Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding NASDAQ Last Sale Plus, 47968-47974 [2015-19537]
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Federal Register / Vol. 80, No. 153 / Monday, August 10, 2015 / Notices
(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)
of the Act 14 and paragraph (f) of Rule
19b–4 thereunder.15 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.
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:
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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–
EDGA–2015–29 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–EDGA–2015–29. 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 will also 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–EDGA–
2015–29 and should be submitted on or
before August 31, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–19534 Filed 8–7–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75600; File No. SR–
NASDAQ–2015–088]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Regarding
NASDAQ Last Sale Plus
August 4, 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 July 24,
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.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Rule 7039 (NASDAQ Last Sale and
NASDAQ Last Sale Plus Data Feeds)
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
14 15
U.S.C. 78s(b)(3)(A).
15 17 CFR 240.19b–4(f).
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with language indicating the fees for
NASDAQ Last Sale Plus (‘‘NLS Plus’’),
a comprehensive data feed offered by
NASDAQ OMX Information LLC.3
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 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
The purpose of this proposal is to
amend Rule 7039 with language
indicating the fees for NLS Plus. NLS
Plus allows data distributors to access
the three last sale products offered by
each of NASDAQ OMX’s three U.S.
equity markets.4 Thus, in offering NLS
Plus, NASDAQ OMX Information LLC is
acting as a redistributor of last sale
products already offered by NASDAQ,
3 NASDAQ OMX Information LLC is a subsidiary
of The NASDAQ OMX Group, Inc. (‘‘NASDAQ
OMX’’).
4 The NASDAQ OMX U.S. equity markets include
The NASDAQ Stock Market (‘‘NASDAQ’’),
NASDAQ OMX BX (‘‘BX’’), and NASDAQ OMX
PSX (‘‘PSX’’) (together known as the ‘‘NASDAQ
OMX equity markets’’). PSX and BX will shortly file
companion proposals regarding data feeds similar
to NLS Plus. NASDAQ’s last sale product, NASDAQ
Last Sale, includes last sale information from the
FINRA/NASDAQ Trade Reporting Facility
(‘‘FINRA/NASDAQ TRF’’), which is jointly
operated by NASDAQ and the Financial Industry
Regulatory Authority (‘‘FINRA’’). See Securities
Exchange Act Release No. 71350 (January 17, 2014),
79 FR 4218 (January 24, 2014) (SR–FINRA–2014–
002). For proposed rule changes submitted with
respect to NASDAQ Last Sale, BX Last Sale, and
PSX Last Sale, see, e.g., Securities Exchange Act
Release Nos. 57965 (June 16, 2008), 73 FR 35178,
(June 20, 2008) (SR–NASDAQ–2006–060) (order
approving NASDAQ Last Sale data feeds pilot);
61112 (December 4, 2009), 74 FR 65569, (December
10, 2009) (SR–BX–2009–077) (notice of filing and
immediate effectiveness regarding BX Last Sale data
feeds); and 62876 (September 9, 2010), 75 FR
56624, (September 16, 2010) (SR–Phlx–2010–120)
(notice of filing and immediate effectiveness
regarding PSX Last Sale data feeds).
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BX, and PSX and volume information
provided by the securities information
processors for Tape A, B, and C.5 This
proposal is being filed by the Exchange
to indicate the fees for the NLS Plus
data feed offering and in light of the
recent approval order regarding NLS
Plus.6
NLS Plus allows data distributors to
access last sale products offered by each
of NASDAQ OMX’s three equity
exchanges. NLS Plus includes all
transactions from all of NASDAQ
OMX’s equity markets, as well as
FINRA/NASDAQ TRF data that is
included in the current NLS product. In
addition, NLS Plus features total crossmarket volume information at the issue
level, thereby providing redistribution
of consolidated volume information
(‘‘consolidated volume’’) from the
securities information processors
(‘‘SIPs’’) for Tape A, B, and C
securities.7 Thus, NLS Plus covers all
securities listed on NASDAQ and New
York Stock Exchange (‘‘NYSE’’) (now
under the Intercontinental Exchange
(‘‘ICE’’) umbrella), as well as US
‘‘regional’’ exchanges such as NYSE
MKT, NYSE Arca, and BATS (also
known as BATS/Direct Edge).8 As noted
in the NLS Plus Approval Order, the
Exchange is filing this separate proposal
regarding the NLS Plus fee structure.
NLS Plus is currently codified in Rule
7039(d) 9 in a manner similar to
products of other markets.10 NLS Plus is
5 Tape A and Tape B securities are disseminated
pursuant to the Security Industry Automation
Corporation’s (‘‘SIAC’’) Consolidated Tape
Association Plan/Consolidated Quotation System,
or CTA/CQS (‘‘CTA’’). Tape C securities are
disseminated pursuant to the NASDAQ Unlisted
Trading Privileges (‘‘UTP’’) Plan.
6 See Securities Exchange Act Release No. 75257
(June 22, 2015), 80 FR 36862 (June 26, 2015) (SR–
NASDAQ–2015–055) (order approving proposed
rule change regarding NASDAQ Last Sale Plus); and
Rule 7039(d). See also Securities Exchange Act
Release No. 74972 (May 15, 2015), 80 FR 29370
(May 21, 2015) (SR–NASDAQ–2015–055) (notice of
filing of proposed rule change regarding NASDAQ
Last Sale Plus). These filings are known as ‘‘NLS
Plus Approval Order’’ and ‘‘NLS Plus notice’’,
respectively. NLS Plus, which is codified in Rule
7039(d), has been offered since 2010 via NASDAQ
OMX Information LLC. NLS Plus is described
online at https://nasdaqtrader.com/content/
technicalsupport/specifications/dataproducts/
NLSPlusSpecification.pdf; and the annual
administrative and other fees for NLS Plus are
noted at https://nasdaqtrader.com/
Trader.aspx?id=DPUSdata#ls.
7 This reflects real-time trading activity for Tape
C securities and 15-minute delayed information for
Tape A and Tape B securities.
8 Registered U.S. exchanges are listed at https://
www.sec.gov/divisions/marketreg/
mrexchanges.shtml.
9 See supra note 6.
10 See Securities Exchange Act Release No. 73918
(December 23, 2014), 79 FR 78920 (December 31,
2014) (SR–BATS–2014–055; SR–BYX–2014–030;
SR–EDGA–2014–25; SR–EDGX–2014–25) (order
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offered, as noted, through NASDAQ
OMX Information LLC, which is a
subsidiary of The NASDAQ OMX
Group, Inc. that is separate and apart
from The NASDAQ Stock Market LLC.
