page 4973]]

in markets for data, the competitive concerns potentially implicated by 
bundling are not present here. Competitive concerns from a practice of 
bundling discounts across a range of products may potentially arise 
when such bundling is used to foreclose entry (expansion) of rival 
firms that may not be able to offer an array of products as broad as 
that offered by an incumbent. In the instant case it is not likely that 
the combined offer will induce rival exchanges to exit (or become less 
competitively potent due to a reduction in volume), since many of 
NASDAQ's competitors command a comparably strong measure of market 
share in the relevant markets. Accordingly, their product offerings can 
readily compete with NASDAQ's in terms of execution functionality, 
depth of data, and price (included, if they deem it appropriate, 
bundled prices). It is also not likely that the combined offer will 
have the effect of creating significant barriers to entry or expansion 
for new exchanges. Current conditions of market fragmentation 
underscore the absence of barriers to entry in the market to attract 
and execute order flow. Because executions necessarily create data, 
barriers to entry in that market are correspondingly low.\14\
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    \14\ A further discussion of competitive conditions in the 
market for exchange data is provided in NASDAQ's ``Statement on 
Burden on Competition'' below.
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Price Differentiation Is Consistent With the Exchange Act
    For many years, exchanges have engaged in and the Commission has 
accepted the practice of price differentiation, both in the context of 
market data as well as in the context of executions. With respect to 
market data, NASDAQ and NYSE in their capacities as network processors 
and exchanges have differentiated in pricing between professional and 
non-professional market data users often charging professionals many 
times more than non-professionals for using the same data. For example, 
consolidated data for NASDAQ stocks costs non-professional investors 
just one dollar per month, whereas professional investors pay twenty 
dollars per month for the same data. Also, NASDAQ currently charges $15 
per terminal for its TotalView product to non-professionals, while 
professional investors pay roughly five times the non-professional 
rate. This reflects the value of the service to various constituencies 
(i.e., lower prices are charged to consumers with more elastic demand) 
and allows both types of investors to contribute to the high fixed 
costs of operating an exchange platform.\15\ Thus, one of the two bases 
for differentiation employed here--reduced prices for non-professional 
data usage--is completely consistent with economic theory and past 
Commission precedent.
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    \15\ As discussed in Exhibit 3, charging lower fees to non-
professional consumers increases overall economic welfare by 
increasing output--in this case, providing more data to more 
investors--and avoids two equally undesirable alternatives: (i) 
Requiring the firm to charge uniformly high prices that constrict 
demand, or (ii) insisting on uniformly low prices at marginal cost 
(in this case, zero or close to zero) that do not allow the firm to 
cover its fixed costs and thereby lead to bankruptcy.
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    Similarly, the Commission has long accepted price differentiation 
between and among members of trading platforms that provide and take 
liquidity to execute trades. For example, exchanges have offered and 
continue to offer differential pricing based on absolute volume, 
incremental volume, order type, ticker symbol, routing strategy, stock 
price, equity ownership,\16\ and other characteristics. Other 
platforms, including electronic communications networks and other forms 
of alternative trading systems (``ATSs''), including dark pools, 
differentiate on these dimensions and, NASDAQ understands, other 
dimensions that exchanges are prohibited from using.\17\ The 
differentiation that NASDAQ's proposes here--higher rebates for larger 
liquidity providers--is entirely consistent with past precedent and 
with the Act as interpreted and applied by the Commission.
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    \16\ An equity ownership program in which a member receives 
equity in exchange for its initial order flow commitment gives rise 
to differential pricing in which two classes of participants that 
thereafter engage in the same behavior are treated differently on an 
ongoing basis: The equity owner is rewarded for participation 
through the increased value of its stock, and the non-owner is not.
    \17\ For example, we understand that ATSs routinely negotiate 
individualized pricing packages with their subscribers, and deny 
access to disfavored users.
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    Thus, the Commission has accepted in individual form the precise 
elements of the price differentiation that NASDAQ is proposing here in 
joint form. As explained above and in Exhibit 3, this is especially 
appropriate where the products subject to the joint pricing--market 
data and executions--are themselves joint products of a single 
platform: Joint pricing will allow exchanges to structure fees that 
recognize the contribution of particular classes of members to the 
creation of the products and thereby broaden output and reduce fees.
    The Commission should also recognize that trading platform 
operations are characterized by high fixed costs and low marginal 
costs. This cost structure is common in content and content 
distribution industries such as software, where developing new software 
typically requires a large initial investment (and continuing large 
investments to ``upgrade'' the software), but once the software is 
developed, the incremental cost of providing that software to an 
additional user is typically small, or even zero (e.g., if the software 
can be downloaded over the Internet after being purchased).\18\ In 
NASDAQ's case, it is costly to build and maintain a trading platform, 
but the incremental cost of trading each additional share on an 
existing platform, or distributing an additional instance of data, is 
very low. Market information and executions are each produced jointly 
(in the sense that the activities of trading and placing orders are the 
source of information that is distributed) and are each subject to 
significant scale economies.\19\
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    \18\ See William J. Baumol and Daniel G. Swanson, ``The New 
Economy and Ubiquitous Competitive Price Discrimination: Identifying 
Defensible Criteria of Market Power,'' Antitrust Law Journal, Vol. 
70, No. 3, 2003.
    \19\ This is not the case with Marshall's sheep farming. Sheep 
are likely produced with constant or increasing marginal cost, and 
the pricing complication is confined to the most efficient recovery 
of the marginal cost of a sheep.
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    That NASDAQ's platform produces market information and executions 
jointly and in scale does not mean that either of the joint products 
should be, or even can be, offered at no charge or at marginal cost. 
Marginal cost pricing is not feasible when there are increasing returns 
to scale because if all sales were priced at marginal cost, NASDAQ 
would be unable to defray its platform costs of providing the joint 
products. Moreover, to offer market data at no cost would require 
NASDAQ to raise the cost of providing execution services because it 
would require execution services to cover 100 percent of the recovery 
of the joint and common costs of both execution services and market 
data. While this may be a viable choice for some platforms, individual 
platform operators can and do reasonably choose other pricing models to 
allocate the recovery of cost between the joint products. At the same 
time, as discussed below and in Exhibit 3, competition between 
platforms clearly constrains the ability of platform operators to price 
execution services and market data products.
    The Commission has previously stated, in dicta, that ``the Exchange 
Act precludes exchanges from adopting terms for data distribution that 
unfairly discriminate by favoring participants in

