Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify an Optional Historical Research and Administrative Report Fee and Related NASDAQ Rule 7022 Revisions, 3940-3945 [2013-00922]

Download as PDF 3940 Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices pmangrum on DSK3VPTVN1PROD with and Professional Customer orders) when such members are responding to crossing orders because a response to a crossing order is akin to taking liquidity, thus the Exchange is proposing to adopt an identical fee for Responses to Crossing Orders in the Non-Penny Pilot Symbols as the Exchange currently charges for taking liquidity in these symbols. The Exchange believes that it is reasonable and equitable to provide a two cent discount to Market Makers on preferenced orders as an incentive for them to quote in the complex order book. Accordingly, Market Makers who add or remove liquidity in the Select Symbols, the Non-Select Penny Pilot Symbols, the Non-Penny Pilot Symbols and SPY from the complex order book will be charged $0.02 less per contract when trading with Priority Customer orders that are preferenced to them. ISE notes that with this proposed fee change, the Exchange will continue to maintain a two cent differential that was previously in place. The complex order pricing employed by the Exchange has proven to be an effective pricing mechanism and attractive to Exchange participants and their customers. The Exchange believes that this proposed rule change will continue to attract additional complex order business in the symbols that are subject of this proposed rule change. Moreover, the Exchange believes that the proposed fees are fair, equitable and not unfairly discriminatory because the proposed fees are consistent with price differentiation that exists today at other options exchanges. Additionally, the Exchange believes it remains an attractive venue for market participants to direct their order flow in the symbols that are subject to this proposed rule change as its fees are competitive with those charged by other exchanges for similar trading strategies. The Exchange operates in a highly competitive market in which market participants can readily direct order flow to another exchange if they deem fee levels at a particular exchange to be excessive. For the reasons noted above, the Exchange believes that the proposed fees are fair, equitable and not unfairly discriminatory. B. Self-Regulatory Organization’s Statement on Burden on Competition ISE believes that the proposed rule change, which will maintain fees that are competitive and are within the range of fees charged by other exchanges for similar orders, will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. Indeed, the VerDate Mar<15>2010 14:19 Jan 16, 2013 Jkt 229001 Exchange believes that the proposed changes will promote competition, as they are designed to allow ISE to better compete for order flow and improve the Exchange’s competitive position. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. 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 15 and subparagraph (f)(2) of Rule 19b–4 thereunder,16 because it establishes a due, fee, or other charge imposed by ISE. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–ISE–2013–01 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–ISE–2013–01. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–ISE– 2013–01 and should be submitted on or before February 7, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–00870 Filed 1–16–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68636; File No. SR– NASDAQ–2013–009] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify an Optional Historical Research and Administrative Report Fee and Related NASDAQ Rule 7022 Revisions January 11, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 17 17 15 15 U.S.C. 78s(b)(3)(A)(ii). 16 17 CFR 240.19b–4(f)(2). PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\17JAN1.SGM 17JAN1 3941 Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices notice is hereby given that on January 10, 2013, The NASDAQ Stock Market LLC (‘‘NASDAQ’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by NASDAQ. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change NASDAQ proposes to separate out and re-categorize certain Historical Research and Administrative Reports into their own subsection under NASDAQ Rule 7022, as well as to modify the fees for such reports. The proposed rule change also deletes references to a particular report no longer available. NASDAQ will charge the revised fee beginning January 2013 for any purchaser who has access to these reports during the month. The text that is being added is italicized and text that is being removed is [bracketed]. * * * * * 7022. Historical Research and Administrative Reports (a) The charge to be paid by the purchaser of an Historical Research Report regarding a Nasdaq security through the NasdaqTrader.com Web site shall be determined in accordance with the following schedule: Number of fields of information in the report 1–10 A. Market Summary Statistics For a day .......................................................................................................................................... For a month, quarter, or year ........................................................................................................... B. Reserved [Index Weighting Information For a day .......................................................................................................................................... C. Nasdaq Issues Summary Statistics For a security for a day .................................................................................................................... For a security for a month, quarter, or year ..................................................................................... For all issues for a day ..................................................................................................................... For all issues for a month, quarter or year ...................................................................................... D. Intra-Day Quote and Intra-Day Time and Sales Data For a security and/or a market participant for a day ....................................................................... For all market participants for a day or for all securities for a day .................................................. E. Member Trading Activity Reports For a security and a market participant for a day ............................................................................ For all securities for a market participant for a day ......................................................................... F. Nasdaq may, in its discretion, choose to make a report that purchasers wish to obtain every trading day available on a subscription discount basis. In such cases, the price for a subscription to receive a report every trading day in a month shall be the applicable rate to receive the report for a day times 20; the price for a subscription to receive a report every trading day in a quarter shall be the applicable rate to receive the report for a day times 60; and the price for a subscription to receive a report every trading day in a year shall be the applicable rate to receive the report for a day times 240. 11–15 16 or more $10 $15 $15 $20 $20 $25 $15 $30 $45] $10 $20 $50 $100 $15 $30 $75 $150 $20 $40 $100 $200 $15 $30 $25 $40 $35 $50 $15 $30 $25 $50 $50 $75 (b) The charge to be paid by the purchaser of an Historical Research Report regarding a Nasdaq security that wishes to obtain a license to redistribute the information contained in the report to subscribers shall be determined in accordance with the following schedule: Number of subscribers 1–500 pmangrum on DSK3VPTVN1PROD with A. Market Summary Statistics More often than once a month ............................................................................. Once a month, quarter, or year ............................................................................ B. Reserved [Index Weighting Information More often than once a month ............................................................................. Once a month, quarter, or year] ........................................................................... C. Nasdaq Issues Summary Statistics More often than once a month ............................................................................. Once a month, quarter, or year ............................................................................ D. Intra-Day Quote and Intra-Day Time and Sales Data For a security and/or a market participant for a day ............................................ For all market participants for a day or for all securities for a day ...................... (c) No change. (d) The charge to be paid by the purchaser for a license to receive Daily List and Fundamental Data information is $1,500 per month for any purchaser who has access to these reports during the month. * * * VerDate Mar<15>2010 * * 14:19 Jan 16, 2013 Jkt 229001 Fmt 4703 Sfmt 4703 5,000– 9,999 10,000+ $350 $175 $450 $225 $550 $275 $750 $375 $300 $275 $1,500 $550 $2,500 $600 $3,500 $750 $5,000 $1,000 $500 $250 $600 $300 $700 $350 $800 $400 $1,000 $500 $200 $1,000 $300 $1,500 $400 $2,500 $500 $3,500 $700 $5,000 In its filing with the Commission, NASDAQ included statements concerning the purpose of and basis for the proposed rule change and discussed Frm 00064 1,000– 4999 $250 $125 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change PO 00000 501–999 any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. NASDAQ has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. E:\FR\FM\17JAN1.SGM 17JAN1 3942 Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices pmangrum on DSK3VPTVN1PROD with A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose NASDAQ proposes to separate out and re-categorize certain Historical Research and Administrative Reports into their own subsection under NASDAQ Rule 7022, as well as to modify the fees for such reports. Specifically, the historical research and administrative reports categorized as Nasdaq Issues Summary Statistics under NASDAQ Rule 7022(b) C. would be modified by removing the Daily List and Fundamental Data components from inclusion within this category. The Daily List and Fundamental Data components now will be offered to purchasers that opt to pay a license fee under new subsection (d) to NASDAQ Rule 7022. NASDAQ will charge the revised fee beginning January 2013 for any purchaser who has access to these reports during the month. The pricing for any other reports contained within the Nasdaq Issues Summary Statistics category will remain unchanged and will continue to include short interest information and in the future may also include other information that properly falls within the category of Nasdaq Issues Summary Statistics. The current pricing schedule for Nasdaq Issues Summary Statistics reports reflects the price for each component report (Short Interest, Daily List and Fundamental Data) and not the aggregate price to receive all of the reports. The pricing for the historical research reports (Daily List and Fundamental Data) covered by new NASDAQ Rule 7022(d) will total $1,500 per month for Subscribers and will include both the Daily List and Fundamental Data component reports. The Daily List and Fundamental Data reports will not be offered separately. The purchase of historical research and administrative reports is completely optional and customers may choose to receive this information through an industry vendor rather than directly from NASDAQ. NASDAQ has not made a pricing change affecting the Daily List and Fundamental Data component reports for over ten years. During this time, NASDAQ has enhanced the Daily List and Fundamental Data component reports through the provision of additional access options, the improvement of web functionality and the inclusion of supplementary equity information, but has not increased the associated fee for such reports. In addition, the re-categorization will reduce the customer’s administrative VerDate Mar<15>2010 14:19 Jan 16, 2013 Jkt 229001 burden through the elimination of the current pricing tier for the Daily List and Fundamental Data reports. Subscribers that previously needed to report the number of users would no longer need to count the specific number of users receiving access to this data and NASDAQ would no longer need to audit and approve the reporting of the tiers for these reports. Instead, Subscribers would now simply pay a flat fee without the need to count. Separating out the Daily List and Fundamental Data reports from the Nasdaq Issues Summary Statistics reports will result in a price increase for most purchasers of this new Daily List and Fundamental Data entitlement, but will enable certain purchasers to see a price decrease. In certain circumstances, firms pay upwards of $2,000 for both reports if distributed to a large enough audience. However, a firm distributing monthly to 501 Subscribers for Fundamental Data and 10,000 Subscribers for Daily List would see a price decrease. The fee to receive the Short Interest report under NASDAQ Rule 7022(b) C. remains unchanged. Additionally, NASDAQ Rule 7022(a) B. and NASDAQ Rule 7022(b) B. will be deleted because such index data information is no longer required to be included in the NASDAQ rulebook. The Commission has agreed that this data is not an exchange service or product, but rather a service provided by a NASDAQ data subsidiary acting as a vendor.3 2. Statutory Basis NASDAQ believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,4 in general, and with Section 6(b)(4) and 6(b)(5) of the Act,5 in particular, in that it provides an equitable allocation of reasonable fees among Subscribers and recipients of NASDAQ data and is not designed to permit unfair discrimination between them. In adopting Regulation NMS, the Commission granted self-regulatory organizations and broker-dealers increased authority and flexibility to offer new and unique market data to the public. The Commission concluded that Regulation NMS—by deregulating the market in proprietary data—would itself further the Act’s goals of facilitating efficiency and competition: [E]fficiency is promoted when brokerdealers who do not need the data beyond the prices, sizes, market center identifications of 3 See Securities Exchange Act Release No. 58897 (Nov. 3, 2008), 73 FR 66952 (Nov. 3, 2008). [sic] 4 15 U.S.C. 78f. 5 15 U.S.C. 78f(b)(4) and (5). PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 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.6 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. On July 21, 2010, President Barack Obama signed into law H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (‘‘Dodd-Frank Act’’), which amended Section 19 of the Act. Among other things, Section 916 of the Dodd-Frank Act amended paragraph (A) of Section 19(b)(3) of the Act by inserting the phrase ‘‘on any person, whether or not the person is a member of the selfregulatory organization’’ after ‘‘due, fee or other charge imposed by the selfregulatory organization.’’ As a result, all self-regulatory organization (‘‘SRO’’) rule proposals establishing or changing dues, fees, or other charges are immediately effective upon filing regardless of whether such dues, fees, or other charges are imposed on members of the SRO, non-members, or both. Section 916 further amended paragraph (C) of Section 19(b)(3) of the Act to read, in pertinent part, ‘‘At any time within the 60-day period beginning on the date of filing of such a proposed rule change in accordance with the provisions of paragraph (1) [of Section 19(b)], the Commission summarily may temporarily suspend the change in the rules of the self-regulatory organization made thereby, if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title. If the Commission takes such action, the Commission shall institute proceedings under paragraph (2)(B) [of Section 19(b)] to determine whether the proposed rule should be approved or disapproved.’’ The decision of the United States Court of Appeals for the District of Columbia Circuit in NetCoalition v. SEC, No. 09–1042 (D.C. Cir. 2010), although reviewing a Commission decision made prior to the effective date 6 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). E:\FR\FM\17JAN1.SGM 17JAN1 pmangrum on DSK3VPTVN1PROD with Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices of the Dodd-Frank Act, upheld the Commission’s reliance upon competitive markets to set reasonable and equitably allocated fees for market data. ‘‘In fact, the legislative history indicates that the Congress intended that the market system ‘evolve through the interplay of competitive forces as unnecessary regulatory restrictions are removed’ and that the SEC wield its regulatory power ‘in those situations where competition may not be sufficient,’ such as in the creation of a ‘consolidated transactional reporting system.’ ’’ NetCoalition, at 15 (quoting H.R. Rep. No. 94–229, at 92 (1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323). For the reasons stated above, NASDAQ believes that the allocation of the proposed fee is fair and equitable in accordance with Section 6(b)(4) of the Act, and not unreasonably discriminatory in accordance with Section 6(b)(5) of the Act. As described above, the proposed fee is based on pricing conventions and distinctions that exist in NASDAQ’s current fee schedule, and the fee schedules of other exchanges. These distinctions are each based on principles of fairness and equity that have helped for many years to maintain fair, equitable, and not unreasonably discriminatory fees, and that apply with equal or greater force to the current proposal. As described in greater detail below, if NASDAQ has calculated improperly and the market deems the proposed fees to be unfair, inequitable, or unreasonably discriminatory, firms can discontinue the use of their data because the proposed product is entirely optional to all parties. Firms are not required to purchase data and NASDAQ is not required to make data available or to offer specific pricing alternatives for potential purchases. NASDAQ can discontinue offering a pricing alternative (as it has in the past) and firms can discontinue their use at any time and for any reason (as they often do), including due to their assessment of the reasonableness of fees charged. NASDAQ continues to establish and revise pricing policies aimed at increasing fairness and equitable allocation of fees among Subscribers. NASDAQ believes that periodically it must adjust prices to reflect more accurately the value of its products and the investments made to enhance them. NASDAQ has reviewed the underlying reports (Daily List and Fundamental Data) in the Historical Research and Administrative Reports with this in mind. Given that these particular fees have not been increased for over ten years, NASDAQ believes it is an VerDate Mar<15>2010 14:19 Jan 16, 2013 Jkt 229001 appropriate time to adjust the fee for the Daily List and Fundamental Data reports to more accurately reflect their value, as well as the investments made to enhance them through improved data access and the addition of supplementary security data. B. Self-Regulatory Organization’s Statement on Burden on Competition NASDAQ does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. Notwithstanding its determination that the Commission may rely upon competition to establish fair and equitably allocated fees for market data, the NetCoalition court found that the Commission had not, in that case, compiled a record that adequately supported its conclusion that the market for the data at issue in the case was competitive. NASDAQ believes that a record may readily be established to demonstrate the competitive nature of the market in question. There is intense competition between trading platforms that provide transaction execution and routing services and proprietary data products. Transaction execution and proprietary data products are complementary in that market data is both an input and a byproduct of the execution service. In fact, market data and trade execution are a paradigmatic example of joint products with joint costs. Data products are valuable to many end Subscribers only insofar as they provide information that end Subscribers expect will assist them or their customers in making trading decisions. The costs of producing market data include not only the costs of the data distribution infrastructure, but also the costs of designing, maintaining, and operating the exchange’s transaction execution platform and the cost of regulating the exchange to ensure its fair operation and maintain investor confidence. The total return that a trading platform earns reflects the revenues it receives from both products and the joint costs it incurs. Moreover, an exchange’s customers view the costs of transaction executions and of data as a unified cost of doing business with the exchange. A broker-dealer will direct orders to a particular exchange only if the expected revenues from executing trades on the exchange exceed net transaction execution costs and the cost of data that the broker-dealer chooses to buy to support its trading decisions (or those of its customers). The choice of data products is, in turn, a product of the value of the products in making PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 3943 profitable trading decisions. If the cost of the product exceeds its expected value, the broker-dealer will choose not to buy it. Moreover, as a broker-dealer chooses to direct fewer orders to a particular exchange, the value of the product to that broker-dealer decreases, for two reasons. First, the product will contain less information, because executions of the broker-dealer’s orders will not be reflected in it. Second, and perhaps more important, the product will be less valuable to that brokerdealer because it does not provide information about the venue to which it is directing its orders. Data from the competing venue to which the brokerdealer is directing orders will become correspondingly more valuable. Thus, an increase in the fees charged for either transactions or data has the potential to impair revenues from both products. ‘‘No one disputes that competition for order flow is ‘fierce’.’’ NetCoalition at 24. However, the existence of fierce competition for order flow implies a high degree of price sensitivity on the part of broker-dealers with order flow, since they may readily reduce costs by directing orders toward the lowest-cost trading venues. A broker-dealer that shifted its order flow from one platform to another in response to order execution price differentials would both reduce the value of that platform’s market data and reduce its own need to consume data from the disfavored platform. Similarly, if a platform increases its market data fees, the change will affect the overall cost of doing business with the platform, and affected broker-dealers will assess whether they can lower their trading costs by directing orders elsewhere and thereby lessening the need for the more expensive data. Analyzing the cost of market data distribution in isolation from the cost of all of the inputs supporting the creation of market data will inevitably underestimate the cost of the data. Thus, because it is impossible to create data without a fast, technologically robust, and well-regulated execution system, system costs and regulatory costs affect the price of market data. It would be equally misleading, however, to attribute all of the exchange’s costs to the market data portion of an exchange’s joint product. Rather, all of the exchange’s costs are incurred for the unified purposes of attracting order flow, executing and/or routing orders, and generating and selling data about market activity. The total return that an exchange earns reflects the revenues it receives from the joint products and the total costs of the joint products. E:\FR\FM\17JAN1.SGM 17JAN1 pmangrum on DSK3VPTVN1PROD with 3944 Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices Competition among trading platforms can be expected to constrain the aggregate return each platform earns from the sale of its joint products, but different platforms may choose from a range of possible, and equally reasonable, pricing strategies as the means of recovering total costs. For example, some platforms may choose to pay rebates to attract orders, charge relatively low prices for market information (or provide information free of charge) and charge relatively high prices for accessing posted liquidity. Other platforms may choose a strategy of paying lower rebates (or no rebates) to attract orders, setting relatively high prices for market information, and setting relatively low prices for accessing posted liquidity. In this environment, there is no economic basis for regulating maximum prices for one of the joint products in an industry in which suppliers face competitive constraints with regard to the joint offering. This would be akin to strictly regulating the price that an automobile manufacturer can charge for car sound systems despite the existence of a highly competitive market for cars and the availability of after-market alternatives to the manufacturer-supplied system. The market for market data products is competitive and inherently contestable because there is fierce competition for the inputs necessary to the creation of proprietary data and strict pricing discipline for the proprietary products themselves. Numerous