Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Impose a Minimum Fee for Execution Venues Operating a Trading Platform or Multiple Platforms That Utilize NASDAQ Proprietary Depth Data on a Non-Displayed Basis, 1057-1062 [2015-00051]
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Federal Register / Vol. 80, No. 5 / Thursday, January 8, 2015 / Notices
operative delay period after which a
proposed rule change under Rule 19b–
4(f)(6) becomes operative so that the
pilot may continue without
interruption. The Commission believes
that waiver of the 30-day operative
delay is consistent with the protection
of investors and the public interest
because it will allow the pilot to
continue uninterrupted, thereby
avoiding any potential investor
confusion that could result from a
temporary interruption in the pilot and
allowing members to continue to benefit
from the program. Based on the
foregoing, the Commission hereby
waives the 30-day operative delay and
designates the proposal operative upon
filing.12
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 will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
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 will also be available for
inspection and copying at the NYSE’s
principal office and on its Internet Web
site at www.nyse.com. 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–
NYSEMKT–2014–117 and should be
submitted on or before January 29, 2015.
IV. Solicitation of Comments
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Brent J. Fields,
Secretary.
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–
NYSEMKT–2014–117 on the subject
line.
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Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEMKT–2014–117. 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
12 For purposes only of waiving the operative
delay, the Commission has considered the proposed
rule’s impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
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[FR Doc. 2015–00049 Filed 1–7–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73978; File No. SR–
NASDAQ–2014–125]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change to Impose a
Minimum Fee for Execution Venues
Operating a Trading Platform or
Multiple Platforms That Utilize
NASDAQ Proprietary Depth Data on a
Non-Displayed Basis
January 2, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 thereunder,2
notice is hereby given that on January 2,
2015, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
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1057
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to impose a
minimum fee for execution venues
operating a trading platform or multiple
platforms that utilize NASDAQ
proprietary depth data on a nondisplayed basis and that pay monthly
aggregate NASDAQ market proprietary
Depth-of-Book Data fees of less than
$15,000.
The text of the proposed rule change
is below; proposed new language is in
italics; proposed deletions are in
brackets.
*
*
*
*
*
7023. NASDAQ Depth-of-Book Data
(a) Definitions applicable to this rule.
(1)–(6) No Change.
(7) The term ‘‘Trading Platform’’ shall
mean any execution platform operated
as or by a registered National Securities
Exchange (as defined in Section 3(a)(1)
of the Exchange Act), an Alternative
Trading System (as defined in Rule
300(a) of Regulation ATS), or an
Electronic Communications Network (as
defined by Rule 600(b)(23) of Regulation
NMS).
(b) No Change.
(c) No Change.
(d) Trading Platform Fee. There shall
be a minimum monthly fee for entities
that operate Trading Platforms that
utilize NASDAQ Depth-of-Book Data on
a non-display basis and that pay less
than $15,000 per month in aggregate
fees for Depth-of-Book Data. The fee
shall be $5,000 per month per Trading
Platform up to a maximum of three
Trading Platforms.
(e) [(d)] 30-Day Free-Trial Offer:
NASDAQ shall offer all new individual
Subscribers and potential new
individual Subscribers a 30-day waiver
of the Subscriber fees for NASDAQ
TotalView. This waiver shall not
include the incremental fees assessed
for the NASDAQ Level 2-only service[,
which are $30 for Professional
Subscribers and $9 for Non-Professional
Subscribers per month]. This fee waiver
period shall be applied on a rolling
basis, determined by the date on which
a new individual Subscriber or potential
individual Subscriber is first entitled by
a Distributor to receive access to
NASDAQ TotalView. A Distributor may
only provide this waiver to a specific
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individual Subscriber once. [For the
period of the offer, the NASDAQ
TotalView fee of $40 per Professional
Subscriber and $5 per Non-Professional
Subscriber per month shall be waived.]
(f) [(e)] Historical ModelView
Information: NASDAQ will make
historical ModelView information
available via NASDAQTrader.com.
ModelView contains historical
information regarding aggregate
displayed and reserve liquidity at each
price level directly from the NASDAQ
Market Center. ModelView is available
for a subscription fee of $2,000 per
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, the
Exchange 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. 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
NASDAQ is proposing to amend
NASDAQ Rule 7023 (NASDAQ Depthof-Book Data) to modify the fees
governing the use of NASDAQ
TotalView, NASDAQ OpenView and
NASDAQ Level 2 Information
(collectively, ‘‘NASDAQ Depth-of-Book
Data’’) to increase the fairness and
equity of the current fee schedule.
Specifically, NASDAQ is amending
Rule 7023(d) to establish a minimum
level of fees for operators of Trading
Platforms that utilize NASDAQ Depthof-Book Data and that pay less than
$15,000 per month for such usage. The
Trading Platform Fee shall be $5,000 per
month per Trading Platform up to a
maximum of $15,000 per month, with
such fees being offset once the total
NASDAQ Depth-of-Book Data fees paid
by such Trading Platform operator
exceed $15,000 per month.
Trading platform fee
Number of trading platforms
1
1
1
2
2
3
4
3
4
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
Vendors offering Managed Data
Solutions (‘‘MDS’’) to downstream
Recipients pursuant to NASDAQ Rule
7026 are responsible for the payment of
fees associated with this program.
Furthermore, the MDS Vendor must
count each Trading Platform operator
separately; an MDS Vendor cannot
avoid the three Trading Platform
maximum by commingling multiple
firms’ Trading Platforms. For example,
the MDS Vendor below has five
customers that collectively operate 10
Trading Platforms:
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Effective January 1, 2015, NASDAQ
will impose a fee for operators of
Trading Platforms that currently utilize
NASDAQ Depth-of-Book Data and that
pay less than $15,000 per month for
such usage. Trading Platforms include
registered National Securities
Exchanges, Alternative Trading Systems
(‘‘ATSs’’), and Electronic
Communications Networks (‘‘ECNS’’) as
those terms are defined in the Exchange
Act and regulations and rules
thereunder. The fee will be $5,000 per
month per Trading Platform up to a
maximum of three platforms operated
by the same entity or affiliated entities.