NASDAQ OMX Information LLC
combines publicly available data from
the three filed last sale products of the
NASDAQ OMX equity markets and from
the network processors for the ease and
convenience of market data users and
vendors, and ultimately the investing
public. In that role, the function of
NASDAQ OMX Information LLC is
analogous to that of other market data
vendors, and it has no competitive
advantage over other market data
vendors. NASDAQ OMX Information
LLC distributes no data that is not
equally available to all market data
vendors. For example, NASDAQ OMX
Information LLC receives data from the
exchange that is available to other
market data vendors, with the same
information distributed to NASDAQ
OMX Information LLC at the same time
it is distributed to other vendors (that is,
NASDAQ OMX Information LLC has
neither a speed nor an information
differential). Through this structure,
NASDAQ OMX Information LLC
performs precisely the same functions
as Bloomberg, Thomson Reuters, and
dozens of other market data vendors;
and the contents of the NLS Plus data
stream are similar in nature to what is
distributed by other exchanges.
The Exchange believes that market
data distributors may use the NLS Plus
data feed to feed stock tickers, portfolio
trackers, trade alert programs, time and
sale graphs, and other display systems.
The contents of NLS Plus are set forth
in NASDAQ Rule 7039(d).11
Specifically, subsection (d) states that
NASDAQ Last Sale Plus is a
comprehensive data feed produced by
NASDAQ OMX Information LLC that
provides last sale data as well as
consolidated volume of NASDAQ OMX
equity markets (NASDAQ, BX, and PSX)
and the NASDAQ/FINRA Trade
Reporting Facility(‘‘TRF’’). NASDAQ
approving market data product called BATS One
Feed being offered by four affiliated exchanges). See
also Securities Exchange Act Release No. 73553
(November 6, 2014), 79 FR 67491 (November 13,
2014) (SR–NYSE–2014–40) (order granting approval
to establish the NYSE Best Quote & Trades (‘‘BQT’’)
Data Feed). These exchanges have likewise
instituted fees for their products.
11 The contents of NLS Plus in large part mimic
those of NLS, which is set forth in NASDAQ Rule
7039(a)–(c). Similar to NLS, NLS Plus offers data for
all U.S. equities via two separate data channels: The
first data channel reflects NASDAQ, BX, and PSX
trades with real-time consolidated volume for
NASDAQ-listed securities; and the second data
channel reflects NASDAQ, BX, and PSX trades with
delayed consolidated volume for NYSE, NYSE
MKT, NYSE Arca and BATS-listed securities.
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Last Sale Plus also reflects cumulative
volume real-time trading activity across
all U.S. exchanges for Tape C securities
and 15-minute delayed information for
Tape A and Tape B securities. NLS Plus
also contains the following data
elements: Trade Price, Trade Size, Sale
Condition Modifiers, Cumulative
Consolidated Market Volume, End of
Day Trade Summary, Adjusted Closing
Price, IPO Information, and Bloomberg
ID. Additionally, pertinent regulatory
information such as Market Wide
Circuit Breaker, Reg SHO Short Sale
Price Test Restricted Indicator, Trading
Action, Symbol Directory, Adjusted
Closing Price, and End of Day Trade
Summary are included.12 NLS Plus may
be received by itself or in combination
with NASDAQ Basic. The Exchange
now proposes to add into Rule 7039(d)
the fees associated with NLS Plus.
The Fees
Firms that receive an NLS Plus feed
today are liable for annual
administration fees for applicable
NASDAQ equity exchanges: $1,000 for
NASDAQ, $1,000 for BX, and $1,000 for
PSX.13 In addition, firms that receive
NLS Plus are liable for NLS or NASDAQ
Basic fees.14 Finally, firms will pay a
12 The overwhelming majority of these data
elements and messages are exactly the same as, and
in fact are sourced from, NLS, BX Last Sale, and
PSX Last Sale. Only two data elements
(consolidated volume and Bloomberg ID) are
sourced from other publicly accessible or obtainable
resources. The Reg SHO Short Sale Price Test
Restricted Indicator message is disseminated intraday when a security has a price drop of 10% or
more from the adjusted prior day’s NASDAQ
Official Closing Price. Trading Action indicates the
current trading status of a security to the trading
community, and indicates when a security is
halted, paused, released for quotation, and released
for trading. Symbol Directory is disseminated at the
start of each trading day for all active NASDAQ and
non-NASDAQ-listed security symbols. Adjusted
Closing Price is disseminated at the start of each
trading day for all active symbols in the NASDAQ
system. End of Day Trade Summary is disseminated
at the close of each trading day, as a summary for
all active NASDAQ- and non-NASDAQ-listed
securities. IPO Information reflects IPO general
administrative messages from the UTP and CTA
Level 1 feeds for Initial Public Offerings for all
NASDAQ- and non-NASDAQ-listed securities. For
additional information, see NLS Plus Approval
Order.
13 For current fees, see https://nasdaqtrader.com/
Trader.aspx?id=DPUSdata#ls. Annual
administrative fees are in BX Rule 7035, NASDAQ
Rule 7035, and NASDAQ OMX PSX Fees Chapter
VIII.
14 User fees for NLS and NASDAQ Basic are in
NASDAQ Rules 7039 and 7047. User fees for BX
Last Sale are in BX Rule 7039 (currently there is no
fee liability), and for PSX Last Sale are in NASDAQ
OMX PSX Fees Chapter VIII (currently there is no
fee liability). As currently described in NASDAQ
Rule 7047, NASDAQ Basic provides two sets of data
elements: (1) the best bid and offer on the NASDAQ
Stock Market for each U.S. equity security; and (2)
the last sale information currently provided by NLS.
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data consolidation fee of $350 per
month.
Accordingly, proposed Rule 7039
states the following at sections (d)(1)
through (d)(3):
(1) Firms that receive NLS Plus shall
pay the annual administration fees for
NLS, BX Last Sale, and PSX Last Sale,
and a data consolidation fee of $350 per
month.
(2) Firms that receive NLS Plus are in
addition liable for NLS or NASDAQ
Basic fees, as applicable.
(3) In the event that NASDAQ OMX
BX and/or NASDAQ OMX PHLX adopt
user fees for BX Last Sale and/or PSX
Last Sale, firms that receive NLS Plus
would also be liable for such fees.15
The Exchange notes that the proposed
fee structure is designed to ensure that
vendors could compete with the
Exchange by creating a product similar
to NLS Plus.16 The proposed fee
structure reflects the current annual
administrative cost as well as the
incremental cost of the aggregation and
consolidation function (generally
known as the ‘‘consolidation function’’)
for NLS Plus, and would not be lower
than the cost to a vendor creating a
competing product, including the cost
of receiving the underlying data feeds.
