Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Link Market Data Fees and Transaction Execution Fees, 6165-6167 [2011-2376]

Download as PDF Federal Register / Vol. 76, No. 23 / Thursday, February 3, 2011 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63796; File No. SR– NASDAQ–2011–010] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Link Market Data Fees and Transaction Execution Fees January 28, 2011. I. Introduction On January 10, 2011, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to discount certain market data fees and increase certain liquidity provider rebates for members that both (1) execute specified levels of transaction volume on NASDAQ as a liquidity provider, and (2) purchase specified levels of market data from NASDAQ. The proposed rule change was immediately effective upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Act.3 Notice of filing of the proposed rule change was published in the Federal Register on January 27, 2011.4 Under Section 19(b)(C)(3) of the Act, the Commission is (1) hereby temporarily suspending File No. SR– NASDAQ–2011–010, and (2) instituting proceedings to determine whether to approve or disapprove File No. SR– NASDAQ–2011–010. II. Summary of the Proposed Rule Change NASDAQ proposes to provide a discount on non-professional market data fees for NASDAQ Depth Data 5 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). 4 See Securities Exchange Act Release No. 63745 (January 20, 2011) 76 FR 4970 (‘‘Notice’’). The Commission has received one comment letter on the proposed rule change to date. See Letter dated January 13, 2011 from William O’Brien, Chief Executive Officer, Direct Edge to Florence E. Harmon, Deputy Secretary, Commission (the ‘‘Direct Edge Letter’’). The commenter suggested that the proposed rule change should be suspended and that the Commission should institute proceedings to determine whether to approve or disapprove the proposal. 5 NASDAQ Depth Data includes National Quotation Data Service (individual market maker quotation data), TotalView (depth-of-book data for NASDAQ-listed securities), and OpenView (depthof-book data for non-NASDAQ-listed securities) data products. jdjones on DSK8KYBLC1PROD with NOTICES 2 17 VerDate Mar<15>2010 15:31 Feb 02, 2011 Jkt 223001 6165 (‘‘NASDAQ Depth Data Product Fees’’) charged to a member that provides displayed liquidity through the NASDAQ Market Center and incurs NASDAQ Depth Data Product Fees at certain specified levels.6 Specifically, a member would qualify as a: • ‘‘Tier 1 Firm’’ for purposes of pricing during a particular month if it (i) has an average daily volume of 12 million shares or more 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 $150,000 or more. • ‘‘Tier 2 Firm’’ for purposes of pricing 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. • ‘‘Tier 3 Firm’’ for purposes of pricing 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. Tier 1 Firms would receive a 15% discount on NASDAQ Depth Data Product Fees charged to them, Tier 2 Firms would receive a 35% discount on NASDAQ Depth Data Product Fees charged to them, and Tier 3 Firms would receive a 50% discount on NASDAQ Depth Data Product Fees charged to them.7 In addition, Tier 1 Firms would receive an increased liquidity provider rebate for transactions executed on NASDAQ. Specifically, Tier 1 Firms would receive a rebate of $0.0028 per share for displayed liquidity and $0.0015 per share for undisplayed liquidity, compared to the current liquidity provider credit of $0.0020 per share of displayed liquidity and $0.0010 per share of non-displayed liquidity applicable to these firms. There is no enhancement to the liquidity provider credits at this time for Tier 2 and Tier 3 firms. proposed rule change.8 In its comment letter, Direct Edge argues, among other things, that the proposed rule change should be suspended because, in its view, offering discounts on NASDAQ’s market data fees only to customers who meet specified minimum order flow thresholds and provide such data to non-professional users does not meet the ‘‘fair and reasonable’’ standard for market data fees under the Exchange Act. III. Summary of Comment Letters V. Proceedings To Determine Whether To Approve or Disapprove SR– NASDAQ–2011–010 To date, the Commission has received one comment letter on NASDAQ’s 6 For a more detailed description of the proposed rule change, see Notice, supra note 4. 7 A NASDAQ member incurs non-professional fees when it offers NASDAQ Depth Data to natural persons that are not acting in a capacity that subjects them to financial industry regulation (e.g., retail customers). PO 00000 Frm 00052 Fmt 4703 Sfmt 4703 IV. Suspension of SR–NASDAQ–2011– 010 Pursuant to Section 19(b)(3)(C) of the Act,9 at any time within 60 days of the date of filing a proposed rule change pursuant to Section 19(b)(1) of the Act,10 the Commission summarily may temporarily suspend the change in the rules of a self-regulatory organization 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. Under the proposal, the level of fees that a market participant would be charged for obtaining NASDAQ market data would be tied to the extent of that market participant’s trading in the NASDAQ market. In addition, the level of transaction rebates that a market participant receives for trading on NASDAQ would be tied to the level of NASDAQ market data that it purchases. The Commission is concerned that such a tying arrangement may not be consistent with the statutory requirements applicable to a national securities exchange under the Act, as described below. For instance, the Commission is concerned that the proposal may fail to satisfy the standards under the Exchange Act and the rules thereunder that require market data fees to be equitable, fair, and not unreasonably discriminatory.11 Therefore, the Commission finds that it is appropriate in the public interest, for the protection of investors, and otherwise in furtherance of the purposes of the Act, to temporarily suspend the proposed rule change. The Commission is instituting proceedings pursuant to Sections 8 See Direct Edge Letter supra, note 4. U.S.C. 78s(b)(3)(C). 