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]
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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
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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 (https://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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 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).
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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
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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.
*
*
*
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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
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4999
$250
$125
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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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.
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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
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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).
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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).
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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
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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
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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.
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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 (https://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 (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
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 https://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]
-----------------------------------------------------------------------
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 (https://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 (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of 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