exchanges compete with each other for listings, trades, and market data itself, providing virtually limitless opportunities for entrepreneurs who wish to produce and distribute their own market data. This proprietary data is produced by each individual exchange, as well as other entities, in a vigorously competitive market. Broker-dealers currently have numerous alternative venues for their order flow, including thirteen SRO markets, as well as internalizing brokerdealers (‘‘BDs’’) and various forms of alternative trading systems (‘‘ATSs’’), including dark pools and electronic communication networks (‘‘ECNs’’). Each SRO market competes to produce transaction reports via trade executions, and two FINRA-regulated Trade Reporting Facilities (‘‘TRFs’’) compete to attract internalized transaction reports. Competitive markets for order flow, executions, and transaction reports provide pricing discipline for the inputs of proprietary data products. The large number of SROs, TRFs, BDs, and ATSs that currently produce proprietary data or are currently capable of producing it provides further pricing VerDate Mar<15>2010 14:19 Jan 16, 2013 Jkt 229001 discipline for proprietary data products. Each SRO, TRF, ATS, and BD is currently permitted to produce proprietary data products, and many currently do or have announced plans to do so, including NASDAQ, New York Stock Exchange LLC (‘‘NYSE’’), NYSE MKT LLC, NYSE Arca LLC, and BATS Exchange, Inc. (‘‘BATS’’). Any ATS or BD can combine with any other ATS, BD, or multiple ATSs or BDs to produce joint proprietary data products. Additionally, order routers and market data vendors can facilitate single or multiple broker-dealers’ production of proprietary data products. The potential sources of proprietary products are virtually limitless. The fact that proprietary data from ATSs, BDs, and vendors can by-pass SROs is significant in two respects. First, non-SROs can compete directly with SROs for the production and sale of proprietary data products, as BATS and Arca did before registering as exchanges by publishing data on the Internet. Second, because a single order or transaction report can appear in an SRO proprietary product, a non-SRO proprietary product, or both, the data available in proprietary products is exponentially greater than the actual number of orders and transaction reports that exist in the marketplace. Market data vendors provide another form of price discipline for proprietary data products because they control the primary means of access to end Subscribers. Vendors impose price restraints based upon their business models. For example, vendors such as Bloomberg and Thomson Reuters that assess a surcharge on data they sell may refuse to offer proprietary products that end Subscribers will not purchase in sufficient numbers. Internet portals, such as Google, impose a discipline by providing only data that will enable them to attract ‘‘eyeballs’’ that contribute to their advertising revenue. Retail broker-dealers, such as Schwab and Fidelity, offer their customers proprietary data only if it promotes trading and generates sufficient commission revenue. Although the business models may differ, these vendors’ pricing discipline is the same: they can simply refuse to purchase any proprietary data product that fails to provide sufficient value. NASDAQ and other producers of proprietary data products must understand and respond to these varying business models and pricing disciplines in order to market proprietary data products successfully. In addition to the competition and price discipline described above, the market for proprietary data products is also highly contestable because market PO 00000 Frm 00067 Fmt 4703 Sfmt 4703 entry is rapid, inexpensive, and profitable. The history of electronic trading is replete with examples of entrants that swiftly grew into some of the largest electronic trading platforms and proprietary data producers: Archipelago, Bloomberg Tradebook, Island, RediBook, Attain, TracECN, BATS Trading and Direct Edge. A proliferation of dark pools and other ATSs operate profitably with fragmentary shares of consolidated market volume. Regulation NMS, by deregulating the market for proprietary data, has increased the contestability of that market. While broker-dealers have previously published their proprietary data individually, Regulation NMS encourages market data vendors and broker-dealers to produce proprietary products cooperatively in a manner never before possible. Multiple market data vendors already have the capability to aggregate data and disseminate it on a profitable scale, including Bloomberg, and Thomson Reuters. The vigor of competition for information is significant. NASDAQ has made a determination to adjust the fees associated with this product in order to reflect more accurately the value of its products and the investments made to enhance them, as well as to keep pace with changes in the industry and evolving customer needs. This product is entirely optional and is geared towards attracting new customers, as well as retaining existing customers. The Exchange has witnessed competitors creating new products and innovative pricing in this space over the course of the past year. NASDAQ continues to see firms challenge its pricing on the basis of the Exchange’s explicit fees being higher than the zeropriced fees from other competitors such as BATS. In all cases, firms make decisions on how much and what types of data to consume on the basis of the total cost of interacting with NASDAQ or other exchanges. Of course, the explicit data fees are but one factor in a total platform analysis. Some competitors have lower transactions fees and higher data fees, and others are vice versa. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. E:\FR\FM\17JAN1.SGM 17JAN1 Federal Register / Vol. 78, No. 12 / Thursday, January 17, 2013 / Notices 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.7 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2013–009 on the subject line. pmangrum on DSK3VPTVN1PROD with 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–2013–009. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the 7 15 8 17 U.S.C. 78s(b)(3)(a)(ii). CFR 200.30–3(a)(12). VerDate Mar<15>2010 14:19 Jan 16, 2013 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 the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NASDAQ–2013–009 and should be submitted on or before February 7, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–00922 Filed 1–16–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68624; File No. SR– NASDAQ–2013–002] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Fees for Certain Co-Location Services January 11, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 2 thereunder, notice is hereby given that on January 2, 2013, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the NASDAQ. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The NASDAQ Stock Market LLC proposes to reduce the fees assessed under NASDAQ Rule 7034 for certain 1 15 2 17 Jkt 229001 PO 00000 U.S.C. 78s(b)(1). CFR 240.19b–4. Frm 00068 Fmt 4703 3945 co-location services. While the changes proposed herein are effective upon filing, the Exchange has designated that the amendments be operative on January 2, 2013. The text of the proposed rule change is available on the Exchange’s Web site at http://nasdaq.cchwallstreet.com, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend NASDAQ Rule 7034 to reduce the monthly recurring cabinet (‘‘MRC’’) fees assessed for the installation of certain new co-location cabinets. The reduced MRC fees will apply to new cabinets ordered by customers using the CoLo Console 3 during the months of January and February of 2013, provided that such cabinets are fully operational by May 31, 2013. The reduced fee shall apply to any cabinet that increases the number of dedicated cabinets beyond the total number dedicated to that customer as of December 31, 2012 (‘‘Baseline Number’’), for so long as the total number of dedicated cabinets exceeds that customer’s Baseline Number. The reduced MRC fees will apply for a period of 24 months from the date the new cabinet becomes fully operational under NASDAQ rules, provided that the customer’s total number of cabinets continues to exceed the Baseline Number. The Exchange proposes to reduce the applicable fees as follows: 3 The ‘‘CoLo Console’’ is NASDAQ’s web-based ordering tool, and it is the exclusive means for ordering colocation services. Sfmt 4703 E:\FR\FM\17JAN1.SGM 17JAN1