The proposed fee structure for NLS Plus
would enable a vendor to receive the
underlying data feeds and offer a similar
product on a competitive basis and with
no greater cost than the Exchange.17
The proposed fee structure is
reasonable and proper. First, the
proposed administration fee is
essentially a codification of the current
administration fee vis a vis NASDAQ,
BX and PSX. Second, NLS Plus
recipients would also be liable for fees
if the Exchange adopts user fees for BX
Last Sale and/or PSX Last Sale. To that
end, the Exchange notes that it will file
separate proposals to adopt NLS Plus in
the BX Last Sale and PSX Last Sale
provisions,18 as well as separate fee
proposals that would each, like this
filing, be expected to have an
administrative fee component and a
consolidation component. Third, firms
receive NLS Plus by itself or in
15 BX Last Sale and PSX Last Sale currently are
not fee liable, as noted in BX Rule 7039 and
NASDAQ OMX PSX Fees Chapter VIII, respectively.
16 For discussion in addition to this proposal, see
NLS Plus Approval Order.
17 See also footnote 24 in the NLS Plus notice,
wherein the Exchange indicated that it expects that
the fee structure for NLS Plus will reflect an amount
that is no less than the cost to a market data vendor
to obtain all the underlying feeds, plus an amount
to be determined that would reflect the value of the
aggregation and consolidation function.
18 BX Rule 7039 and NASDAQ OMX PSX Fees
Chapter VIII.
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conjunction with NASDAQ Basic.19
Accordingly, firms would either be
liable for NLS fees or NASDAQ Basic
fees. Fourth, the Exchange proposes that
NLS Plus includes a specific monthly
$350 data consolidation fee. This fee is
designed to recoup the monthly
consolidation costs emanating from the
aggregation and consolidation of the
data and data streams that make up the
NLS Plus data feed. Such consolidated
costs include, for example, the costs of
combining the feeds, adding the
Bloomberg ID, and combining the
consolidated sale info. The Exchange
believes that this consolidation fee,
while in addition to the current NLS
Plus fees in place, would not be material
to firms.
The Exchange believes that the
proposed NLS Plus fee is a simple
codification of the existing NLS PLS
[sic] fee into Rule 7039, as discussed,
with the addition of a monthly data
consolidation fee, and as such meets the
requirements of the Act.
2. Statutory Basis
NASDAQ believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,20 in
general, and with Sections 6(b)(4) and
(5) of the Act,21 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees, and other charges
among its members, issuers and other
persons using its facilities, and does not
unfairly discriminate between
customers, issuers, brokers or dealers.
The Exchange is codifying the fees
regarding the NLS Plus data offering and
the consolidation fee, as discussed, into
sections (d)(1) through (d)(3) of Rule
7039.
NASDAQ believes that the proposed
fees offered to firms that elect to receive
NLS Plus are reasonable, equitable and
not unfairly discriminatory. These fees
are reasonable because they are, as
discussed, simply a codification of the
existing fee structure, with an addition
of the above-discussed consolidation
fee, into existing Rule 7039. The
proposed fee structure would apply
equally to all firms that choose to avail
themselves of the NLS Plus data feed,
and no firm is required to use NLS Plus.
Moreover, the Exchange believes that
the consolidation fee, while in addition
to the current NLS Plus fee, would not
be material to firms. The consolidation
fee would, however, enable the
Exchange to recoup the monthly
19 As provided in Rule 7047, NASDAQ Basic
provides the information contained in NLS,
together with NASDAQ’s best bid and best offer.
20 15 U.S.C. 78f.
21 15 U.S.C. 78f(b)(4) and (5).
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consolidation cost emanating from the
aggregation and consolidation of the
data and data streams that make up the
NLS Plus data feed. Such consolidated
costs include, for example, the monthly
the costs of combining the feeds, adding
the Bloomberg ID, and creating the
consolidated sale info. The proposed fee
structure would not be unfairly
discriminatory because it would apply
equally to all firms that choose to use
NLS Plus.
NASDAQ believes that the proposed
fees are also consistent with the investor
protection objectives of Section 6(b)(5)
of the Act 22 in that they are designed to
promote just and equitable principles of
trade, to remove impediments to a free
and open market and national market
system, and in general to protect
investors and the public interest.
Specifically, the proposed fee structure
will codify the fees regarding the NLS
Plus data offering into sections (d)(1)
through (d)(3) of Rule 7039, which helps
to assure proper enforcement of the rule
and investor protection. NASDAQ
believes also that the proposal facilitates
transactions in securities, removes
impediments to and perfects the
mechanism of a free and open market
and a national market system, and, in
general, protects investors and the
public interest by codifying into a rule
the fee liability for an additional means
by which investors may access
information about securities
transactions, namely NLS Plus, thereby
providing investors with additional
options for accessing information that
may help to inform their trading
decisions.
NASDAQ notes that the Commission
has recently approved data products on
several exchanges that are similar to
NLS Plus, and specifically determined
that the fee-liable approved data
products were consistent with the Act.23
NLS Plus simply provides market
participants with an additional option
for receiving market data that has
already been the subject of a proposed
rule change and that is available from
myriad market data vendors.
In adopting Regulation NMS, the
Commission granted SROs and brokerdealers (‘‘BDs’’) 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. NASDAQ believes that its
NLS Plus market data product is
22 15
U.S.C. 78f(b)(5).
supra note 10 regarding BATS One and
NYSE BQT.
23 See
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precisely the sort of market data product
that the Commission envisioned when it
adopted Regulation NMS. 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:
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[E]fficiency is promoted when brokerdealers 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.24
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 BDs at all, it follows that the
price at which such data is sold should
be set by the market as well.
The decision of the United States
Court of Appeals for the District of
Columbia Circuit in NetCoalition v.
SEC, 615 F.3d 525 (D.C. Cir. 2010)
(‘‘NetCoalition I’’), 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 I, at 535 (quoting
H.R. Rep. No. 94–229, at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 321,
323). The court agreed with the
Commission’s conclusion that
‘‘Congress intended that ‘competitive
forces should dictate the services and
practices that constitute the U.S.
national market system for trading
equity securities.’ ’’ 25
The Court in NetCoalition I, while
upholding the Commission’s conclusion
that competitive forces may be relied
upon to establish the fairness of prices,
nevertheless concluded that the record
in that case did not adequately support
the Commission’s conclusions as to the
competitive nature of the market for
24 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
25 NetCoalition I, at 535.
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NYSE Arca’s data product at issue in
that case. As explained below in
NASDAQ’s Statement on Burden on
Competition, however, NASDAQ
believes that there is substantial
evidence of competition in the
marketplace for data that was not in the
record in the NetCoalition I case, and
that the Commission is entitled to rely
upon such evidence in concluding fees
are the product of competition, and
therefore in accordance with the
relevant statutory standards.26
Accordingly, any findings of the court
with respect to that product may not be
relevant to the product at issue in this
filing.