The fee will be assessed in addition
to existing Distributor and Subscriber
fees paid, but will be offset when the
entity reaches the level of $15,000 per
month. For example, if a Distributor
already pays $15,000 or more in total
monthly Distributor and Subscriber fees,
the Trading Platform fee does not apply.
Also, if a firm accrues $10,000 in
Platform fees, and already pays $75,000
in Subscriber fees, the Distributor is
responsible for the $75,000 fee and the
Trading Platform fee does not apply.
Additional scenarios are shown below:
Number
of trading
platform(s)
Firm
a ........................
b ........................
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Trading
platform fee
(owed by
MDS vendor)
0
1
17:07 Jan 07, 2015
$0
5000
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$5,000
5,000
5,000
10,000
10,000
15,000
15,000
15,000
15,000
Nasdaq depth
non-display
fee per subscriber
Nasdaq depth
total fee
$3,300
9,000
15,000
9,000
15,000
9,000
9,000
15,000
75,000
$8,300
14,000
15,000
19,000
15,000
24,000
24,000
15,000
75,000
disproportionately high or low amount
relative to other categories of users.
To accommodate new subparagraph
(d), NASDAQ is renumbering current
subparagraphs (d) and (e) to become
c ........................
2
10,000
d ........................
3
15,000 new subparagraphs (e) and (f).
e ........................
4
15,000 Additionally, NASDAQ is eliminating
pricing details from re-numbered
Total ........... ................
45,000 paragraph (e) to eliminate specific
information which is extraneous and
The Exchange believes that this
subject to change.
proposal is reasonable, proper, and
2. Statutory Basis
desirable. NASDAQ attempts to more
equitably allocate fees among users with
The Exchange believes the proposed
varying business models. As trading has rule change is consistent with the Act
become more electronic and automated, and the rules and regulations
displayed and non-displayed usage has
thereunder, including the requirements
shifted dramatically. Use by individuals of Section 6(b) of the Act.3 In particular,
versus use by algorithms has shifted as
the Exchange believes the proposed rule
well. NASDAQ attempts to ensure that
change is consistent with the Section
its fee schedule tracks these shifts and
3 15 U.S.C. 78f(b).
that no category of users pays a
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Number
of trading
platform(s)
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Trading
platform fee
(owed by
MDS vendor)
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6(b)(5) 4 requirements that the rules of
an exchange be designed to promote just
and equitable principles of trade, to
prevent fraudulent and manipulative
acts, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and to perfect
the mechanism for a free and open
market and a national market system,
and, in general, to protect investors and
the public interest.
NASDAQ believes that this proposal
represents an equitable allocation of
reasonable dues and fees, consistent
with the requirements of the Act. The
MDS Fee, which has been available as
an option for four years, has reduced
costs for Distributors and Subscriber
firms that voluntarily opt for this
service. The fee currently includes a bas
[sic] Distributor fee plus a fee per
subscriber, which has been found to be
consistent with the Act in multiple
contexts due to the economic
efficiencies attributable to providing the
same data elements to an increasing
population of subscribers.
The Trading Platform fee is equitable
and reasonable in that it ensures that
heavy users of the NASDAQ Depth
Information pay an equitable share of
the total NASDAQ Depth Information
fees. Currently, Professional Subscribers
pay higher fees than Non-Professional
Subscribers based on the calculated
assumption of higher usage. Similarly,
External Distributors pay higher fees
than Internal Distributors, also based
upon their assumed higher usage levels.
NASDAQ believes that Trading
Platforms are generally high users of the
data, using it to power a matching
engine for millions or even billions of
trading messages per day. Additionally,
the vast majority of operators of Trading
Platforms that use NASDAQ Depth-ofBook Data already pay $15,000 per
month or close to it. Those operators
will pay no or little in additional fees.
In adopting Regulation NMS, the
Commission granted self-regulatory
organizations and broker-dealers
increased authority and flexibility to
offer new and unique market data to the
public. It was believed that this
authority would expand the amount of
data available to consumers, and also
spur innovation and competition for the
provision of market data.
The Commission concluded that
Regulation NMS—by deregulating the
market in proprietary data—would itself
further the Act’s goals of facilitating
efficiency and competition:
[E]fficiency is promoted when brokerdealers who do not need the data beyond the
4 15
17:07 Jan 07, 2015
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
SRO rule proposals establishing or
changing dues, fees, or other charges are
immediately effective upon filing
regardless of whether such dues, fees, or
other charges are imposed on members
of the SRO, non-members, or both.
Section 916 further amended paragraph
(C) of Section 19(b)(3) of the Exchange
Act to read, in pertinent part, ‘‘At any
time within the 60-day period beginning
on the date of filing of such a proposed
rule change in accordance with the
provisions of paragraph (1) [of Section
19(b)], the Commission summarily may
temporarily suspend the change in the
rules of the self-regulatory organization
made thereby, if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of this title. If the Commission
takes such action, the Commission shall
institute proceedings under paragraph
(2)(B) [of Section 19(b)] to determine
whether the proposed rule should be
approved or disapproved.’’
NASDAQ believes that these
amendments to Section 19 of the Act
reflect Congress’s intent to allow the
Commission to rely upon the forces of
competition to ensure that fees for
market data are reasonable and
5 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
U.S.C. 78f(b)(5).
VerDate Sep<11>2014
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.5
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1059
equitably allocated. Although Section
19(b) had formerly authorized
immediate effectiveness for a ‘‘due, fee
or other charge imposed by the selfregulatory organization,’’ the
Commission adopted a policy and
subsequently a rule stipulating that fees
for data and other products available to
persons that are not members of the selfregulatory organization must be
approved by the Commission after first
being published for comment. At the
time, the Commission supported the
adoption of the policy and the rule by
pointing out that unlike members,
whose representation in self-regulatory
organization governance was mandated
by the Act, non-members should be
given the opportunity to comment on
fees before being required to pay them,
and that the Commission should
specifically approve all such fees.
NASDAQ believes that the amendment
to Section 19 reflects Congress’s
conclusion that the evolution of selfregulatory organization governance and
competitive market structure have
rendered the Commission’s prior policy
on non-member fees obsolete.