Agencies

[Federal Register Volume 78, Number 12 (Thursday, January 17, 2013)]
[Notices]
[Pages 3940-3945]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00922]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68636; File No. SR-NASDAQ-2013-009]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify an Optional Historical Research and Administrative Report Fee 
and Related NASDAQ Rule 7022 Revisions

January 11, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\

[[Page 3941]]

notice is hereby given that on January 10, 2013, The NASDAQ Stock 
Market LLC (``NASDAQ'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by NASDAQ. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes to separate out and re-categorize certain 
Historical Research and Administrative Reports into their own 
subsection under NASDAQ Rule 7022, as well as to modify the fees for 
such reports. The proposed rule change also deletes references to a 
particular report no longer available. NASDAQ will charge the revised 
fee beginning January 2013 for any purchaser who has access to these 
reports during the month. The text that is being added is italicized 
and text that is being removed is [bracketed].
* * * * *

7022. Historical Research and Administrative Reports

    (a) The charge to be paid by the purchaser of an Historical 
Research Report regarding a Nasdaq security through the 
NasdaqTrader.com Web site shall be determined in accordance with the 
following schedule:

------------------------------------------------------------------------
                                     Number of fields of information in
                                                the  report
                                  --------------------------------------
                                       1-10        11-15      16 or more
------------------------------------------------------------------------
A. Market Summary Statistics
    For a day....................          $10          $15          $20
    For a month, quarter, or year          $15          $20          $25
B. Reserved [Index Weighting
 Information
    For a day....................          $15          $30         $45]
C. Nasdaq Issues Summary
 Statistics
    For a security for a day.....          $10          $15          $20
    For a security for a month,            $20          $30          $40
     quarter, or year............
    For all issues for a day.....          $50          $75         $100
    For all issues for a month,           $100         $150         $200
     quarter or year.............
D. Intra-Day Quote and Intra-Day
 Time and Sales Data
    For a security and/or a                $15          $25          $35
     market participant for a day
    For all market participants            $30          $40          $50
     for a day or for all
     securities for a day........
E. Member Trading Activity
 Reports
    For a security and a market            $15          $25          $50
     participant for a day.......
    For all securities for a               $30          $50          $75
     market participant for a day
------------------------------------------------------------------------

    F. Nasdaq may, in its discretion, choose to make a report that 
purchasers wish to obtain every trading day available on a 
subscription discount basis. In such cases, the price for a 
subscription to receive a report every trading day in a month shall 
be the applicable rate to receive the report for a day times 20; the 
price for a subscription to receive a report every trading day in a 
quarter shall be the applicable rate to receive the report for a day 
times 60; and the price for a subscription to receive a report every 
trading day in a year shall be the applicable rate to receive the 
report for a day times 240.
    (b) The charge to be paid by the purchaser of an Historical 
Research Report regarding a Nasdaq security that wishes to obtain a 
license to redistribute the information contained in the report to 
subscribers shall be determined in accordance with the following 
schedule:

----------------------------------------------------------------------------------------------------------------
                                                                           Number of subscribers
                                                         -------------------------------------------------------
                                                            1-500     501-999     1,000-     5,000-     10,000+
-----------------------------------------------------------------------------------4999-------9,999-------------
A. Market Summary Statistics
    More often than once a month........................       $250       $350       $450        $550       $750
    Once a month, quarter, or year......................       $125       $175       $225        $275       $375
B. Reserved [Index Weighting Information
    More often than once a month........................       $300     $1,500     $2,500      $3,500     $5,000
    Once a month, quarter, or year].....................       $275       $550       $600        $750     $1,000
C. Nasdaq Issues Summary Statistics
    More often than once a month........................       $500       $600       $700        $800     $1,000
    Once a month, quarter, or year......................       $250       $300       $350        $400       $500
D. Intra-Day Quote and Intra-Day Time and Sales Data
    For a security and/or a market participant for a day       $200       $300       $400        $500       $700
    For all market participants for a day or for all         $1,000     $1,500     $2,500      $3,500     $5,000
     securities for a day...............................
----------------------------------------------------------------------------------------------------------------