Moreover, fee liable data products
such as NLS Plus are a means by which
exchanges compete to attract order flow,
and this proposal simply codifies the
relevant fee structure into an Exchange
rule. To the extent that exchanges are
successful in such competition, they
earn trading revenues and also enhance
the value of their data products by
increasing the amount of data they are
able to provide. Conversely, to the
extent that exchanges are unsuccessful,
the inputs needed to add value to data
products are diminished. Accordingly,
the need to compete for order flow
places substantial pressure upon
exchanges to keep their fees for both
executions and data reasonable.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed fee structure is designed to
ensure a fair and reasonable use of
Exchange resources by allowing the
Exchange to recoup costs while
continuing to offer its data products at
competitive rates to firms.
The market for data products is
extremely competitive and firms may
freely choose alternative venues and
data vendors based on the aggregate fees
assessed, the data offered, and the value
provided. This rule proposal does not
burden competition, which continues to
offer alternative data products and, like
the Exchange, set fees,27 but rather
26 It should also be noted that Section 916 of the
Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (‘‘Dodd-Frank Act’’) has
amended paragraph (A) of Section 19(b)(3) of the
Act, 15 U.S.C. 78s(b)(3), to make it clear that all
exchange fees, including fees for market data, may
be filed by exchanges on an immediately effective
basis. See also NetCoalition v. SEC, 715 F.3d 342
(D.C. Cir. 2013) (‘‘NetCoalition II’’) (finding no
jurisdiction to review Commission’s nonsuspension of immediately effective fee changes).
27 See, e.g., supra note 10.
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reflects the competition between data
feed vendors and will further enhance
such competition. As described, NLS
Plus competes directly with existing
similar products and potential products
of market data vendors. NASDAQ OMX
Information LLC was constructed
specifically to establish a level playing
field with market data vendors and to
preserve fair competition between them.
Therefore, NASDAQ OMX Information
LLC receives NLS, BX Last Sale, and
PSX Last Sale from each NASDAQoperated exchange in the same manner,
at the same speed, and reflecting the
same fees as for all market data vendors.
Therefore, NASDAQ Information LLC
has no competitive advantage with
respect to these last sale products and
NASDAQ commits to maintaining this
level playing field in the future. In other
words, NASDAQ will continue to
disseminate separately the underlying
last sale products to avoid creating a
latency differential between NASDAQ
OMX Information LLC and other market
data vendors, and to avoid creating a
pricing advantage for NASDAQ OMX
Information LLC.
NLS Plus joins the existing market for
proprietary last sale data products that
is currently 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.
Similarly, with respect to the FINRA/
NASDAQ TRF data that is a component
of NLS and NLS Plus, allowing
exchanges to operate TRFs has
permitted them to earn revenues by
providing technology and data in
support of the non-exchange segment of
the market. This revenue opportunity
has also resulted in fierce competition
between the two current TRF operators,
with both TRFs charging extremely low
trade reporting fees and rebating the
majority of the revenues they receive
from core market data to the parties
reporting trades.
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
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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 trade
executions, exchange data products
cannot exist. Moreover, 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,
the operation of the exchange is
characterized by high fixed costs and
low marginal costs. This cost structure
is common in content and content
distribution industries such as software,
where developing new software
typically requires a large initial
investment (and continuing large
investments to upgrade the software),
but once the software is developed, the
incremental cost of providing that
software to an additional user is
typically small, or even zero (e.g., if the
software can be downloaded over the
Internet after being purchased).28 In
NASDAQ’s case, it is costly to build and
maintain a trading platform, but the
incremental cost of trading each
additional share on an existing platform,
or distributing an additional instance of
data, is very low. Market information
and executions are each produced
jointly (in the sense that the activities of
trading and placing orders are the
source of the information that is
distributed) and are each subject to
significant scale economies. In such
cases, marginal cost pricing is not
feasible because if all sales were priced
at the margin, NASDAQ would be
unable to defray its platform costs of
providing the joint products. Similarly,
data products cannot make use of TRF
trade reports without the raw material of
the trade reports themselves, and
therefore necessitate the costs of
operating, regulating,29 and maintaining
28 See William J. Baumol and Daniel G. Swanson,
‘‘The New Economy and Ubiquitous Competitive
Price Discrimination: Identifying Defensible Criteria
of Market Power,’’ Antitrust Law Journal, Vol. 70,
No. 3 (2003).
29 It should be noted that the costs of operating
the FINRA/NASDAQ TRF borne by NASDAQ
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a trade reporting system, costs that must
be covered through the fees charged for
use of the facility and sales of associated
data.
An exchange’s BD customers view the
costs of transaction executions and of
data as a unified cost of doing business
with the exchange. A BD 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 BD 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 BD will choose not to buy it.
Moreover, as a BD chooses to direct
fewer orders to a particular exchange,
the value of the product to that BD
decreases, for two reasons. First, the
product will contain less information,
because executions of the BD’s trading
activity will not be reflected in it.
Second, and perhaps more important,
the product will be less valuable to that
BD because it does not provide
information about the venue to which it
is directing its orders. Data from the
competing venue to which the BD is
directing orders will become
correspondingly more valuable.
Similarly, in the case of products such
as NLS Plus that are distributed through
market data vendors, the vendors
provide 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 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 BDs, 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. Exchanges,
TRFs, and other producers of
proprietary data products must
understand and respond to these
varying business models and pricing
include regulatory charges paid by NASDAQ to
FINRA.
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disciplines in order to market
proprietary data products successfully.
Moreover, NASDAQ believes that
products such as NLS Plus can enhance
order flow to NASDAQ by providing
more widespread distribution of
information about transactions in real
time, thereby encouraging wider
participation in the market by investors
with access to the internet or television.
Conversely, the value of such products
to distributors and investors decreases if
order flow falls, because the products
contain less content.
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.
NASDAQ pays rebates to attract orders,
charges relatively low prices for market
information and charges relatively high
prices for accessing posted liquidity.
Other platforms may choose a strategy
of paying lower liquidity rebates to
attract orders, setting relatively low
prices for accessing posted liquidity,
and setting relatively high prices for
market information. Still others may
provide most data free of charge and
rely exclusively on transaction fees to
recover their costs. Finally, some
platforms may incentivize use by
providing opportunities for equity
ownership, which may allow them to
charge lower direct fees for executions
and data.