Specifically, many exchanges have
evolved from member-owned not-forprofit corporations into for-profit
investor-owned corporations (or
subsidiaries of investor-owned
corporations). Accordingly, exchanges
no longer have narrow incentives to
manage their affairs for the exclusive
benefit of their members, but rather
have incentives to maximize the appeal
of their products to all customers,
whether members or non-members, so
as to broaden distribution and grow
revenues. Moreover, we believe that the
change also reflects an endorsement of
the Commission’s determinations that
reliance on competitive markets is an
appropriate means to ensure equitable
and reasonable prices. Simply put, the
change reflects a presumption that all
fee changes should be permitted to take
effect immediately, since the level of all
fees are constrained by competitive
forces.
The recent decision of the United
States Court of Appeals for the District
of Columbia Circuit in NetCoaliton v.
SEC, No. 09–1042 (D.C. Cir. 2010),
although reviewing a Commission
decision made prior to the effective date
of the Dodd-Frank Act, upheld the
Commission’s reliance upon
competitive markets to set reasonable
and equitably allocated fees for market
data. ‘‘In fact, the legislative history
indicates that the Congress intended
that the market system ‘evolve through
the interplay of competitive forces as
unnecessary regulatory restrictions are
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removed’ and that the SEC wield its
regulatory power ‘in those situations
where competition may not be
sufficient,’ such as in the creation of a
‘consolidated transactional reporting
system.’ NetCoaltion, at 15 (quoting H.R.
Rep. No. 94–229, at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 321,
323). The court’s conclusions about
Congressional intent are therefore
reinforced by the Dodd-Frank Act
amendments, which create a
presumption that exchange fees,
including market data fees, may take
effect immediately, without prior
Commission approval, and that the
Commission should take action to
suspend a fee change and institute a
proceeding to determine whether the fee
change should be approved or
disapproved only where the
Commission has concerns that the
change may not be consistent with the
Act.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
NASDAQ does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
Notwithstanding its determination that
the Commission may rely upon
competition to establish fair and
equitably allocated fees for market data,
the NetCoaltion court found that the
Commission had not, in that case,
compiled a record that adequately
supported its conclusion that the market
for the data at issue in the case was
competitive. For the reasons discussed
above, NASDAQ believes that the DoddFrank Act amendments to Section 19
materially alter the scope of the
Commission’s review of future market
data filings, by creating a presumption
that all fees may take effect
immediately, without prior analysis by
the Commission of the competitive
environment. Even in the absence of
this important statutory change,
however, NASDAQ believes that a
record may readily be established to
demonstrate the competitive nature of
the market in question.
There is intense competition between
trading platforms that provide
transaction execution and routing
services and proprietary data products.
Transaction execution and proprietary
data products are complementary in that
market data is both an input and a
byproduct of the execution service. In
fact, market data and trade execution are
a paradigmatic example of joint
products with joint costs. The decision
whether and on which platform to post
an order will depend on the attributes
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17:07 Jan 07, 2015
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of the platform where the order can be
posted, including the execution fees,
data quality and price and distribution
of its data products. Without the
prospect of a taking order seeing and
reacting to a posted order on a particular
platform, the posting of the order would
accomplish little. Without trade
executions, exchange data products
cannot exist. Data products are valuable
to many end users only insofar as they
provide information that end users
expect will assist them or their
customers in making trading decisions.
The costs of producing market data
include not only the costs of the data
distribution infrastructure, but also the
costs of designing, maintaining, and
operating the exchange’s transaction
execution platform and the cost of
regulating the exchange to ensure its fair
operation and maintain investor
confidence. The total return that a
trading platform earns reflects the
revenues it receives from both products
and the joint costs it incurs. Moreover,
an exchange’s customers view the costs
of transaction executions and of data as
a unified cost of doing business with the
exchange. A broker-dealer will direct
orders to a particular exchange only if
the expected revenues from executing
trades on the exchange exceed net
transaction execution costs and the cost
of data that the broker-dealer chooses to
buy to support its trading decisions (or
those of its customers). The choice of
data products is, in turn, a product of
the value of the products in making
profitable trading decisions. If the cost
of the product exceeds its expected
value, the broker-dealer will choose not
to buy it. Moreover, as a broker-dealer
chooses to direct fewer orders to a
particular exchange, the value of the
product to that broker-dealer decreases,
for two reasons. First, the product will
contain less information, because
executions of the broker-dealer’s orders
will not be reflected in it. Second, and
perhaps more important, the product
will be less valuable to that brokerdealer because it does not provide
information about the venue to which it
is directing its orders. Data from the
competing venue to which the brokerdealer is directing orders will become
correspondingly more valuable.
Thus, a super-competitive increase in
the fees charged for either transactions
or data has the potential to impair
revenues from both products. ‘‘No one
disputes that competition for order flow
is ‘fierce’.’’ NetCoalition at 24. However,
the existence of fierce competition for
order flow implies a high degree of price
sensitivity on the part of broker-dealers
with order flow, since they may readily
reduce costs by directing orders toward
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the lowest-cost trading venues. A
broker-dealer that shifted its order flow
from one platform to another in
response to order execution price
differentials would both reduce the
value of that platform’s market data and
reduce its own need to consume data
from the disfavored platform. Similarly,
if a platform increases its market data
fees, the change will affect the overall
cost of doing business with the
platform, and affected broker-dealers
will assess whether they can lower their
trading costs by directing orders
elsewhere and thereby lessening the
need for the more expensive data.
Analyzing the cost of market data
distribution in isolation from the cost of
all of the inputs supporting the creation
of market data will inevitably
underestimate the cost of the data. Thus,
because it is impossible to create data
without a fast, technologically robust,
and well-regulated execution system,
system costs and regulatory costs affect
the price of market data. It would be
equally misleading, however, to
attribute all of the exchange’s costs to
the market data portion of an exchange’s
joint product. Rather, all of the
exchange’s costs are incurred for the
unified purposes of attracting order
flow, executing and/or routing orders,
and generating and selling data about
market activity. The total return that an
exchange earns reflects the revenues it
receives from the joint products and the
total costs of the joint products.