    (c) No change.
    (d) The charge to be paid by the purchaser for a license to 
receive Daily List and Fundamental Data information is $1,500 per 
month for any purchaser who has access to these reports during the 
month.
* * * * *

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 and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. NASDAQ has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

[[Page 3942]]

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

1. Purpose
    NASDAQ proposes to separate out and re-categorize certain 
Historical Research and Administrative Reports into their own 
subsection under NASDAQ Rule 7022, as well as to modify the fees for 
such reports. Specifically, the historical research and administrative 
reports categorized as Nasdaq Issues Summary Statistics under NASDAQ 
Rule 7022(b) C. would be modified by removing the Daily List and 
Fundamental Data components from inclusion within this category. The 
Daily List and Fundamental Data components now will be offered to 
purchasers that opt to pay a license fee under new subsection (d) to 
NASDAQ Rule 7022. NASDAQ will charge the revised fee beginning January 
2013 for any purchaser who has access to these reports during the 
month.
    The pricing for any other reports contained within the Nasdaq 
Issues Summary Statistics category will remain unchanged and will 
continue to include short interest information and in the future may 
also include other information that properly falls within the category 
of Nasdaq Issues Summary Statistics. The current pricing schedule for 
Nasdaq Issues Summary Statistics reports reflects the price for each 
component report (Short Interest, Daily List and Fundamental Data) and 
not the aggregate price to receive all of the reports. The pricing for 
the historical research reports (Daily List and Fundamental Data) 
covered by new NASDAQ Rule 7022(d) will total $1,500 per month for 
Subscribers and will include both the Daily List and Fundamental Data 
component reports. The Daily List and Fundamental Data reports will not 
be offered separately.
    The purchase of historical research and administrative reports is 
completely optional and customers may choose to receive this 
information through an industry vendor rather than directly from 
NASDAQ. NASDAQ has not made a pricing change affecting the Daily List 
and Fundamental Data component reports for over ten years. During this 
time, NASDAQ has enhanced the Daily List and Fundamental Data component 
reports through the provision of additional access options, the 
improvement of web functionality and the inclusion of supplementary 
equity information, but has not increased the associated fee for such 
reports.
    In addition, the re-categorization will reduce the customer's 
administrative burden through the elimination of the current pricing 
tier for the Daily List and Fundamental Data reports. Subscribers that 
previously needed to report the number of users would no longer need to 
count the specific number of users receiving access to this data and 
NASDAQ would no longer need to audit and approve the reporting of the 
tiers for these reports. Instead, Subscribers would now simply pay a 
flat fee without the need to count.
    Separating out the Daily List and Fundamental Data reports from the 
Nasdaq Issues Summary Statistics reports will result in a price 
increase for most purchasers of this new Daily List and Fundamental 
Data entitlement, but will enable certain purchasers to see a price 
decrease. In certain circumstances, firms pay upwards of $2,000 for 
both reports if distributed to a large enough audience. However, a firm 
distributing monthly to 501 Subscribers for Fundamental Data and 10,000 
Subscribers for Daily List would see a price decrease. The fee to 
receive the Short Interest report under NASDAQ Rule 7022(b) C. remains 
unchanged.
    Additionally, NASDAQ Rule 7022(a) B. and NASDAQ Rule 7022(b) B. 
will be deleted because such index data information is no longer 
required to be included in the NASDAQ rulebook. The Commission has 
agreed that this data is not an exchange service or product, but rather 
a service provided by a NASDAQ data subsidiary acting as a vendor.\3\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 58897 (Nov. 3, 
2008), 73 FR 66952 (Nov. 3, 2008). [sic]
---------------------------------------------------------------------------

2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\4\ in general, and with Section 
6(b)(4) and 6(b)(5) of the Act,\5\ in particular, in that it provides 
an equitable allocation of reasonable fees among Subscribers and 
recipients of NASDAQ data and is not designed to permit unfair 
discrimination between them. In adopting Regulation NMS, the Commission 
granted self-regulatory organizations and broker-dealers increased 
authority and flexibility to offer new and unique market data to the 
public.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Commission concluded that Regulation NMS--by deregulating the 
market in proprietary data--would itself further the Act's goals of 
facilitating efficiency and competition:

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data. The Commission also believes that 
efficiency is promoted when broker-dealers may choose to receive 
(and pay for) additional market data based on their own internal 
analysis of the need for such data.\6\
---------------------------------------------------------------------------

    \6\ 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.
    On July 21, 2010, President Barack Obama signed into law H.R. 4173, 
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 
(``Dodd-Frank Act''), which amended Section 19 of the Act. Among other 
things, Section 916 of the Dodd-Frank Act amended paragraph (A) of 
Section 19(b)(3) of the Act by inserting the phrase ``on any person, 
whether or not the person is a member of the self-regulatory 
organization'' after ``due, fee or other charge imposed by the self-
regulatory organization.'' As a result, all self-regulatory 
organization (``SRO'') rule proposals establishing or changing dues, 
fees, or other charges are immediately effective upon filing regardless 
of whether such dues, fees, or other charges are imposed on members of 
the SRO, non-members, or both. Section 916 further amended paragraph 
(C) of Section 19(b)(3) of the Act to read, in pertinent part, ``At any 
time within the 60-day period beginning on the date of filing of such a 
proposed rule change in accordance with the provisions of paragraph (1) 
[of Section 19(b)], the Commission summarily may temporarily suspend 
the change in the rules of the self-regulatory organization made 
thereby, if it appears to the Commission that such action is necessary 
or appropriate in the public interest, for the protection of investors, 
or otherwise in furtherance of the purposes of this title. If the 
Commission takes such action, the Commission shall institute 
proceedings under paragraph (2)(B) [of Section 19(b)] to determine 
whether the proposed rule should be approved or disapproved.''
    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition v. SEC, No. 09-1042 (D.C. Cir. 
2010), although reviewing a Commission decision made prior to the 
effective date