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. Such regulation is
unnecessary because an ‘‘excessive’’
price for one of the joint products will
ultimately have to be reflected in lower
prices for other products sold by the
firm, or otherwise the firm will
experience a loss in the volume of its
sales that will be adverse to its overall
profitability. In other words, an increase
in the price of data will ultimately have
to be accompanied by a decrease in the
cost of executions, or the volume of both
data and executions will fall.
The level of competition and
contestability in the market is evident in
the numerous alternative venues that
compete for order flow, including
eleven SRO markets, as well as
internalizing 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,
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and two FINRA-regulated TRFs compete
to attract internalized transaction
reports. It is common for BDs to further
and exploit this competition by sending
their order flow and transaction reports
to multiple markets, rather than
providing them all to a single market.
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 MKT, NYSE Arca, and BATS/
Direct Edge.
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 BDs’ production of
proprietary data products. The potential
sources of proprietary products are
virtually limitless. Notably, the
potential sources of data include the
BDs that submit trade reports to TRFs
and that have the ability to consolidate
and distribute their data without the
involvement of FINRA or an exchangeoperated TRF.
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 NYSE 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 a core data product,
an SRO proprietary product, and/or a
non-SRO proprietary product, the data
available in proprietary products is
exponentially greater than the actual
number of orders and transaction
reports that exist in the marketplace.
Indeed, in the case of NLS Plus, the data
provided through that product appears
both in (i) real-time core data products
offered by the SIPs for a fee, (ii) free SIP
data products with a 15-minute time
delay, and (iii) individual exchange data
products, and finds a close substitute in
last-sale products of competing venues.
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
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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 BATS/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 BDs have previously
published their proprietary data
individually, Regulation NMS
encourages market data vendors and
BDs 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. In Europe, Cinnober
aggregates and disseminates data from
over 40 brokers and multilateral trading
facilities.30
In the case of TRFs, the rapid entry of
several exchanges into this space in
2006–2007 following the development
and Commission approval of the TRF
structure demonstrates the
contestability of this aspect of the
market.31 Given the demand for trade
reporting services that is itself a byproduct of the fierce competition for
transaction executions—characterized
notably by a proliferation of ATSs and
BDs offering internalization—any supracompetitive increase in the fees
associated with trade reporting or TRF
data would shift trade report volumes
from one of the existing TRFs to the
other 32 and create incentives for other
TRF operators to enter the space.
Alternatively, because BDs reporting to
TRFs are themselves free to consolidate
the market data that they report, the
market for over-the-counter data itself,
separate and apart from the markets for
execution and trade reporting services—
is fully contestable.
Moreover, consolidated data provides
two additional measures of pricing
discipline for proprietary data products
that are a subset of the consolidated data
stream. First, the consolidated data is
widely available in real-time at $1 per
month for non-professional users.
30 See https://www.cinnober.com/boat-tradereporting.
31 The low cost exit of two TRFs from the market
is also evidence of a contestable market, because
new entrants are reluctant to enter a market where
exit may involve substantial shut-down costs.
32 It should be noted that the FINRA/NYSE TRF
has, in recent weeks, received reports for almost
10% of all over-the-counter volume in NMS stocks.
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47973
Second, consolidated data is also
available at no cost with a 15- or 20minute delay. Because consolidated
data contains marketwide information,
it effectively places a cap on the fees
assessed for proprietary data (such as
last sale data) that is simply a subset of
the consolidated data. The mere
availability of low-cost or free
consolidated data provides a powerful
form of pricing discipline for
proprietary data products that contain
data elements that are a subset of the
consolidated data, by highlighting the
optional nature of proprietary products.
In this environment, a supercompetitive 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 I at 539. The existence of
fierce competition for order flow
implies a high degree of price sensitivity
on the part of BDs with order flow, since
they may readily reduce costs by
directing orders toward the lowest-cost
trading venues. A BD 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. If a
platform increases its market data fees,
the change will affect the overall cost of
doing business with the platform, and
affected BDs will assess whether they
can lower their trading costs by
directing orders elsewhere and thereby
lessening the need for the more
expensive data. Similarly, increases in
the cost of NLS Plus would impair the
willingness of distributors to take a
product for which there are numerous
alternatives, impacting NLS Plus data
revenues, the value of NLS Plus as a tool
for attracting order flow, and ultimately,
the volume of orders routed to NASDAQ
and the value of its other data products.
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.33 At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
33 15
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10AUN1
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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:
tkelley on DSK3SPTVN1PROD with NOTICES
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–2015–088 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2015–088. 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 will also 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.
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All submissions should refer to File
Number SR–NASDAQ–2015–088 and
should be submitted on or before
August 31, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015–19537 Filed 8–7–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75601; File No. SRNASDAQ–2015–087]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Allow Listed
Companies To Opt in to Nasdaq’s AllInclusive Annual Listing Fee
August 4, 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 July 22,
2015, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) 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 the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
DATES:
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq proposes to allow listed
companies not currently subject to
Nasdaq’s all-inclusive annual listing fee
to opt in to that fee program for 2016.
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 and discussed
any comments it received on the
proposed rule change. The text of these
34 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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
Effective January 1, 2015, Nasdaq
adopted an all-inclusive annual listing
fee, which simplifies billing and
provides transparency and certainty to
companies as to the annual cost of
listing.3 This new fee structure was
designed, primarily, to address
customer complaints about the number
and in some cases the variable nature of
certain of Nasdaq’s listing fees. It also
provides benefits to Nasdaq, including
eliminating the multiple invoices that
were sent to a company each year and
providing more certainty as to revenue.4
While this new fee structure will
become operative for all listed
companies in 2018, listed companies
were allowed to elect to be subject to the
all-inclusive annual listing fee effective
January 1, 2015, and were provided
certain incentives to do so.5 Companies
have reacted favorably to the new fee
program and these incentives.
Nasdaq now proposes to allow
currently listed companies that did not
previously opt in to the all-inclusive
annual fee program to do so effective
January 1, 2016. In addition, Nasdaq
proposes to offer companies an
incentive to opt in, similar to the
incentive offered companies that opted
in to the all-inclusive annual fee
program for 2015. Specifically, from
July 22, 2015 until December 31, 2015,
Nasdaq will allow companies to opt in
to the all-inclusive annual fee program
starting in 2016. Any company that does
so will not be billed for the listing of
additional shares after it submits the
opt-in form to Nasdaq, regardless of
when the shares were issued.6 In
3 Securities Exchange Act Release No. 73647
(November 19, 2014), 79 FR 70232 (November 25,
2014) (SR–NASDAQ–2014–087).