Competition among trading platforms
can be expected to constrain the
aggregate return each platform earns
from the sale of its joint products, but
different platforms may choose from a
range of possible, and equally
reasonable, pricing strategies as the
means of recovering total costs. For
example, some platform may choose to
pay rebates to attract orders, charge
relatively low prices for market
information (or provide information free
of charge) and charge relatively high
prices for accessing posted liquidity.
Other platforms may choose a strategy
of paying lower rebates (or no rebates)
to attract orders, setting relatively high
prices for market information, and
setting relatively low prices for
accessing posted liquidity. In this
environment, there is no economic basis
for regulating maximum prices for one
of the joint products in an industry in
which suppliers face competitive
constraints with regard to the joint
offering. This would be akin to strictly
regulating the price that an automobile
manufacturer can charge for car sound
systems despite the existence of a highly
competitive market for cars and the
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availability of after-market alternatives
to the manufacturer-supplied system.
The market for market data products
is competitive and inherently
contestable because there is fierce
competition for the inputs necessary to
the creation of proprietary data and
strict pricing discipline for the
proprietary products themselves.
Numerous exchanges compete with
each other for listings, trades, and
market data itself, providing virtually
limitless opportunities for entrepreneurs
who wish to produce and distribute
their own market data. This proprietary
data is produced by each individual
exchange, as well as other entities, in a
vigorously competitive market.
Broker-dealers currently have
numerous alternative venues for their
order flow, including ten self-regulatory
organization (‘‘SRO’’) markets, as well
as internalizing broker-dealers (‘‘BDs’’)
and various forms of alternative trading
systems (‘‘ATSs’’), including dark pools
and electronic communication networks
(‘‘ECNs’’). Each SRO market competes to
produce transaction reports via trade
executions, and two FINRA-regulated
Trade Reporting Facilities (‘‘TRFs’’)
compete to attract internalized
transaction reports. Competitive markets
for order flow, executions, and
transaction reports provide pricing
discipline for the inputs of proprietary
data products.
The large number of SROs, TRFs, BDs,
and ATSs that currently produce
proprietary data or are currently capable
of producing it provides further pricing
discipline for proprietary data products.
Each SRO, TRF, ATS, and BD is
currently permitted to produce
proprietary data products, and many
currently do or have announced plans to
do so, including NASDAQ, NYSE,
NYSE Amex, NYSEArca, and BATS.
Any ATS or BD can combine with any
other ATS, BD, or multiple ATSs or BDs
to produce joint proprietary data
products. Additionally, order routers
and market data vendors can facilitate
single or multiple broker-dealers’
production of proprietary data products.
The potential sources of proprietary
products are virtually limitless.
The fact that proprietary data from
ATSs, BDs, and vendors can by-pass
SROs is significant in two respects.
First, non-SROs can compete directly
with SROs for the production and sale
of proprietary data products, as BATS
and Arca did before registering as
exchanges by publishing proprietary
book data on the Internet. Second,
because a single order or transaction
report can appear in an SRO proprietary
product, a non-SRO proprietary
product, or both, the data available in
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proprietary products is exponentially
greater than the actual number of orders
and transaction reports that exist in the
marketplace.
Market data vendors provide another
form of price discipline for proprietary
data products because they control the
primary means of access to end users.
Vendors impose price restraints based
upon their business models. For
example, vendors such as Bloomberg
and Thomson Reuters that assess a
surcharge on data they sell may refuse
to offer proprietary products that end
users will not purchase in sufficient
numbers. Internet portals, such as
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 court in NetCoalition concluded
that the Commission had failed to
demonstrate that the market for market
PO 00000
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1061
data was competitive based on the
reasoning of the Commission’s
NetCoalition order because, in the
court’s view, the Commission had not
adequately demonstrated that the depthof-book data at issue in the case is used
to attract order flow. NASDAQ believes,
however, that evidence not before the
court clearly demonstrates that
availability of data attracts order flow.
For example, as of July 2010, 92 of the
top 100 broker-dealers by shares
executed on NASDAQ consumed Level
2/NQDS and 80 of the top 100 brokerdealers consumed TotalView. During
that month, the Level 2/NQDS-users
were responsible for 94.44% of the
orders entered into NASDAQ and
TotalView users were responsible for
92.98%.
Competition among platforms has
driven NASDAQ continually to improve
its platform data offerings and to cater
to customers’ data needs. For example,
NASDAQ has developed and
maintained multiple delivery
mechanisms (IP, multi-cast, and
compression) that enable customers to
receive data in the form and manner
they prefer and at the lowest cost to
them. NASDAQ offers front end
applications such as its ‘‘Bookviewer’’
to help customers utilize data. NASDAQ
has created new products like
TotalView Aggregate to complement
TotalView ITCH and Level 2/NQDS,
because offering data in multiple
formatting allows NASDAQ to better fit
customer needs. NASDAQ offers data
via multiple extranet providers, thereby
helping to reduce network and total cost
for its data products. NASDAQ has
developed an online administrative
system to provide customers
transparency into their data feed
requests and streamline data usage
reporting. NASDAQ has also expanded
its Enterprise License options that
reduce the administrative burden and
costs to firms that purchase market data.
Despite these enhancements and a
dramatic increase in message traffic,
NASDAQ’s fees for market data have
remained flat. In fact, as a percent of
total customer costs, NASDAQ data fees
have fallen relative to other data usage
costs—including bandwidth,
programming, and infrastructure—that
have risen. The same holds true for
execution services; despite numerous
enhancements to NASDAQ’s trading
platform, absolute and relative trading
costs have declined. Platform
competition has intensified as new
entrants have emerged, constraining
prices for both executions and for data.
The vigor of competition for depth
information is significant and the
Exchange believes that this proposal
E:\FR\FM\08JAN1.SGM
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1062
Federal Register / Vol. 80, No. 5 / Thursday, January 8, 2015 / Notices
clearly evidences such competition.
NASDAQ is offering a new pricing
model in order to keep pace with
changes in the industry and evolving
customer needs. It 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. The market for this depth
information is highly competitive and
continually evolves as products develop
and change.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received from
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.6
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: (i) necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) 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.
tkelley on DSK3SPTVN1PROD with NOTICES
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:
6 15
U.S.C. 78s(b)(3)(A)(ii).