[[Page 4974]]

an exchange's market or penalizing participants in other markets.'' 
\20\ The Commission provided no analysis in support of this statement. 
NASDAQ believes that consideration of the joint nature of the products 
in question and the Commission's precedents will allow a more developed 
analysis of conduct that constitutes unfair discrimination under the 
Act. As noted above, the Commission has allowed exchanges to price 
discriminate in a wide range of respects, including, for example, 
volume-based execution discounts that directly favor participants in 
the exchange's market, discounts on uses of particular order types or 
strategies that favor participants with certain trading models, and 
selective equity ownership that provides effective discounts on all of 
the exchange's products, including data, and that discriminates in 
favor of active participants in the exchange's market during a set 
offering period. Moreover, in light of the joint nature of an 
exchange's transaction and data products, uniform fees--requiring 
exchanges to charge the same fees to data consumers that help to 
produce data as it charges to those who do not--could be said to 
discriminate against participants by requiring them to pay fees that 
are not allocated based on the value of their participation in the 
market. Thus, if it is fair to discount execution fees to liquidity 
providers because they add value to the market place, it should also be 
considered fair to discount data fees to liquidity providers because 
they add value to data.
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    \20\ Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21), vacated 
by NetCoalition v. SEC, No. 09-1042 (DC Cir. 2010).
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    In addition, it is difficult to discern a reasonable policy goal 
behind a strict prohibition on data discounts that consider transaction 
activity. As noted above and in Exhibit 3, differences in pricing may 
increase economic welfare by allowing greater distribution than would 
otherwise be the case, and also, in this case, enhance the value of 
NASDAQ's joint product to the extent that greater consumption of data 
encourages further investor activity, which in turn results in the 
production of more data. Moreover, differentiating pricing based on 
reasonable distinctions among consumers cannot be considered unfair 
under the Act, since the Commission has approved numerous instances of 
such distinctions. If the Commission were to adopt such a prohibition, 
therefore, it would seem to be driven by a concern that exchanges might 
use bundled data pricing in an anticompetitive manner.\21\
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    \21\ Another possibility is that the Commission might somehow 
conclude that transactions and data must be priced in isolation of 
one another, despite their wool/mutton nature, merely to ensure that 
data consumers who do not use transaction services pay the same fees 
as those who do. There is nothing in the Act that speaks directly to 
maintaining a dichotomy between products in establishing their 
prices, and the Act clearly allows differential pricing within a 
product category. Nor would it be reasonable for the Commission to 
conclude that fairness mandates that consumers with different cost 
and benefit profiles nevertheless pay the same fees. Thus, before 
the Commission concludes that a particular price differential is 
``unfair,'' it should first conclude that the differential lacks a 
reasonable basis in fact. NASDAQ respectfully maintains that the 
Commission may not reach such a conclusion in this instance.
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    This concern would be reasonable only if the exchange actually 
enjoyed substantial market power in the data segment of the market and 
could use it to attempt to reduce competition in the transactions 
segment. Thus, if all market participants needed data from a particular 
exchange to operate, and the exchange conditioned low data fees on 
market participants directing order flow to the exchange, the exchange 