4 Id.
5 See IM–5910–1(b)(1) and IM–5920–1(b)(1).
6 In addition to incentivizing companies to elect
to switch to the all-inclusive annual fee program,
this incentive may also reduce confusion about the
switch to the all-inclusive annual fee program for
some companies. Because listing of additional
shares fees are billed based on a company’s public
filings, share changes could be billed after the
company has opted in and potentially not until
2016, when the company believes it should not
receive any further listing of additional shares fee
bills. While some of these issuances would also be
billed in 2015, Nasdaq believes that the simplicity
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[Federal Register Volume 80, Number 153 (Monday, August 10, 2015)]
[Notices]
[Pages 47968-47974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-19537]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75600; File No. SR-NASDAQ-2015-088]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Regarding NASDAQ Last Sale Plus
August 4, 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 July 24, 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 amend Rule 7039 (NASDAQ Last Sale and
NASDAQ Last Sale Plus Data Feeds) with language indicating the fees for
NASDAQ Last Sale Plus (``NLS Plus''), a comprehensive data feed offered
by NASDAQ OMX Information LLC.\3\
---------------------------------------------------------------------------
\3\ NASDAQ OMX Information LLC is a subsidiary of The NASDAQ OMX
Group, Inc. (``NASDAQ OMX'').
---------------------------------------------------------------------------
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 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
The purpose of this proposal is to amend Rule 7039 with language
indicating the fees for NLS Plus. NLS Plus allows data distributors to
access the three last sale products offered by each of NASDAQ OMX's
three U.S. equity markets.\4\ Thus, in offering NLS Plus, NASDAQ OMX
Information LLC is acting as a redistributor of last sale products
already offered by NASDAQ,
[[Page 47969]]
BX, and PSX and volume information provided by the securities
information processors for Tape A, B, and C.\5\ This proposal is being
filed by the Exchange to indicate the fees for the NLS Plus data feed
offering and in light of the recent approval order regarding NLS
Plus.\6\
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\4\ The NASDAQ OMX U.S. equity markets include The NASDAQ Stock
Market (``NASDAQ''), NASDAQ OMX BX (``BX''), and NASDAQ OMX PSX
(``PSX'') (together known as the ``NASDAQ OMX equity markets''). PSX
and BX will shortly file companion proposals regarding data feeds
similar to NLS Plus. NASDAQ's last sale product, NASDAQ Last Sale,
includes last sale information from the FINRA/NASDAQ Trade Reporting
Facility (``FINRA/NASDAQ TRF''), which is jointly operated by NASDAQ
and the Financial Industry Regulatory Authority (``FINRA''). See
Securities Exchange Act Release No. 71350 (January 17, 2014), 79 FR
4218 (January 24, 2014) (SR-FINRA-2014-002). For proposed rule
changes submitted with respect to NASDAQ Last Sale, BX Last Sale,
and PSX Last Sale, see, e.g., Securities Exchange Act Release Nos.
57965 (June 16, 2008), 73 FR 35178, (June 20, 2008) (SR-NASDAQ-2006-
060) (order approving NASDAQ Last Sale data feeds pilot); 61112
(December 4, 2009), 74 FR 65569, (December 10, 2009) (SR-BX-2009-
077) (notice of filing and immediate effectiveness regarding BX Last
Sale data feeds); and 62876 (September 9, 2010), 75 FR 56624,
(September 16, 2010) (SR-Phlx-2010-120) (notice of filing and
immediate effectiveness regarding PSX Last Sale data feeds).
\5\ Tape A and Tape B securities are disseminated pursuant to
the Security Industry Automation Corporation's (``SIAC'')
Consolidated Tape Association Plan/Consolidated Quotation System, or
CTA/CQS (``CTA''). Tape C securities are disseminated pursuant to
the NASDAQ Unlisted Trading Privileges (``UTP'') Plan.
\6\ See Securities Exchange Act Release No. 75257 (June 22,
2015), 80 FR 36862 (June 26, 2015) (SR-NASDAQ-2015-055) (order
approving proposed rule change regarding NASDAQ Last Sale Plus); and
Rule 7039(d). See also Securities Exchange Act Release No. 74972
(May 15, 2015), 80 FR 29370 (May 21, 2015) (SR-NASDAQ-2015-055)
(notice of filing of proposed rule change regarding NASDAQ Last Sale
Plus). These filings are known as ``NLS Plus Approval Order'' and
``NLS Plus notice'', respectively. NLS Plus, which is codified in
Rule 7039(d), has been offered since 2010 via NASDAQ OMX Information
LLC. NLS Plus is described online at https://nasdaqtrader.com/content/technicalsupport/specifications/dataproducts/NLSPlusSpecification.pdf; and the annual administrative and other
fees for NLS Plus are noted at https://nasdaqtrader.com/Trader.aspx?id=DPUSdata#ls.
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NLS Plus allows data distributors to access last sale products
offered by each of NASDAQ OMX's three equity exchanges. NLS Plus
includes all transactions from all of NASDAQ OMX's equity markets, as
well as FINRA/NASDAQ TRF data that is included in the current NLS
product. In addition, NLS Plus features total cross-market volume
information at the issue level, thereby providing redistribution of
consolidated volume information (``consolidated volume'') from the
securities information processors (``SIPs'') for Tape A, B, and C
securities.\7\ Thus, NLS Plus covers all securities listed on NASDAQ
and New York Stock Exchange (``NYSE'') (now under the Intercontinental
Exchange (``ICE'') umbrella), as well as US ``regional'' exchanges such
as NYSE MKT, NYSE Arca, and BATS (also known as BATS/Direct Edge).\8\
As noted in the NLS Plus Approval Order, the Exchange is filing this
separate proposal regarding the NLS Plus fee structure.
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\7\ This reflects real-time trading activity for Tape C
securities and 15-minute delayed information for Tape A and Tape B
securities.
\8\ Registered U.S. exchanges are listed at https://www.sec.gov/divisions/marketreg/mrexchanges.shtml.