[[Page 3943]]

of the Dodd-Frank Act, upheld the Commission's reliance upon 
competitive markets to set reasonable and equitably allocated fees for 
market data. ``In fact, the legislative history indicates that the 
Congress intended that the market system `evolve through the interplay 
of competitive forces as unnecessary regulatory restrictions are 
removed' and that the SEC wield its regulatory power `in those 
situations where competition may not be sufficient,' such as in the 
creation of a `consolidated transactional reporting system.' '' 
NetCoalition, at 15 (quoting H.R. Rep. No. 94-229, at 92 (1975), as 
reprinted in 1975 U.S.C.C.A.N. 321, 323).
    For the reasons stated above, NASDAQ believes that the allocation 
of the proposed fee is fair and equitable in accordance with Section 
6(b)(4) of the Act, and not unreasonably discriminatory in accordance 
with Section 6(b)(5) of the Act. As described above, the proposed fee 
is based on pricing conventions and distinctions that exist in NASDAQ's 
current fee schedule, and the fee schedules of other exchanges. These 
distinctions are each based on principles of fairness and equity that 
have helped for many years to maintain fair, equitable, and not 
unreasonably discriminatory fees, and that apply with equal or greater 
force to the current proposal.
    As described in greater detail below, if NASDAQ has calculated 
improperly and the market deems the proposed fees to be unfair, 
inequitable, or unreasonably discriminatory, firms can discontinue the 
use of their data because the proposed product is entirely optional to 
all parties. Firms are not required to purchase data and NASDAQ is not 
required to make data available or to offer specific pricing 
alternatives for potential purchases. NASDAQ can discontinue offering a 
pricing alternative (as it has in the past) and firms can discontinue 
their use at any time and for any reason (as they often do), including 
due to their assessment of the reasonableness of fees charged. NASDAQ 
continues to establish and revise pricing policies aimed at increasing 
fairness and equitable allocation of fees among Subscribers.
    NASDAQ believes that periodically it must adjust prices to reflect 
more accurately the value of its products and the investments made to 
enhance them. NASDAQ has reviewed the underlying reports (Daily List 
and Fundamental Data) in the Historical Research and Administrative 
Reports with this in mind. Given that these particular fees have not 
been increased for over ten years, NASDAQ believes it is an appropriate 
time to adjust the fee for the Daily List and Fundamental Data reports 
to more accurately reflect their value, as well as the investments made 
to enhance them through improved data access and the addition of 
supplementary security data.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. Notwithstanding its 
determination that the Commission may rely upon competition to 
establish fair and equitably allocated fees for market data, the 
NetCoalition court found that the Commission had not, in that case, 
compiled a record that adequately supported its conclusion that the 
market for the data at issue in the case was competitive. NASDAQ 
believes that a record may readily be established to demonstrate the 
competitive nature of the market in question.
    There is intense competition between trading platforms that provide 
transaction execution and routing services and proprietary data 
products. Transaction execution and proprietary data products are 
complementary in that market data is both an input and a byproduct of 
the execution service. In fact, market data and trade execution are a 
paradigmatic example of joint products with joint costs. Data products 
are valuable to many end Subscribers only insofar as they provide 
information that end Subscribers expect will assist them or their 
customers in making trading decisions.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. The total return that a 
trading platform earns reflects the revenues it receives from both 
products and the joint costs it incurs. Moreover, an exchange's 
customers view the costs of transaction executions and of data as a 
unified cost of doing business with the exchange. A broker-dealer will 
direct orders to a particular exchange only if the expected revenues 
from executing trades on the exchange exceed net transaction execution 
costs and the cost of data that the broker-dealer chooses to buy to 
support its trading decisions (or those of its customers). The choice 
of data products is, in turn, a product of the value of the products in 
making profitable trading decisions. If the cost of the product exceeds 
its expected value, the broker-dealer will choose not to buy it. 
Moreover, as a broker-dealer chooses to direct fewer orders to a 
particular exchange, the value of the product to that broker-dealer 
decreases, for two reasons. First, the product will contain less 
information, because executions of the broker-dealer's orders will not 
be reflected in it. Second, and perhaps more important, the product 
will be less valuable to that broker-dealer because it does not provide 
information about the venue to which it is directing its orders. Data 
from the competing venue to which the broker-dealer is directing orders 
will become correspondingly more valuable.
    Thus, an increase in the fees charged for either transactions or 
data has the potential to impair revenues from both products. ``No one 
disputes that competition for order flow is `fierce'.'' NetCoalition at 
24. However, the existence of fierce competition for order flow implies 
a high degree of price sensitivity on the part of broker-dealers with 
order flow, since they may readily reduce costs by directing orders 
toward the lowest-cost trading venues. A broker-dealer that shifted its 
order flow from one platform to another in response to order execution 
price differentials would both reduce the value of that platform's 
market data and reduce its own need to consume data from the disfavored 
platform. Similarly, if a platform increases its market data fees, the 
change will affect the overall cost of doing business with the 
platform, and affected broker-dealers will assess whether they can 
lower their trading costs by directing orders elsewhere and thereby 
lessening the need for the more expensive data.
    Analyzing the cost of market data distribution in isolation from 
the cost of all of the inputs supporting the creation of market data 
will inevitably underestimate the cost of the data. Thus, because it is 
impossible to create data without a fast, technologically robust, and 
well-regulated execution system, system costs and regulatory costs 
affect the price of market data. It would be equally misleading, 
however, to attribute all of the exchange's costs to the market data 
portion of an exchange's joint product. Rather, all of the exchange's 
costs are incurred for the unified purposes of attracting order flow, 
executing and/or routing orders, and generating and selling data about 
market activity. The total return that an exchange earns reflects the 
revenues it receives from the joint products and the total costs of the 
joint products.