VerDate Sep<11>2014
17:07 Jan 07, 2015
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–2014–125 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2014–125. 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–NASDAQ–2014–125 and
should be submitted on or before
January 29, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Brent J. Fields,
Secretary.
[FR Doc. 2015–00051 Filed 1–7–15; 8:45 am]
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7 17
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73979; File No. SR–OCC–
2014–809]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of No Objection to Advance Notice
Concerning the Implementation of a
Committed Master Repurchase
Agreement Program as Part of OCC’s
Overall Liquidity Plan
January 2, 2015.
On November 6, 2014, The Options
Clearing Corporation (‘‘OCC’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) advance
notice SR–OCC–2014–809 (‘‘Advance
Notice’’) pursuant to Section 806(e)(1) of
the Payment, Clearing, and Settlement
Supervision Act of 2010 (‘‘Clearing
Supervision Act’’ or ‘‘Title VIII’’) 1 and
Rule 19b–4(n)(1)(i) under the Securities
Exchange Act of 1934 (‘‘Exchange
Act’’).2 The Advance Notice was
published for comment in the Federal
Register on December 9, 2014.3 The
Commission did not receive any
comments on the Advance Notice
publication. This publication serves as a
notice of no objection to the Advance
Notice.
I. Description of the Advance Notice
a. Background
The purpose of the proposed change
is to allow OCC to implement a
committed master repurchase agreement
program (‘‘MRA Program’’) in order to
access an additional committed source
of liquidity to meet its settlement
obligations in a manner that does not
increase the concentration of OCC’s
counterparty exposure, given OCC’s
existing affiliations between a number
of commercial banking institutions and
OCC’s clearing members. According to
OCC, the MRA Program will take the
form of OCC entering into a committed
master repurchase agreement and
related confirmations (together, the
‘‘Master Repurchase Agreement’’) with
one or more non-bank, non-clearing
1 12 U.S.C. 5465(e)(1). The Financial Stability
Oversight Council designated OCC a systemically
important financial market utility on July 18, 2012.
See Financial Stability Oversight Council 2012
Annual Report, Appendix A, https://
www.treasury.gov/initiatives/fsoc/Documents/
2012%20Annual%20Report.pdf. Therefore, OCC is
required to comply with the Clearing Supervision
Act and file advance notices with the Commission.
See 12 U.S.C. 5465(e).
2 17 CFR 240.19b–4(n)(1)(i).
3 Securities Exchange Act Release No. 73726
(December 3, 2014), 79 FR 73116 (December 9,
2014) (SR–OCC–2014–809).
E:\FR\FM\08JAN1.SGM
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]]>Agencies
[Federal Register Volume 80, Number 5 (Thursday, January 8, 2015)]
[Notices]
[Pages 1057-1062]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00051]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73978; File No. SR-NASDAQ-2014-125]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to
Impose a Minimum Fee for Execution Venues Operating a Trading Platform
or Multiple Platforms That Utilize NASDAQ Proprietary Depth Data on a
Non-Displayed Basis
January 2, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 thereunder,\2\ notice is hereby given
that on January 2, 2015, 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
Exchange. 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
The Exchange proposes to impose a minimum fee for execution venues
operating a trading platform or multiple platforms that utilize NASDAQ
proprietary depth data on a non-displayed basis and that pay monthly
aggregate NASDAQ market proprietary Depth-of-Book Data fees of less
than $15,000.
The text of the proposed rule change is below; proposed new
language is in italics; proposed deletions are in brackets.
* * * * *
7023. NASDAQ Depth-of-Book Data
(a) Definitions applicable to this rule.
(1)-(6) No Change.
(7) The term ``Trading Platform'' shall mean any execution platform
operated as or by a registered National Securities Exchange (as defined
in Section 3(a)(1) of the Exchange Act), an Alternative Trading System
(as defined in Rule 300(a) of Regulation ATS), or an Electronic
Communications Network (as defined by Rule 600(b)(23) of Regulation
NMS).
(b) No Change.
(c) No Change.
(d) Trading Platform Fee. There shall be a minimum monthly fee for
entities that operate Trading Platforms that utilize NASDAQ Depth-of-
Book Data on a non-display basis and that pay less than $15,000 per
month in aggregate fees for Depth-of-Book Data. The fee shall be $5,000
per month per Trading Platform up to a maximum of three Trading
Platforms.
(e) [(d)] 30-Day Free-Trial Offer: NASDAQ shall offer all new
individual Subscribers and potential new individual Subscribers a 30-
day waiver of the Subscriber fees for NASDAQ TotalView. This waiver
shall not include the incremental fees assessed for the NASDAQ Level 2-
only service[, which are $30 for Professional Subscribers and $9 for
Non-Professional Subscribers per month]. This fee waiver period shall
be applied on a rolling basis, determined by the date on which a new
individual Subscriber or potential individual Subscriber is first
entitled by a Distributor to receive access to NASDAQ TotalView. A
Distributor may only provide this waiver to a specific
[[Page 1058]]
individual Subscriber once. [For the period of the offer, the NASDAQ
TotalView fee of $40 per Professional Subscriber and $5 per Non-
Professional Subscriber per month shall be waived.]
(f) [(e)] Historical ModelView Information: NASDAQ will make
historical ModelView information available via NASDAQTrader.com.
ModelView contains historical information regarding aggregate displayed
and reserve liquidity at each price level directly from the NASDAQ
Market Center. ModelView is available for a subscription fee of $2,000
per 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, the Exchange 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. 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
NASDAQ is proposing to amend NASDAQ Rule 7023 (NASDAQ Depth-of-Book
Data) to modify the fees governing the use of NASDAQ TotalView, NASDAQ
OpenView and NASDAQ Level 2 Information (collectively, ``NASDAQ Depth-
of-Book Data'') to increase the fairness and equity of the current fee
schedule. Specifically, NASDAQ is amending Rule 7023(d) to establish a
minimum level of fees for operators of Trading Platforms that utilize
NASDAQ Depth-of-Book Data and that pay less than $15,000 per month for
such usage. The Trading Platform Fee shall be $5,000 per month per
Trading Platform up to a maximum of $15,000 per month, with such fees
being offset once the total NASDAQ Depth-of-Book Data fees paid by such
Trading Platform operator exceed $15,000 per month.