might attempt to use its control over data to monopolize trading as 
well. These conditions are not present here, nor is it likely that they 
could ever arise in these markets. First, an exchange that attempted to 
restrict the provision of data to disfavored recipients would be 
restricting access to one of the key mechanisms by which the exchange 
attracts orders to its matching engine. Moreover, as discussed in 
detail throughout this filing, the market participants with the most 
demand for an exchange's data are the ones that actually trade on that 
exchange, but no one is required to trade on any particular exchange or 
to consume its data. Indeed, no single exchange controls proprietary 
data that is indispensible to any particular market participant. 
Therefore, an effort to use pricing to ``penalize'' market participants 
for sending orders to other venues would likely succeed only in driving 
more orders to those venues and cutting demand for data as well. 
Finally, because the marginal cost of selling data to one more customer 
is zero or close to zero, exchanges have every interest in selling as 
much data as possible, in order to ensure that they cover their high 
fixed costs. As a result, exchanges readily sell data to market 
participants and also to non-market participants that direct no order 
flow to the exchange at all. Penalizing ``disloyal'' consumers of data 
would do nothing more than diminish the exchange's revenue 
opportunities.
    Under traditional antitrust analysis, pricing systems under which 
the prices for two products are ``bundled'' have generally been found 
to be beneficial to consumers, rather than anticompetitive. A court 
will not uphold a challenge to bundled pricing unless it is clear that 
a party has market power in one product and is using the bundled 
pricing to extend its market power to another product. ``Buyers often 
find package sales attractive; a seller's decision to offer such 
packages can merely be an attempt to compete effectively--conduct that 
is entirely consistent with the Sherman Act.'' Jefferson Parish Hosp. 
Dist. No. 2 v. Hyde, 466 U.S. 2, 12 (1984). As noted in the recent 
report of a bipartisan commission on antitrust law,\22\ ``[l]arge and 
small firms, incumbents, and new entrants use bundled discounts and 
rebates in a wide variety of industries and market circumstances. 
Because they involve lower prices, bundled discounts and bundled 
rebates typically benefit consumers.'' The report noted that bundled 
discounts can be used appropriately to reduce the seller's costs, to 
improve the quality of products, to advertise the benefits of related 
products, and to increase demand for a product. If, as is the case 
here, the markets for both bundled products are competitive, bundled 
pricing will not give rise to any competitive concerns.
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    \22\ Report and Recommendations of the Antitrust Modernization 
Commission (April 2007) (available at https://govinfo.library.unt.edu/amc/report_recommendation/amc_final_report.pdf).
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    Nevertheless, since the Act clearly bars discrimination that is 
unfair, it would be reasonable for the Commission to disapprove fees or 
other conditions to access that appear to have anticompetitive aims, 
such as rules that selectively prohibit some parties from having access 
to data. The Commission should not, however, block efforts by exchanges 
to reduce their prices merely because they do not cut prices ``across 
the board.'' As the Supreme Court has recognized, ``cutting prices in 
order to increase business often is the very essence of competition.'' 
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 
(1986). ``Mistaken inferences in cases'' involving alleged harm from 
low prices ``are especially costly, because they chill the very conduct 
the antitrust laws are designed to protect.'' Matsushita, 475 U.S. at 
594. In this case, disapproval of NASDAQ's proposed fee reductions 
would leave the fees for NASDAQ depth products untouched: consumers 
that would have paid lower fees under the proposal will