[[Page 3944]]

    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products, but different platforms may choose from a range of possible, 
and equally reasonable, pricing strategies as the means of recovering 
total costs. For example, some platforms may choose to pay rebates to 
attract orders, charge relatively low prices for market information (or 
provide information free of charge) and charge relatively high prices 
for accessing posted liquidity. Other platforms may choose a strategy 
of paying lower rebates (or no rebates) to attract orders, setting 
relatively high prices for market information, and setting relatively 
low prices for accessing posted liquidity. In this environment, there 
is no economic basis for regulating maximum prices for one of the joint 
products in an industry in which suppliers face competitive constraints 
with regard to the joint offering. This would be akin to strictly 
regulating the price that an automobile manufacturer can charge for car 
sound systems despite the existence of a highly competitive market for 
cars and the availability of after-market alternatives to the 
manufacturer-supplied system.
    The market for market data products is competitive and inherently 
contestable because there is fierce competition for the inputs 
necessary to the creation of proprietary data and strict pricing 
discipline for the proprietary products themselves. Numerous exchanges 
compete with each other for listings, trades, and market data itself, 
providing virtually limitless opportunities for entrepreneurs who wish 
to produce and distribute their own market data. This proprietary data 
is produced by each individual exchange, as well as other entities, in 
a vigorously competitive market.
    Broker-dealers currently have numerous alternative venues for their 
order flow, including thirteen SRO markets, as well as internalizing 
broker-dealers (``BDs'') and various forms of alternative trading 
systems (``ATSs''), including dark pools and electronic communication 
networks (``ECNs''). Each SRO market competes to produce transaction 
reports via trade executions, and two FINRA-regulated Trade Reporting 
Facilities (``TRFs'') compete to attract internalized transaction 
reports. Competitive markets for order flow, executions, and 
transaction reports provide pricing discipline for the inputs of 
proprietary data products.
    The large number of SROs, TRFs, BDs, and ATSs that currently 
produce proprietary data or are currently capable of producing it 
provides further pricing discipline for proprietary data products. Each 
SRO, TRF, ATS, and BD is currently permitted to produce proprietary 
data products, and many currently do or have announced plans to do so, 
including NASDAQ, New York Stock Exchange LLC (``NYSE''), NYSE MKT LLC, 
NYSE Arca LLC, and BATS Exchange, Inc. (``BATS'').
    Any ATS or BD can combine with any other ATS, BD, or multiple ATSs 
or BDs to produce joint proprietary data products. Additionally, order 
routers and market data vendors can facilitate single or multiple 
broker-dealers' production of proprietary data products. The potential 
sources of proprietary products are virtually limitless.
    The fact that proprietary data from ATSs, BDs, and vendors can by-
pass SROs is significant in two respects. First, non-SROs can compete 
directly with SROs for the production and sale of proprietary data 
products, as BATS and Arca did before registering as exchanges by 
publishing data on the Internet. Second, because a single order or 
transaction report can appear in an SRO proprietary product, a non-SRO 
proprietary product, or both, the data available in proprietary 
products is exponentially greater than the actual number of orders and 
transaction reports that exist in the marketplace.
    Market data vendors provide another form of price discipline for 
proprietary data products because they control the primary means of 
access to end Subscribers. Vendors impose price restraints based upon 
their business models. For example, vendors such as Bloomberg and 
Thomson Reuters that assess a surcharge on data they sell may refuse to 
offer proprietary products that end Subscribers will not purchase in 
sufficient numbers. Internet portals, such as Google, impose a 
discipline by providing only data that will enable them to attract 
``eyeballs'' that contribute to their advertising revenue. Retail 
broker-dealers, such as Schwab and Fidelity, offer their customers 
proprietary data only if it promotes trading and generates sufficient 
commission revenue. Although the business models may differ, these 
vendors' pricing discipline is the same: they can simply refuse to 
purchase any proprietary data product that fails to provide sufficient 
value. NASDAQ and other producers of proprietary data products must 
understand and respond to these varying business models and pricing 
disciplines in order to market proprietary data products successfully.
    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid, inexpensive, and profitable. 
The history of electronic trading is replete with examples of entrants 
that swiftly grew into some of the largest electronic trading platforms 
and proprietary data producers: Archipelago, Bloomberg Tradebook, 
Island, RediBook, Attain, TracECN, BATS Trading and Direct Edge. A 
proliferation of dark pools and other ATSs operate profitably with 
fragmentary shares of consolidated market volume.
    Regulation NMS, by deregulating the market for proprietary data, 
has increased the contestability of that market. While broker-dealers 
have previously published their proprietary data individually, 
Regulation NMS encourages market data vendors and broker-dealers to 
produce proprietary products cooperatively in a manner never before 
possible. Multiple market data vendors already have the capability to 
aggregate data and disseminate it on a profitable scale, including 
Bloomberg, and Thomson Reuters.
    The vigor of competition for information is significant. NASDAQ has 
made a determination to adjust the fees associated with this product in 
order to reflect more accurately the value of its products and the 
investments made to enhance them, as well as to keep pace with changes 
in the industry and evolving customer needs. This product is entirely 
optional and is geared towards attracting new customers, as well as 
retaining existing customers.
    The Exchange has witnessed competitors creating new products and 
innovative pricing in this space over the course of the past year. 
NASDAQ continues to see firms challenge its pricing on the basis of the 
Exchange's explicit fees being higher than the zero-priced fees from 
other competitors such as BATS. In all cases, firms make decisions on 
how much and what types of data to consume on the basis of the total 
cost of interacting with NASDAQ or other exchanges. Of course, the 
explicit data fees are but one factor in a total platform analysis. 
Some competitors have lower transactions fees and higher data fees, and 
others are vice versa.

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

    Written comments were neither solicited nor received.

[[Page 3945]]

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.\7\ 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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    \7\ 15 U.S.C. 78s(b)(3)(a)(ii).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2013-009 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-2013-009. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2013-009 and should 
be submitted on or before February 7, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-00922 Filed 1-16-13; 8:45 am]
BILLING CODE 8011-01-P