Effective January 1, 2015, NASDAQ will impose a fee for operators
of Trading Platforms that currently utilize NASDAQ Depth-of-Book Data
and that pay less than $15,000 per month for such usage. Trading
Platforms include registered National Securities Exchanges, Alternative
Trading Systems (``ATSs''), and Electronic Communications Networks
(``ECNS'') as those terms are defined in the Exchange Act and
regulations and rules thereunder. The fee will be $5,000 per month per
Trading Platform up to a maximum of three platforms operated by the
same entity or affiliated entities.
The fee will be assessed in addition to existing Distributor and
Subscriber fees paid, but will be offset when the entity reaches the
level of $15,000 per month. For example, if a Distributor already pays
$15,000 or more in total monthly Distributor and Subscriber fees, the
Trading Platform fee does not apply. Also, if a firm accrues $10,000 in
Platform fees, and already pays $75,000 in Subscriber fees, the
Distributor is responsible for the $75,000 fee and the Trading Platform
fee does not apply. Additional scenarios are shown below:
----------------------------------------------------------------------------------------------------------------
Nasdaq depth
Trading non-display Nasdaq depth
Number of trading platforms platform fee fee per total fee
subscriber
----------------------------------------------------------------------------------------------------------------
1............................................................... $5,000 $3,300 $8,300
1............................................................... 5,000 9,000 14,000
1............................................................... 5,000 15,000 15,000
2............................................................... 10,000 9,000 19,000
2............................................................... 10,000 15,000 15,000
3............................................................... 15,000 9,000 24,000
4............................................................... 15,000 9,000 24,000
3............................................................... 15,000 15,000 15,000
4............................................................... 15,000 75,000 75,000
----------------------------------------------------------------------------------------------------------------
Vendors offering Managed Data Solutions (``MDS'') to downstream
Recipients pursuant to NASDAQ Rule 7026 are responsible for the payment
of fees associated with this program. Furthermore, the MDS Vendor must
count each Trading Platform operator separately; an MDS Vendor cannot
avoid the three Trading Platform maximum by commingling multiple firms'
Trading Platforms. For example, the MDS Vendor below has five customers
that collectively operate 10 Trading Platforms:
------------------------------------------------------------------------
Trading
Number of platform fee
Firm trading (owed by MDS
platform(s) vendor)
------------------------------------------------------------------------
a.......................................... 0 $0
b.......................................... 1 5000
c.......................................... 2 10,000
d.......................................... 3 15,000
e.......................................... 4 15,000
----------------------------
Total.................................. ........... 45,000
------------------------------------------------------------------------
The Exchange believes that this proposal is reasonable, proper, and
desirable. NASDAQ attempts to more equitably allocate fees among users
with varying business models. As trading has become more electronic and
automated, displayed and non-displayed usage has shifted dramatically.
Use by individuals versus use by algorithms has shifted as well. NASDAQ
attempts to ensure that its fee schedule tracks these shifts and that
no category of users pays a disproportionately high or low amount
relative to other categories of users.
To accommodate new subparagraph (d), NASDAQ is renumbering current
subparagraphs (d) and (e) to become new subparagraphs (e) and (f).
Additionally, NASDAQ is eliminating pricing details from re-numbered
paragraph (e) to eliminate specific information which is extraneous and
subject to change.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Act and the rules and regulations thereunder, including the
requirements of Section 6(b) of the Act.\3\ In particular, the Exchange
believes the proposed rule change is consistent with the Section
[[Page 1059]]
6(b)(5) \4\ requirements that the rules of an exchange be designed to
promote just and equitable principles of trade, to prevent fraudulent
and manipulative acts, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and to perfect the mechanism for a free and open market
and a national market system, and, in general, to protect investors and
the public interest.
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
NASDAQ believes that this proposal represents an equitable
allocation of reasonable dues and fees, consistent with the
requirements of the Act. The MDS Fee, which has been available as an
option for four years, has reduced costs for Distributors and
Subscriber firms that voluntarily opt for this service. The fee
currently includes a bas [sic] Distributor fee plus a fee per
subscriber, which has been found to be consistent with the Act in
multiple contexts due to the economic efficiencies attributable to
providing the same data elements to an increasing population of
subscribers.
The Trading Platform fee is equitable and reasonable in that it
ensures that heavy users of the NASDAQ Depth Information pay an
equitable share of the total NASDAQ Depth Information fees. Currently,
Professional Subscribers pay higher fees than Non-Professional
Subscribers based on the calculated assumption of higher usage.
Similarly, External Distributors pay higher fees than Internal
Distributors, also based upon their assumed higher usage levels. NASDAQ
believes that Trading Platforms are generally high users of the data,
using it to power a matching engine for millions or even billions of
trading messages per day. Additionally, the vast majority of operators
of Trading Platforms that use NASDAQ Depth-of-Book Data already pay
$15,000 per month or close to it. Those operators will pay no or little
in additional fees.
In adopting Regulation NMS, the Commission granted self-regulatory
organizations and broker-dealers increased authority and flexibility to
offer new and unique market data to the public. It was believed that
this authority would expand the amount of data available to consumers,
and also spur innovation and competition for the provision of market
data.
The Commission concluded that Regulation NMS--by deregulating the
market in proprietary data--would itself further the Act's goals of
facilitating efficiency and competition:
[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.\5\
---------------------------------------------------------------------------
\5\ 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 SRO rule proposals
establishing or changing dues, fees, or other charges are immediately
effective upon filing regardless of whether such dues, fees, or other
charges are imposed on members of the SRO, non-members, or both.
Section 916 further amended paragraph (C) of Section 19(b)(3) of the
Exchange Act to read, in pertinent part, ``At any time within the 60-
day period beginning on the date of filing of such a proposed rule
change in accordance with the provisions of paragraph (1) [of Section
19(b)], the Commission summarily may temporarily suspend the change in
the rules of the self-regulatory organization made thereby, if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of this title. If the Commission takes
such action, the Commission shall institute proceedings under paragraph
(2)(B) [of Section 19(b)] to determine whether the proposed rule should
be approved or disapproved.''