[[Page 4975]]

continue to pay higher fees, and other consumers will pay exactly what 
they do now, and exactly what they would have paid if the proposal had 
gone into effect. It is difficult to see how the interests of any 
parties, or of the marketplace as a whole, would be served by that 
outcome.
Conclusion
    This filing reduces prices for NASDAQ market data and for trading 
on NASDAQ. It is designed to promote NASDAQ's and the Commission's goal 
of better serving retail investors whose participation in NASDAQ's 
market benefits NASDAQ, its listed companies, its market quality, and 
the quality of its data products. It is also a competitive response to 
other trading venues. In short, NASDAQ is cutting prices for customers 
that are highly valued to NASDAQ and are important to the health of 
U.S. capital market.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act.\23\ In particular, NASDAQ 
believes that the proposal is consistent with Section 6(b)(4) of the 
Act,\24\ in that it provides an equitable allocation of reasonable fees 
among users and recipients of the data, Section 6(b)(5) of the Act,\25\ 
in that it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers, Section 6(b)(8) of the 
Act,\26\ in that it does not impose any burden on competition not 
necessary or appropriate in the furtherance of the purposes of the Act, 
and Rule 603(a) of Regulation NMS,\27\ in that it provides for 
distribution of information with respect to quotations for or 
transactions in an NMS stock on terms that are fair and reasonable and 
are not unreasonably discriminatory. In adopting Regulation NMS, the 
Commission granted self-regulatory organizations and broker-dealers 
\28\ 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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    \23\ 15 U.S.C. 78f.
    \24\ 15 U.S.C. 78f(b)(4).
    \25\ 15 U.S.C. 78f(b)(5),
    \26\ 15 U.S.C. 78f(b)(8).
    \27\ 17 CFR 202.603(a).
    \28\ It should be stressed that Rule 603, 17 CFR 202.603(a), 
both allows broker-dealers to distribute their own data, singly or 
on an aggregated basis, and generally subjects them to the same 
regulatory standards as exchanges. Thus, any broker or dealer that 
distributes information must do so on terms that are not 
unreasonably discriminatory, and any broker or dealer that 
distributes information for which it is the exclusive source must do 
so on terms that are fair and reasonable. As a result, to the extent 
that the Commission establishes procedures or legal standards 
applicable to exchange data, it must apply the same procedures and 
standards to broker-dealer data.
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    NASDAQ Depth Data Products are precisely the sort of market data 
product that the Commission envisioned when it adopted Regulation NMS. 
The Commission concluded that Regulation NMS--by lessening regulation 
of 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.\29\

    \29\ 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.
    The recent decision of the United States Court of Appeals for the 
District of Columbia Circuit in NetCoaliton [sic] v. SEC, No. 09-1042 
(DC Cir. 2010) 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 [sic], 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 agreed with the Commission's conclusion that ``Congress 
intended that `competitive forces should dictate the services and 
practices that constitute the U.S. national market system for trading 
equity securities.' '' \30\
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    \30\ NetCoaliton [sic] v. SEC, No. 09-1042 (DC Cir. 2010) at p. 
16, [sic].
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    The Court in NetCoalition, while upholding the Commission 
conclusion that competitive forces may be relied upon to establish the 
fairness of prices, nevertheless concluded that the record in that case 
did not adequately support the Commission's conclusions as to the 
competitive nature of the market for NYSEArca's data product at issue 
in that case. For the reasons discussed in this filing and in Exhibit 
3, however, NASDAQ believes that there is substantial evidence of 
competition in the marketplace for data that was not in the record in 
the NetCoalition case, and that the Commission is entitled to rely upon 
such evidence in concluding that the fees established in this filing 
are the product of competition, and therefore in accordance with the 
relevant statutory standards.\31\ In addition, as discussed in the 
``Purpose'' section of the filing above, NASDAQ believes that it is not 
inequitable or unfairly discriminatory to establish discounts for 
market data fees that take account of a market participant's 
transaction volumes.
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    \31\ It should also be noted that Section 916 of Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank 
Act'') has amended paragraph (A) of Section 19(b)(3) of the Act, 15 
U.S.C. 78s(b)(3) to make it clear that all exchange fees, including 
fees for market data, may be filed by exchanges on an immediately 
effective basis. Although this change in the law does not alter the 
Commission's authority to evaluate and ultimately disapprove 
exchange rules if it concludes that they are not consistent with the 
Act, it unambiguously reflects a conclusion that market data fee 
changes do not require prior Commission review before taking effect, 
and that a formal proceeding with regard to a particular fee change 
is required only if the Commission determines that it is necessary 
or appropriate to suspend the fee and institute such a proceeding.
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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. To the contrary, NASDAQ's proposed price 
reduction in response to competitive pricing offers is the essence of 
competition. As the Supreme Court has recognized, ``cutting prices in 
order to increase business often is the very essence of competition.'' 
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 
(1986). NASDAQ is acting pro-competitively by offering more attractive 
pricing, designed to attract order flow and business away from 
competing platforms:

    When a firm * * * lowers prices but maintains them above 
predatory levels, the business lost by rivals cannot be viewed as an 
``anticompetitive'' consequence of the claimed violation. A firm 
complaining about the harm it suffers from nonpredatory price 
competition ``is really claiming that it [is] unable to raise 
prices.'' This is not antitrust injury; indeed, ``cutting prices in 
order to increase business often is the very essence of 
competition.'' The antitrust laws were

[[Page 4976]]

enacted for ``the protection of competition, not competitors.''

Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 337-38 
(1990) (emphasis in original; citations omitted).

Platform Competition Is Intense

    As the Commission recently recognized,\32\ the market for 
transaction execution and routing services is highly competitive, and 
the market for proprietary data products is complementary to it, since 
the ultimate goal of such products is to attract further order flow to 
an exchange. Order flow is immediately transportable to other venues in 
response to differences in cost or value and in doing so directly 
impact the quality and quantity of data at any given platform.
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    \32\ Id.
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    With regard to the market for executions, broker-dealers currently 
have numerous alternative venues for their order flow, including 
multiple competing self-regulatory organization (``SRO'') markets, as 
well as broker-dealers (``BDs'') and aggregators such as the Direct 
Edge and LavaFlow electronic communications networks (``ECNs''). Each 
SRO market competes to produce transaction reports via trade 
executions, and FINRA-regulated Trade Reporting Facilities (``TRFs'') 
compete to attract internalized transaction reports. It is common for 
BDs to further and exploit this competition by sending their order flow 
and transaction reports to multiple markets, rather than providing them 
all to a single market.
    Public markets such as NASDAQ also compete for order flow and 
executions with dark pools and other ATSs that provide similar services 
under a lighter regulatory burden.\33\ One such disparity that directly 
affects competition for order flow, executions, and market data is the 
greater flexibility of dark trading systems and certain ATSs to 
differentiate between their subscribers. Another is the requirement 
imposed on exchanges and not upon ATSs to file proposed pricing 
schedules and changes, thereby subjecting exchanges prices to greater 
regulatory scrutiny, intervention and delay. NASDAQ has questioned and 
continues to question whether such disparities remain justified 
(assuming they once were justified) in light of current competition 
between exchanges and ATs and including increasingly high levels of 
executions occurring in ATSs.
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    \33\ See Letter dated April 30, 2010, from Joan Conley, Senior 
vice President and Corporate Secretary, The NASDAQ Stock Market LLC, 
to Elizabeth Murphy, Secretary, Securities and Exchange Commission 
(commenting on regulatory disparities and arbitrage in response to 
Concept Release on Market Structure).
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    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, and ECNs that currently 
produce proprietary data or are currently capable of producing it 
provides further pricing discipline for proprietary data products. Each 
SRO, TRF, ECN and BD is currently permitted to produce proprietary data 
products, and many currently do or have announced plans to do so, 
including NASDAQ, NYSE, NYSEArca, BATS, and Direct Edge.
    Any ECN or BD can combine with any other ECN, broker-dealer, or 
multiple ECNs or BDs to produce jointly proprietary data products. 
Additionally, non-BDs such as order routers like LAVA, as well as 
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 depth data from ECNs, BDs, and vendors can by-pass 
SROs is significant in two respects. First, non-SROs can compete 
directly with SROs for the production and distribution of proprietary 
data products, as Archipelago, BATS, and DirectEdge did prior to 
registering as SROs. 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 writ large.
    Market data vendors provide another form of price discipline for 
proprietary data products because they control the primary means of 
access to end users. Although their business models may differ, vendors 
exercise pricing discipline because 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 successfully market proprietary data products.
    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. 
Several ECNs have existed profitably for many years with a minimal 
share of trading, including Bloomberg Tradebook and LavaFlow.
    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 
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.
    The proposed rule change is a direct response to this competition, 
and it is motivated by the conclusion that Tier 1, Tier 2 and Tier 3 
Firms provide benefits to NASDAQ and its customers across business 
lines and therefore merit pricing incentives to join or remain in these 
tiers. It recognizes the concern that the order flow and data product 
use that such firms currently bring to NASDAQ may migrate elsewhere if 
their contributions are not appropriately recognized. At the same time, 
if other customers determine that their fees are too high in comparison 
to those paid by firms qualifying for the discount, they will take 
their business to other venues.