10 15 U.S.C. 78s(b)(1). 11 See infra, notes 17–24. 9 15 E:\FR\FM\03FEN1.SGM 03FEN1 6166 Federal Register / Vol. 76, No. 23 / Thursday, February 3, 2011 / Notices jdjones on DSK8KYBLC1PROD with NOTICES 19(b)(3)(C) 12 and 19(b)(2) of the Act 13 to determine whether NASDAQ’s proposed rule change should be approved or disapproved. Pursuant to Section 19(b)(2)(B) of the Act,14 the Commission is providing notice of the grounds for disapproval under consideration. Under the proposal, the level of fees that a market participant would be charged for obtaining NASDAQ market data would be tied to the extent of that market participant’s trading in the NASDAQ market. The Exchange Act and the rules thereunder require that market data fees must be equitable, fair, reasonable, and not unreasonably discriminatory.15 In this regard, the Commission has stated previously that the Exchange Act precludes exchanges from adopting terms for market data distribution that unfairly discriminate by favoring participants in an exchange’s market or penalizing participants in other markets.16 The Commission is concerned that NASDAQ’s proposal may be inconsistent with this standard. The Commission believes that the NASDAQ proposal raises significant legal and policy issues. Specifically, the Commission has serious concerns as to whether NASDAQ’s proposal to tie market data fees and execution fees is consistent with the Exchange Act. The Commission has similar concerns with respect to NASDAQ’s proposal to tie the level of transaction rebates paid to market participants to the amount of market data they purchase. The Commission believes it is appropriate in the public interest to institute disapproval proceedings at this time in view of the significant legal and policy issues raised by the proposal. Institution of disapproval proceedings does not indicate, however, that the 12 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily suspends a proposed rule change, Section 19(b)(3)(C) of the Act requires that the Commission institute proceedings under Section 19(b)(2)(B) to determine whether a proposed rule change should be approved or disapproved. 13 15 U.S.C. 78s(b)(2). 14 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also provides that proceedings to determine whether to disapprove a proposed rule change must be concluded within 180 days of the date of publication of notice of the filing of the proposed rule change. Id. The time for conclusion of the proceedings may be extended for up to 60 days if the Commission finds good cause for such extension and publishes its reasons for so finding. Id. 15 See infra, notes 17–24. 16 See Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770 at 74791 (December 9, 2008) (SR–NYSEArca–2006–21) (Order Setting Aside Action by Delegated Authority and Approving Proposed Rule Change FRelating to NYSE Arca Data) (‘‘NYSE Arca Order’’), vacated and remanded by NetCoalition v. SEC No. 09–1042 (DC Cir. 2010). VerDate Mar<15>2010 15:31 Feb 02, 2011 Jkt 223001 Commission has reached any conclusions with respect to the issues involved. The sections of the Act and the rules thereunder that are applicable to the proposed rule change include: • Section 6(b)(4) of the Act, which requires that the rules of a national securities exchange ‘‘provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities’’; 17 • Section 6(b)(5) of the Act, which requires that the rules of a national securities exchange be designed to, among other things, ‘‘remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest’’ and not be ‘‘designed to permit unfair discrimination between customers, issuers, brokers, or dealers’’; 18 • Section 6(b)(8) of the Act,19 which requires that the rules of a national securities exchange ‘‘not impose any burden on competition not necessary or appropriate’’ in furtherance of the Act; 20 • Section 11A(a) of the Act, in which Congress found that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure ‘‘economically efficient execution of securities transactions,’’ ‘‘fair competition among brokers and dealers and among exchange markets,’’ ‘‘the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities,’’ and ‘‘the practicability of brokers executing investors’ orders in the best market’’; 21 • Rule 603(a)(1) of Regulation NMS, which requires any exclusive processor that distributes information with respect to quotations for or transactions in an NMS stock, as that term is defined in Rule 600(b) of Regulation NMS,22 to a securities information processor to ‘‘do so on terms that are fair and reasonable’’; 23 and • Rule 603(a)(2) of Regulation NMS, which requires a national securities exchange that distributes information 17 15 U.S.C. 78f(b)(4). U.S.C. 78f(b)(5). 19 15 U.S.C. 78f(b)(8). 20 15 U.S.C. 78f(b)(8). 21 15 U.S.C. 78k–1(a)(1)(C)(i)–(iv). 22 See 17 CFR 242.600(b)(46) and (47), defining ‘‘NMS stock’’ as any NMS security other than an option and defining ‘‘NMS security’’ as any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options. 23 17 CFR 242.603(a)(1). 