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NLS Plus is currently codified in Rule 7039(d) \9\ in a manner
similar to products of other markets.\10\ NLS Plus is offered, as
noted, through NASDAQ OMX Information LLC, which is a subsidiary of The
NASDAQ OMX Group, Inc. that is separate and apart from The NASDAQ Stock
Market LLC. NASDAQ OMX Information LLC combines publicly available data
from the three filed last sale products of the NASDAQ OMX equity
markets and from the network processors for the ease and convenience of
market data users and vendors, and ultimately the investing public. In
that role, the function of NASDAQ OMX Information LLC is analogous to
that of other market data vendors, and it has no competitive advantage
over other market data vendors. NASDAQ OMX Information LLC distributes
no data that is not equally available to all market data vendors. For
example, NASDAQ OMX Information LLC receives data from the exchange
that is available to other market data vendors, with the same
information distributed to NASDAQ OMX Information LLC at the same time
it is distributed to other vendors (that is, NASDAQ OMX Information LLC
has neither a speed nor an information differential). Through this
structure, NASDAQ OMX Information LLC performs precisely the same
functions as Bloomberg, Thomson Reuters, and dozens of other market
data vendors; and the contents of the NLS Plus data stream are similar
in nature to what is distributed by other exchanges.
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\9\ See supra note 6.
\10\ See Securities Exchange Act Release No. 73918 (December 23,
2014), 79 FR 78920 (December 31, 2014) (SR-BATS-2014-055; SR-BYX-
2014-030; SR-EDGA-2014-25; SR-EDGX-2014-25) (order approving market
data product called BATS One Feed being offered by four affiliated
exchanges). See also Securities Exchange Act Release No. 73553
(November 6, 2014), 79 FR 67491 (November 13, 2014) (SR-NYSE-2014-
40) (order granting approval to establish the NYSE Best Quote &
Trades (``BQT'') Data Feed). These exchanges have likewise
instituted fees for their products.
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The Exchange believes that market data distributors may use the NLS
Plus data feed to feed stock tickers, portfolio trackers, trade alert
programs, time and sale graphs, and other display systems. The contents
of NLS Plus are set forth in NASDAQ Rule 7039(d).\11\ Specifically,
subsection (d) states that NASDAQ Last Sale Plus is a comprehensive
data feed produced by NASDAQ OMX Information LLC that provides last
sale data as well as consolidated volume of NASDAQ OMX equity markets
(NASDAQ, BX, and PSX) and the NASDAQ/FINRA Trade Reporting
Facility(``TRF''). NASDAQ Last Sale Plus also reflects cumulative
volume real-time trading activity across all U.S. exchanges for Tape C
securities and 15-minute delayed information for Tape A and Tape B
securities. NLS Plus also contains the following data elements: Trade
Price, Trade Size, Sale Condition Modifiers, Cumulative Consolidated
Market Volume, End of Day Trade Summary, Adjusted Closing Price, IPO
Information, and Bloomberg ID. Additionally, pertinent regulatory
information such as Market Wide Circuit Breaker, Reg SHO Short Sale
Price Test Restricted Indicator, Trading Action, Symbol Directory,
Adjusted Closing Price, and End of Day Trade Summary are included.\12\
NLS Plus may be received by itself or in combination with NASDAQ Basic.
The Exchange now proposes to add into Rule 7039(d) the fees associated
with NLS Plus.
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\11\ The contents of NLS Plus in large part mimic those of NLS,
which is set forth in NASDAQ Rule 7039(a)-(c). Similar to NLS, NLS
Plus offers data for all U.S. equities via two separate data
channels: The first data channel reflects NASDAQ, BX, and PSX trades
with real-time consolidated volume for NASDAQ-listed securities; and
the second data channel reflects NASDAQ, BX, and PSX trades with
delayed consolidated volume for NYSE, NYSE MKT, NYSE Arca and BATS-
listed securities.
\12\ The overwhelming majority of these data elements and
messages are exactly the same as, and in fact are sourced from, NLS,
BX Last Sale, and PSX Last Sale. Only two data elements
(consolidated volume and Bloomberg ID) are sourced from other
publicly accessible or obtainable resources. The Reg SHO Short Sale
Price Test Restricted Indicator message is disseminated intra-day
when a security has a price drop of 10% or more from the adjusted
prior day's NASDAQ Official Closing Price. Trading Action indicates
the current trading status of a security to the trading community,
and indicates when a security is halted, paused, released for
quotation, and released for trading. Symbol Directory is
disseminated at the start of each trading day for all active NASDAQ
and non-NASDAQ-listed security symbols. Adjusted Closing Price is
disseminated at the start of each trading day for all active symbols
in the NASDAQ system. End of Day Trade Summary is disseminated at
the close of each trading day, as a summary for all active NASDAQ-
and non-NASDAQ-listed securities. IPO Information reflects IPO
general administrative messages from the UTP and CTA Level 1 feeds
for Initial Public Offerings for all NASDAQ- and non-NASDAQ-listed
securities. For additional information, see NLS Plus Approval Order.
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The Fees
Firms that receive an NLS Plus feed today are liable for annual
administration fees for applicable NASDAQ equity exchanges: $1,000 for
NASDAQ, $1,000 for BX, and $1,000 for PSX.\13\ In addition, firms that
receive NLS Plus are liable for NLS or NASDAQ Basic fees.\14\ Finally,
firms will pay a
[[Page 47970]]
data consolidation fee of $350 per month.
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\13\ For current fees, see https://nasdaqtrader.com/Trader.aspx?id=DPUSdata#ls. Annual administrative fees are in BX
Rule 7035, NASDAQ Rule 7035, and NASDAQ OMX PSX Fees Chapter VIII.
\14\ User fees for NLS and NASDAQ Basic are in NASDAQ Rules 7039
and 7047. User fees for BX Last Sale are in BX Rule 7039 (currently
there is no fee liability), and for PSX Last Sale are in NASDAQ OMX
PSX Fees Chapter VIII (currently there is no fee liability). As
currently described in NASDAQ Rule 7047, NASDAQ Basic provides two
sets of data elements: (1) the best bid and offer on the NASDAQ
Stock Market for each U.S. equity security; and (2) the last sale
information currently provided by NLS.
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Accordingly, proposed Rule 7039 states the following at sections
(d)(1) through (d)(3):
(1) Firms that receive NLS Plus shall pay the annual administration
fees for NLS, BX Last Sale, and PSX Last Sale, and a data consolidation
fee of $350 per month.
(2) Firms that receive NLS Plus are in addition liable for NLS or
NASDAQ Basic fees, as applicable.
(3) In the event that NASDAQ OMX BX and/or NASDAQ OMX PHLX adopt
user fees for BX Last Sale and/or PSX Last Sale, firms that receive NLS
Plus would also be liable for such fees.\15\
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\15\ BX Last Sale and PSX Last Sale currently are not fee
liable, as noted in BX Rule 7039 and NASDAQ OMX PSX Fees Chapter
VIII, respectively.