[[Page 4977]]

Thus, the proposal must strike a balance between growing and retaining 
the business of actual and potential Tier 1 and Tier 2 Firms and the 
business of firms that lack the volume of business to become eligible. 
In light of the highly competitive nature of these markets, NASDAQ's 
revenues and market share are likely to be diminished by the proposal 
if it strikes this balance in the wrong way.\34\
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    \34\ The Commission has recognized that an exchange's failure to 
strike this balance correctly will only harm the exchange. ``[M]any 
market participants would be unlikely to purchase the exchange's 
data products if it sets fees that are inequitable, unfair, 
unreasonable, or unreasonably discriminatory[hellip]. For example, 
an exchange's attempt to impose unreasonably or unfairly 
discriminatory fees on a certain category of customers would likely 
be counter-productive for the exchange because, in a competitive 
environment, such customers generally would be able to respond by 
using alternatives to the exchanges data.'' Id.
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The NetCoalition Decision
    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 
competition for order flow adequately constrains the pricing of depth-
of-book data.\35\ However, the Netcoalition [sic] court did cite 
favorably an economic study by Ordover and Bamberger which concluded 
that ``[a]lthough an exchange may price its trade execution fees higher 
and its market data fees lower (or vice versa), because of ``platform'' 
competition the exchange nonetheless receives the same return from the 
two ``joint products'' in the aggregate.''\36\
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    \35\ The NetCoalition court did not consider or address the 
statutory amendments encompassed by the Dodd-Frank Act in any way.
    \36\ See NetCoalition at fn. 30.
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    Accordingly, NASDAQ is submitting along with this filing additional 
comments from Ordover and Bamberger expanding upon the impact of 
platform competition on the pricing of joint products, and in 
particular on the application of that theory to NASDAQ's current 
proposal. Among the conclusions that Ordover and Bamberger reach are:
    NASDAQ is subject to significant competitive forces in setting the 
prices and other terms of execution services and proprietary data 
products.
    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of the array of 
its products, including the joint products at issue here. In 
particular, cross-platform competition, and the adverse effects from 
overpricing proprietary information on the volume of trading on the 
platform, constrain the pricing of proprietary information.
    Competitive forces constrain the prices that platforms can charge 
for non-core market information. A trading platform cannot generate 
market information unless it receives trade orders. For this reason, a 
platform can be expected to use its market data product as a tool for 
attracting liquidity and trading to its exchange.
    While, by definition, information that is proprietary to an 
exchange cannot be obtained elsewhere, this does not enable the owner 
of such information to exercise monopoly power over that information 
vis-[agrave]-vis firms with the need for such information. Even though 
market information from one platform may not be a perfect substitute 
for market information from one or more other platforms, the existence 
of alternative sources of information can be expected to constrain the 
prices platforms charge for market data.
    Besides the fact that similar information can be obtained 
elsewhere, the feasibility of supra-competitive pricing is constrained 
by the traders' ability to shift their trades elsewhere, which lowers 
the activity on the exchange and so in the long run reduces the quality 
of the information generated by the exchange.
    NASDAQ's Platform pricing can be described as a type of 
``differential pricing'' and ``bundling.'' Differential pricing in 
markets with high fixed costs and low incremental costs is common, 
efficient, and not anticompetitive. ``Bundling'' also is common and 
generally procompetitive.
    NASDAQ's joint products are produced under the conditions of high 
fixed costs, which are also joint and common to a range of products, 
and low (or zero) marginal or incremental cost of serving an additional 
customer. In industries with these cost characteristics, charging all 
customers the same price is not economically efficient.
    Additional evidence cited by NYSE Arca in SR-NYSE Arca-2010-097 
which was not before the NetCoalition court also demonstrates that 
availability of depth data attracts order flow and that competition for 
order flow can constrain the price of market data:
    1. Terrence Hendershott & Charles M. Jones, Island Goes Dark: 
Transparence, Fragmentation, and Regulation, 18 Review of Financial 
Studies 743 (2005);
    2. Charts and Tables referenced in Exhibit 3B to that filing;
    3. PHB Hagler Bailly, Inc., ``Issues Surrounding Cost-Based 
Regulation of Market Data Prices;'' and
    4. PHB Hagler Bailly, Inc., ``The Economic Perspective on 
Regulation of Market Data.''
    NASDAQ also submits that in and of itself, NASDAQ's decision 
voluntarily to cap fees on existing products is evidence of market 
forces at work. The instant proposal does just that, creating an 
expanded enterprise license on two product classes. Retail investors 
will be the primary beneficiaries.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or 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.\37\ 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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