18 15 PO 00000 Frm 00053 Fmt 4703 Sfmt 4703 with respect to quotations for or transactions in an NMS stock to a securities information processor to ‘‘do so on terms that are not unreasonably discriminatory’’.24 VI. Commission’s Solicitation of Comments The Commission requests written views, data, and arguments with respect to the concerns identified above as well as any other relevant concerns. Such comments should be submitted by March 21, 2011. Rebuttal comments should be submitted by April 4, 2011. Although there do not appear to be any issues relevant to approval or disapproval which would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b–4, any request for an opportunity to make an oral presentation.25 The Commission asks that commenters address the merit of NASDAQ’s statements in support of the proposal, in addition to any other comments they may wish to submit about the proposed rule change. Interested persons are invited to submit written data, views, and arguments concerning the proposed rule change, 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/other.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2011–010 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2011–010. The 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 24 17 CFR 242.603(a)(2). U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by a selfregulatory organization. See Securities Acts Amendments of 1975, Report of the Senate Committee on Banking, Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). 25 15 E:\FR\FM\03FEN1.SGM 03FEN1 Federal Register / Vol. 76, No. 23 / Thursday, February 3, 2011 / Notices post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/other.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 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 publicly available. All submissions should refer to File Number SR– NASDAQ–2011–010 and should be submitted on or before March 21, 2011. Rebuttal comments should be submitted by April 4, 2011. VII. Conclusion It is therefore ordered, pursuant to Section 19(b)(3)(C) of the Act,26 that File No. SR–NASDAQ–2011–010, be and hereby is, temporarily suspended. In addition, the Commission is instituting proceedings to determine whether the proposed rule change should be approved or disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–2376 Filed 2–2–11; 8:45 am] jdjones on DSK8KYBLC1PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63792; File No. SR–NYSE– 2010–77] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving Proposed Rule Change, as Modified by Amendment No. 1, in Connection With the Proposal of NYSE Euronext To Eliminate the Requirement of an 80% Supermajority Vote To Amend or Repeal Section 3.1 of its Bylaws January 28, 2011. On November 30, 2010, the New York Stock Exchange LLC (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 a proposed rule change to amend the Bylaws of its parent corporation, NYSE Euronext (‘‘Corporation’’). On December 3, 2010, the Exchange filed Amendment No. 1 to the proposed rule change. The proposed rule change was published for comment in the Federal Register on December 17, 2010.3 The Commission received no comment letters on the proposed rule change. This order approves the proposed rule change. On behalf of the Corporation, NYSE proposed to amend the Corporation’s Bylaws to eliminate the requirement that the affirmative vote of the holders of not less than 80% of the votes entitled to be cast by the holders of the outstanding capital stock of the Corporation entitled to vote generally in the election of directors is necessary for the stockholders to amend or repeal Article III, Section 3.1 of the Bylaws relating to the general powers of the Board of Directors of the Corporation (‘‘Board’’). Section 3.1 provides that the number of directors on the Board shall be fixed and changed from time to time exclusively by the Board pursuant to a resolution adopted by two-thirds of the directors then in office. The Exchange stated that the elimination of this 80% ‘‘supermajority’’ voting provision as it relates to Article III, Section 3.1 would have the effect that only a majority of the same number of votes entitled to be cast will be required to amend or repeal this section of the Corporation’s Bylaws. The Exchange noted that it believes that the proposed rule change will permit the Corporation to respond to a 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 63532 (December 13, 2010), 75 FR 79060. 2 17 26 15 27 17 U.S.C. 78s(b)(3)(C). CFR 200.30–3(a)(57) and (58). VerDate Mar<15>2010 15:31 Feb 02, 2011 Jkt 223001 PO 00000 Frm 00054 Fmt 4703 Sfmt 9990 6167 stockholder proposal requesting that the Corporation implement a simple majority voting standard to amend its Certificate of Incorporation and Bylaws. After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.4 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(1) of the Act,5 which requires an exchange to be so organized and have the capacity to carry out the purposes of the Act and to comply and to enforce compliance by its members and persons associated with its members with the Act. The Commission also finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,6 which requires that the rules of the exchange be designed, among other things, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission believes that the proposed rule change to amend the Corporation’s Bylaws to eliminate the 80% supermajority requirement to amend or repeal Article III, Section 3.1 of the Bylaws in favor of a simple majority vote standard is consistent with the Act. The Commission believes that the proposed rule change is designed to allow changes to Article III, Section 3.1 of the Corporation’s Bylaws to be made in a manner that reflects the desires of the Corporation’s shareholders. It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR–NYSE–2010– 77), as modified by Amendment No. 1, be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–2353 Filed 2–2–11; 8:45 am] BILLING CODE 8011–01–P 4 In approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 5 15 U.S.C. 78(b)(1). 6 15 U.S.C. 78f(b)(5). 7 17 CFR 200.30–3(a)(12). E:\FR\FM\03FEN1.SGM 03FEN1