NASDAQ believes that these amendments to Section 19 of the Act
reflect Congress's intent to allow the Commission to rely upon the
forces of competition to ensure that fees for market data are
reasonable and equitably allocated. Although Section 19(b) had formerly
authorized immediate effectiveness for a ``due, fee or other charge
imposed by the self-regulatory organization,'' the Commission adopted a
policy and subsequently a rule stipulating that fees for data and other
products available to persons that are not members of the self-
regulatory organization must be approved by the Commission after first
being published for comment. At the time, the Commission supported the
adoption of the policy and the rule by pointing out that unlike
members, whose representation in self-regulatory organization
governance was mandated by the Act, non-members should be given the
opportunity to comment on fees before being required to pay them, and
that the Commission should specifically approve all such fees. NASDAQ
believes that the amendment to Section 19 reflects Congress's
conclusion that the evolution of self-regulatory organization
governance and competitive market structure have rendered the
Commission's prior policy on non-member fees obsolete. Specifically,
many exchanges have evolved from member-owned not-for-profit
corporations into for-profit investor-owned corporations (or
subsidiaries of investor-owned corporations). Accordingly, exchanges no
longer have narrow incentives to manage their affairs for the exclusive
benefit of their members, but rather have incentives to maximize the
appeal of their products to all customers, whether members or non-
members, so as to broaden distribution and grow revenues. Moreover, we
believe that the change also reflects an endorsement of the
Commission's determinations that reliance on competitive markets is an
appropriate means to ensure equitable and reasonable prices. Simply
put, the change reflects a presumption that all fee changes should be
permitted to take effect immediately, since the level of all fees are
constrained by competitive forces.
The recent decision of the United States Court of Appeals for the
District of Columbia Circuit in NetCoaliton v. SEC, No. 09-1042 (D.C.
Cir. 2010), although reviewing a Commission decision made prior to the
effective date of the Dodd-Frank Act, upheld the Commission's reliance
upon competitive markets to set reasonable and equitably allocated fees
for market data. ``In fact, the legislative history indicates that the
Congress intended that the market system `evolve through the interplay
of competitive forces as unnecessary regulatory restrictions are
[[Page 1060]]
removed' and that the SEC wield its regulatory power `in those
situations where competition may not be sufficient,' such as in the
creation of a `consolidated transactional reporting system.'
NetCoaltion, at 15 (quoting H.R. Rep. No. 94-229, at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 321, 323). The court's conclusions about
Congressional intent are therefore reinforced by the Dodd-Frank Act
amendments, which create a presumption that exchange fees, including
market data fees, may take effect immediately, without prior Commission
approval, and that the Commission should take action to suspend a fee
change and institute a proceeding to determine whether the fee change
should be approved or disapproved only where the Commission has
concerns that the change may not be consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. Notwithstanding its
determination that the Commission may rely upon competition to
establish fair and equitably allocated fees for market data, the
NetCoaltion court found that the Commission had not, in that case,
compiled a record that adequately supported its conclusion that the
market for the data at issue in the case was competitive. For the
reasons discussed above, NASDAQ believes that the Dodd-Frank Act
amendments to Section 19 materially alter the scope of the Commission's
review of future market data filings, by creating a presumption that
all fees may take effect immediately, without prior analysis by the
Commission of the competitive environment. Even in the absence of this
important statutory change, however, NASDAQ believes that a record may
readily be established to demonstrate the competitive nature of the
market in question.
There is intense competition between trading platforms that provide
transaction execution and routing services and proprietary data
products. Transaction execution and proprietary data products are
complementary in that market data is both an input and a byproduct of
the execution service. In fact, market data and trade execution are a
paradigmatic example of joint products with joint costs. The decision
whether and on which platform to post an order will depend on the
attributes of the platform where the order can be posted, including the
execution fees, data quality and price and distribution of its data
products. Without the prospect of a taking order seeing and reacting to
a posted order on a particular platform, the posting of the order would
accomplish little. Without trade executions, exchange data products
cannot exist. Data products are valuable to many end users only insofar
as they provide information that end users expect will assist them or
their customers in making trading decisions.
The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's transaction execution
platform and the cost of regulating the exchange to ensure its fair
operation and maintain investor confidence. The total return that a
trading platform earns reflects the revenues it receives from both
products and the joint costs it incurs. Moreover, an exchange's
customers view the costs of transaction executions and of data as a
unified cost of doing business with the exchange. A broker-dealer will
direct orders to a particular exchange only if the expected revenues
from executing trades on the exchange exceed net transaction execution
costs and the cost of data that the broker-dealer chooses to buy to
support its trading decisions (or those of its customers). The choice
of data products is, in turn, a product of the value of the products in
making profitable trading decisions. If the cost of the product exceeds
its expected value, the broker-dealer will choose not to buy it.
Moreover, as a broker-dealer chooses to direct fewer orders to a
particular exchange, the value of the product to that broker-dealer
decreases, for two reasons. First, the product will contain less
information, because executions of the broker-dealer's orders will not
be reflected in it. Second, and perhaps more important, the product
will be less valuable to that broker-dealer because it does not provide
information about the venue to which it is directing its orders. Data
from the competing venue to which the broker-dealer is directing orders
will become correspondingly more valuable.
Thus, a super-competitive increase in the fees charged for either
transactions or data has the potential to impair revenues from both
products. ``No one disputes that competition for order flow is
`fierce'.'' NetCoalition at 24. However, the existence of fierce
competition for order flow implies a high degree of price sensitivity
on the part of broker-dealers with order flow, since they may readily
reduce costs by directing orders toward the lowest-cost trading venues.
A broker-dealer that shifted its order flow from one platform to
another in response to order execution price differentials would both
reduce the value of that platform's market data and reduce its own need
to consume data from the disfavored platform. Similarly, if a platform
increases its market data fees, the change will affect the overall cost
of doing business with the platform, and affected broker-dealers will
assess whether they can lower their trading costs by directing orders
elsewhere and thereby lessening the need for the more expensive data.