Agencies

[Federal Register Volume 76, Number 23 (Thursday, February 3, 2011)]
[Notices]
[Pages 6165-6167]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-2376]



[[Page 6165]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63796; File No. SR-NASDAQ-2011-010]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Suspension of and Order Instituting Proceedings To Determine Whether To 
Approve or Disapprove a Proposed Rule Change To Link Market Data Fees 
and Transaction Execution Fees

January 28, 2011.

I. Introduction

    On January 10, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to discount certain market data 
fees and increase certain liquidity provider rebates for members that 
both (1) execute specified levels of transaction volume on NASDAQ as a 
liquidity provider, and (2) purchase specified levels of market data 
from NASDAQ. The proposed rule change was immediately effective upon 
filing with the Commission pursuant to Section 19(b)(3)(A) of the 
Act.\3\ Notice of filing of the proposed rule change was published in 
the Federal Register on January 27, 2011.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ See Securities Exchange Act Release No. 63745 (January 20, 
2011) 76 FR 4970 (``Notice''). The Commission has received one 
comment letter on the proposed rule change to date. See Letter dated 
January 13, 2011 from William O'Brien, Chief Executive Officer, 
Direct Edge to Florence E. Harmon, Deputy Secretary, Commission (the 
``Direct Edge Letter''). The commenter suggested that the proposed 
rule change should be suspended and that the Commission should 
institute proceedings to determine whether to approve or disapprove 
the proposal.
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    Under Section 19(b)(C)(3) of the Act, the Commission is (1) hereby 
temporarily suspending File No. SR-NASDAQ-2011-010, and (2) instituting 
proceedings to determine whether to approve or disapprove File No. SR-
NASDAQ-2011-010.

II. Summary of the Proposed Rule Change

    NASDAQ proposes to provide a discount on non-professional market 
data fees for NASDAQ Depth Data \5\ (``NASDAQ Depth Data Product 
Fees'') charged to a member that provides displayed liquidity through 
the NASDAQ Market Center and incurs NASDAQ Depth Data Product Fees at 
certain specified levels.\6\ Specifically, a member would qualify as a:
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    \5\ NASDAQ Depth Data includes National Quotation Data Service 
(individual market maker quotation data), TotalView (depth-of-book 
data for NASDAQ-listed securities), and OpenView (depth-of-book data 
for non-NASDAQ-listed securities) data products.
    \6\ For a more detailed description of the proposed rule change, 
see Notice, supra note 4.
---------------------------------------------------------------------------

     ``Tier 1 Firm'' for purposes of pricing during a 
particular month if it (i) has an average daily volume of 12 million 
shares or more 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 $150,000 or more.
     ``Tier 2 Firm'' for purposes of pricing 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.
     ``Tier 3 Firm'' for purposes of pricing 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.
    Tier 1 Firms would receive a 15% discount on NASDAQ Depth Data 
Product Fees charged to them, Tier 2 Firms would receive a 35% discount 
on NASDAQ Depth Data Product Fees charged to them, and Tier 3 Firms 
would receive a 50% discount on NASDAQ Depth Data Product Fees charged 
to them.\7\ In addition, Tier 1 Firms would receive an increased 
liquidity provider rebate for transactions executed on NASDAQ. 
Specifically, Tier 1 Firms would receive a rebate of $0.0028 per share 
for displayed liquidity and $0.0015 per share for undisplayed 
liquidity, compared to the current liquidity provider credit of $0.0020 
per share of displayed liquidity and $0.0010 per share of non-displayed 
liquidity applicable to these firms. There is no enhancement to the 
liquidity provider credits at this time for Tier 2 and Tier 3 firms.
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    \7\ A NASDAQ member incurs non-professional fees when it offers 
NASDAQ Depth Data to natural persons that are not acting in a 
capacity that subjects them to financial industry regulation (e.g., 
retail customers).
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III. Summary of Comment Letters

    To date, the Commission has received one comment letter on NASDAQ's 
proposed rule change.\8\ In its comment letter, Direct Edge argues, 
among other things, that the proposed rule change should be suspended 
because, in its view, offering discounts on NASDAQ's market data fees 
only to customers who meet specified minimum order flow thresholds and 
provide such data to non-professional users does not meet the ``fair 
and reasonable'' standard for market data fees under the Exchange Act.
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    \8\ See Direct Edge Letter supra, note 4.
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IV. Suspension of SR-NASDAQ-2011-010

    Pursuant to Section 19(b)(3)(C) of the Act,\9\ at any time within 
60 days of the date of filing a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\10\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78s(b)(3)(C).
    \10\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    Under the proposal, the level of fees that a market participant 
would be charged for obtaining NASDAQ market data would be tied to the 
extent of that market participant's trading in the NASDAQ market. In 
addition, the level of transaction rebates that a market participant 
receives for trading on NASDAQ would be tied to the level of NASDAQ 
market data that it purchases. The Commission is concerned that such a 
tying arrangement may not be consistent with the statutory requirements 
applicable to a national securities exchange under the Act, as 
described below. For instance, the Commission is concerned that the 
proposal may fail to satisfy the standards under the Exchange Act and 
the rules thereunder that require market data fees to be equitable, 
fair, and not unreasonably discriminatory.\11\
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    \11\ See infra, notes 17-24.
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.

V. Proceedings To Determine Whether To Approve or Disapprove SR-NASDAQ-
2011-010

    The Commission is instituting proceedings pursuant to Sections

[[Page 6166]]

19(b)(3)(C) \12\ and 19(b)(2) of the Act \13\ to determine whether 
NASDAQ's proposed rule change should be approved or disapproved. 
Pursuant to Section 19(b)(2)(B) of the Act,\14\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
Under the proposal, the level of fees that a market participant would 
be charged for obtaining NASDAQ market data would be tied to the extent 
of that market participant's trading in the NASDAQ market. The Exchange 
Act and the rules thereunder require that market data fees must be 
equitable, fair, reasonable, and not unreasonably discriminatory.\15\ 
In this regard, the Commission has stated previously that the Exchange 
Act precludes exchanges from adopting terms for market data 
distribution that unfairly discriminate by favoring participants in an 
exchange's market or penalizing participants in other markets.\16\ The 
Commission is concerned that NASDAQ's proposal may be inconsistent with 
this standard. The Commission believes that the NASDAQ proposal raises 
significant legal and policy issues. Specifically, the Commission has 
serious concerns as to whether NASDAQ's proposal to tie market data 
fees and execution fees is consistent with the Exchange Act. The 
Commission has similar concerns with respect to NASDAQ's proposal to 
tie the level of transaction rebates paid to market participants to the 
amount of market data they purchase.
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    \12\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
Id. The time for conclusion of the proceedings may be extended for 
up to 60 days if the Commission finds good cause for such extension 
and publishes its reasons for so finding. Id.
    \15\ See infra, notes 17-24.
    \16\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 at 74791 (December 9, 2008) (SR-NYSEArca-2006-21) 
(Order Setting Aside Action by Delegated Authority and Approving 
Proposed Rule Change FRelating to NYSE Arca Data) (``NYSE Arca 
Order''), vacated and remanded by NetCoalition v. SEC No. 09-1042 
(DC Cir. 2010).
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    The Commission believes it is appropriate in the public interest to 
institute disapproval proceedings at this time in view of the 
significant legal and policy issues raised by the proposal. Institution 
of disapproval proceedings does not indicate, however, that the 
Commission has reached any conclusions with respect to the issues 
involved. The sections of the Act and the rules thereunder that are 
applicable to the proposed rule change include:
     Section 6(b)(4) of the Act, which requires that the rules 
of a national securities exchange ``provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities''; \17\
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