Analyzing the cost of market data distribution in isolation from
the cost of all of the inputs supporting the creation of market data
will inevitably underestimate the cost of the data. Thus, because it is
impossible to create data without a fast, technologically robust, and
well-regulated execution system, system costs and regulatory costs
affect the price of market data. It would be equally misleading,
however, to attribute all of the exchange's costs to the market data
portion of an exchange's joint product. Rather, all of the exchange's
costs are incurred for the unified purposes of attracting order flow,
executing and/or routing orders, and generating and selling data about
market activity. The total return that an exchange earns reflects the
revenues it receives from the joint products and the total costs of the
joint products.
Competition among trading platforms can be expected to constrain
the aggregate return each platform earns from the sale of its joint
products, but different platforms may choose from a range of possible,
and equally reasonable, pricing strategies as the means of recovering
total costs. For example, some platform may choose to pay rebates to
attract orders, charge relatively low prices for market information (or
provide information free of charge) and charge relatively high prices
for accessing posted liquidity. Other platforms may choose a strategy
of paying lower rebates (or no rebates) to attract orders, setting
relatively high prices for market information, and setting relatively
low prices for accessing posted liquidity. In this environment, there
is no economic basis for regulating maximum prices for one of the joint
products in an industry in which suppliers face competitive constraints
with regard to the joint offering. This would be akin to strictly
regulating the price that an automobile manufacturer can charge for car
sound systems despite the existence of a highly competitive market for
cars and the
[[Page 1061]]
availability of after-market alternatives to the manufacturer-supplied
system.
The market for market data products is competitive and inherently
contestable because there is fierce competition for the inputs
necessary to the creation of proprietary data and strict pricing
discipline for the proprietary products themselves. Numerous exchanges
compete with each other for listings, trades, and market data itself,
providing virtually limitless opportunities for entrepreneurs who wish
to produce and distribute their own market data. This proprietary data
is produced by each individual exchange, as well as other entities, in
a vigorously competitive market.
Broker-dealers currently have numerous alternative venues for their
order flow, including ten self-regulatory organization (``SRO'')
markets, as well as internalizing broker-dealers (``BDs'') and various
forms of alternative trading systems (``ATSs''), including dark pools
and electronic communication networks (``ECNs''). Each SRO market
competes to produce transaction reports via trade executions, and two
FINRA-regulated Trade Reporting Facilities (``TRFs'') compete to
attract internalized transaction reports. Competitive markets for order
flow, executions, and transaction reports provide pricing discipline
for the inputs of proprietary data products.
The large number of SROs, TRFs, BDs, and ATSs that currently
produce proprietary data or are currently capable of producing it
provides further pricing discipline for proprietary data products. Each
SRO, TRF, ATS, and BD is currently permitted to produce proprietary
data products, and many currently do or have announced plans to do so,
including NASDAQ, NYSE, NYSE Amex, NYSEArca, and BATS.
Any ATS or BD can combine with any other ATS, BD, or multiple ATSs
or BDs to produce joint proprietary data products. Additionally, order
routers and market data vendors can facilitate single or multiple
broker-dealers' production of proprietary data products. The potential
sources of proprietary products are virtually limitless.
The fact that proprietary data from ATSs, BDs, and vendors can by-
pass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and sale of proprietary data
products, as BATS and Arca did before registering as exchanges by
publishing proprietary book data on the Internet. Second, because a
single order or transaction report can appear in an SRO proprietary
product, a non-SRO proprietary product, or both, the data available in
proprietary products is exponentially greater than the actual number of
orders and transaction reports that exist in the marketplace.
Market data vendors provide another form of price discipline for
proprietary data products because they control the primary means of
access to end users. Vendors impose price restraints based upon their
business models. For example, vendors such as Bloomberg and Thomson
Reuters that assess a surcharge on data they sell may refuse to offer
proprietary products that end users will not purchase in sufficient
numbers. Internet portals, such as 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 court in NetCoalition concluded that the Commission had failed
to demonstrate that the market for market data was competitive based on
the reasoning of the Commission's NetCoalition order because, in the
court's view, the Commission had not adequately demonstrated that the
depth-of-book data at issue in the case is used to attract order flow.
NASDAQ believes, however, that evidence not before the court clearly
demonstrates that availability of data attracts order flow. For
example, as of July 2010, 92 of the top 100 broker-dealers by shares
executed on NASDAQ consumed Level 2/NQDS and 80 of the top 100 broker-
dealers consumed TotalView. During that month, the Level 2/NQDS-users
were responsible for 94.44% of the orders entered into NASDAQ and
TotalView users were responsible for 92.98%.
Competition among platforms has driven NASDAQ continually to
improve its platform data offerings and to cater to customers' data
needs. For example, NASDAQ has developed and maintained multiple
delivery mechanisms (IP, multi-cast, and compression) that enable
customers to receive data in the form and manner they prefer and at the
lowest cost to them. NASDAQ offers front end applications such as its
``Bookviewer'' to help customers utilize data. NASDAQ has created new
products like TotalView Aggregate to complement TotalView ITCH and
Level 2/NQDS, because offering data in multiple formatting allows
NASDAQ to better fit customer needs. NASDAQ offers data via multiple
extranet providers, thereby helping to reduce network and total cost
for its data products. NASDAQ has developed an online administrative
system to provide customers transparency into their data feed requests
and streamline data usage reporting. NASDAQ has also expanded its
Enterprise License options that reduce the administrative burden and
costs to firms that purchase market data.
Despite these enhancements and a dramatic increase in message
traffic, NASDAQ's fees for market data have remained flat. In fact, as
a percent of total customer costs, NASDAQ data fees have fallen
relative to other data usage costs--including bandwidth, programming,
and infrastructure--that have risen. The same holds true for execution
services; despite numerous enhancements to NASDAQ's trading platform,
absolute and relative trading costs have declined. Platform competition
has intensified as new entrants have emerged, constraining prices for
both executions and for data.
The vigor of competition for depth information is significant and
the Exchange believes that this proposal
[[Page 1062]]
clearly evidences such competition. NASDAQ is offering a new pricing
model in order to keep pace with changes in the industry and evolving
customer needs. It 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. The market for this depth information is highly
competitive and continually evolves as products develop and change.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\6\
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\6\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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: (i)
necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) 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 rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2014-125 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2014-125. 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-NASDAQ-2014-125 and
should be submitted on or before January 29, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00051 Filed 1-7-15; 8:45 am]
BILLING CODE 8011-01-P