     Section 6(b)(5) of the Act, which requires that the rules 
of a national securities exchange be designed to, among other things, 
``remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest'' and not be ``designed to permit 
unfair discrimination between customers, issuers, brokers, or 
dealers''; \18\
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    \18\ 15 U.S.C. 78f(b)(5).
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     Section 6(b)(8) of the Act,\19\ which requires that the 
rules of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate'' in furtherance of the Act; 
\20\
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    \19\ 15 U.S.C. 78f(b)(8).
    \20\ 15 U.S.C. 78f(b)(8).
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     Section 11A(a) of the Act, in which Congress found that it 
is in the public interest and appropriate for the protection of 
investors and the maintenance of fair and orderly markets to assure 
``economically efficient execution of securities transactions,'' ``fair 
competition among brokers and dealers and among exchange markets,'' 
``the availability to brokers, dealers, and investors of information 
with respect to quotations for and transactions in securities,'' and 
``the practicability of brokers executing investors' orders in the best 
market''; \21\
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    \21\ 15 U.S.C. 78k-1(a)(1)(C)(i)-(iv).
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     Rule 603(a)(1) of Regulation NMS, which requires any 
exclusive processor that distributes information with respect to 
quotations for or transactions in an NMS stock, as that term is defined 
in Rule 600(b) of Regulation NMS,\22\ to a securities information 
processor to ``do so on terms that are fair and reasonable''; \23\ and
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    \22\ See 17 CFR 242.600(b)(46) and (47), defining ``NMS stock'' 
as any NMS security other than an option and defining ``NMS 
security'' as any security or class of securities for which 
transaction reports are collected, processed, and made available 
pursuant to an effective transaction reporting plan, or an effective 
national market system plan for reporting transactions in listed 
options.
    \23\ 17 CFR 242.603(a)(1).
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     Rule 603(a)(2) of Regulation NMS, which requires a 
national securities exchange that distributes information with respect 
to quotations for or transactions in an NMS stock to a securities 
information processor to ``do so on terms that are not unreasonably 
discriminatory''.\24\
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    \24\ 17 CFR 242.603(a)(2).
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VI. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by March 21, 2011. Rebuttal 
comments should be submitted by April 4, 2011. Although there do not 
appear to be any issues relevant to approval or disapproval which would 
be facilitated by an oral presentation of views, data, and arguments, 
the Commission will consider, pursuant to Rule 19b-4, any request for 
an opportunity to make an oral presentation.\25\
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    \25\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Acts Amendments of 1975, Report of the 
Senate Committee on Banking, Housing and Urban Affairs to Accompany 
S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
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    The Commission asks that commenters address the merit of NASDAQ's 
statements in support of the proposal, in addition to any other 
comments they may wish to submit about the proposed rule change. 
Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule change, 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/other.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-010 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2011-010. The 
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

[[Page 6167]]

post all comments on the Commission's Internet Web site (https://www.sec.gov/rules/other.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 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 publicly available. All submissions should refer to 
File Number SR-NASDAQ-2011-010 and should be submitted on or before 
March 21, 2011. Rebuttal comments should be submitted by April 4, 2011.

VII. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\26\ that File No. SR-NASDAQ-2011-010, be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
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    \26\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(57) and (58).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-2376 Filed 2-2-11; 8:45 am]
BILLING CODE 8011-01-P
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