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The Exchange notes that the proposed fee structure is designed to
ensure that vendors could compete with the Exchange by creating a
product similar to NLS Plus.\16\ The proposed fee structure reflects
the current annual administrative cost as well as the incremental cost
of the aggregation and consolidation function (generally known as the
``consolidation function'') for NLS Plus, and would not be lower than
the cost to a vendor creating a competing product, including the cost
of receiving the underlying data feeds. The proposed fee structure for
NLS Plus would enable a vendor to receive the underlying data feeds and
offer a similar product on a competitive basis and with no greater cost
than the Exchange.\17\
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\16\ For discussion in addition to this proposal, see NLS Plus
Approval Order.
\17\ See also footnote 24 in the NLS Plus notice, wherein the
Exchange indicated that it expects that the fee structure for NLS
Plus will reflect an amount that is no less than the cost to a
market data vendor to obtain all the underlying feeds, plus an
amount to be determined that would reflect the value of the
aggregation and consolidation function.
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The proposed fee structure is reasonable and proper. First, the
proposed administration fee is essentially a codification of the
current administration fee vis a vis NASDAQ, BX and PSX. Second, NLS
Plus recipients would also be liable for fees if the Exchange adopts
user fees for BX Last Sale and/or PSX Last Sale. To that end, the
Exchange notes that it will file separate proposals to adopt NLS Plus
in the BX Last Sale and PSX Last Sale provisions,\18\ as well as
separate fee proposals that would each, like this filing, be expected
to have an administrative fee component and a consolidation component.
Third, firms receive NLS Plus by itself or in conjunction with NASDAQ
Basic.\19\ Accordingly, firms would either be liable for NLS fees or
NASDAQ Basic fees. Fourth, the Exchange proposes that NLS Plus includes
a specific monthly $350 data consolidation fee. This fee is designed to
recoup the monthly consolidation costs emanating from the aggregation
and consolidation of the data and data streams that make up the NLS
Plus data feed. Such consolidated costs include, for example, the costs
of combining the feeds, adding the Bloomberg ID, and combining the
consolidated sale info. The Exchange believes that this consolidation
fee, while in addition to the current NLS Plus fees in place, would not
be material to firms.
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\18\ BX Rule 7039 and NASDAQ OMX PSX Fees Chapter VIII.
\19\ As provided in Rule 7047, NASDAQ Basic provides the
information contained in NLS, together with NASDAQ's best bid and
best offer.
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The Exchange believes that the proposed NLS Plus fee is a simple
codification of the existing NLS PLS [sic] fee into Rule 7039, as
discussed, with the addition of a monthly data consolidation fee, and
as such meets the requirements of the Act.
2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\20\ in general, and with
Sections 6(b)(4) and (5) of the Act,\21\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees, and
other charges among its members, issuers and other persons using its
facilities, and does not unfairly discriminate between customers,
issuers, brokers or dealers. The Exchange is codifying the fees
regarding the NLS Plus data offering and the consolidation fee, as
discussed, into sections (d)(1) through (d)(3) of Rule 7039.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f.
\21\ 15 U.S.C. 78f(b)(4) and (5).
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NASDAQ believes that the proposed fees offered to firms that elect
to receive NLS Plus are reasonable, equitable and not unfairly
discriminatory. These fees are reasonable because they are, as
discussed, simply a codification of the existing fee structure, with an
addition of the above-discussed consolidation fee, into existing Rule
7039. The proposed fee structure would apply equally to all firms that
choose to avail themselves of the NLS Plus data feed, and no firm is
required to use NLS Plus. Moreover, the Exchange believes that the
consolidation fee, while in addition to the current NLS Plus fee, would
not be material to firms. The consolidation fee would, however, enable
the Exchange to recoup the monthly consolidation cost emanating from
the aggregation and consolidation of the data and data streams that
make up the NLS Plus data feed. Such consolidated costs include, for
example, the monthly the costs of combining the feeds, adding the
Bloomberg ID, and creating the consolidated sale info. The proposed fee
structure would not be unfairly discriminatory because it would apply
equally to all firms that choose to use NLS Plus.
NASDAQ believes that the proposed fees are also consistent with the
investor protection objectives of Section 6(b)(5) of the Act \22\ in
that they are designed to promote just and equitable principles of
trade, to remove impediments to a free and open market and national
market system, and in general to protect investors and the public
interest. Specifically, the proposed fee structure will codify the fees
regarding the NLS Plus data offering into sections (d)(1) through
(d)(3) of Rule 7039, which helps to assure proper enforcement of the
rule and investor protection. NASDAQ believes also that the proposal
facilitates transactions in securities, removes impediments to and
perfects the mechanism of a free and open market and a national market
system, and, in general, protects investors and the public interest by
codifying into a rule the fee liability for an additional means by
which investors may access information about securities transactions,
namely NLS Plus, thereby providing investors with additional options
for accessing information that may help to inform their trading
decisions.
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\22\ 15 U.S.C. 78f(b)(5).
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NASDAQ notes that the Commission has recently approved data
products on several exchanges that are similar to NLS Plus, and
specifically determined that the fee-liable approved data products were
consistent with the Act.\23\ NLS Plus simply provides market
participants with an additional option for receiving market data that
has already been the subject of a proposed rule change and that is
available from myriad market data vendors.
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\23\ See supra note 10 regarding BATS One and NYSE BQT.
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In adopting Regulation NMS, the Commission granted SROs and broker-
dealers (``BDs'') 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. NASDAQ
believes that its NLS Plus market data product is
[[Page 47971]]
precisely the sort of market data product that the Commission
envisioned when it adopted Regulation NMS. 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.\24\
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\24\ See 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 BDs at
all, it follows that the price at which such data is sold should be set
---------------------------------------------------------------------------
by the market as well.
The decision of the United States Court of Appeals for the District
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010) (``NetCoalition I''), 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 I, at 535 (quoting H.R. Rep. No. 94-229, at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 321, 323). The court agreed with the
Commission's conclusion that ``Congress intended that `competitive
forces should dictate the services and practices that constitute the
U.S. national market system for trading equity securities.' '' \25\
---------------------------------------------------------------------------
\25\ NetCoalition I, at 535.
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The Court in NetCoalition I, while upholding the Commission's
conclusion that competitive forces may be relied upon to establish the
fairness of prices, nevertheless concluded that the record in that case
did not adequately support the Commission's conclusions as to the
competitive nature of the market for NYSE Arca's data product at issue
in that case. As explained below in NASDAQ's Statement on Burden on
Competition, however, NASDAQ believes that there is substantial
evidence of competition in the marketplace for data that was not in the
record in the NetCoalition I case, and that the Commission is entitled
to rely upon such evidence in concluding fees are the product of
competition, and therefore in accordance with the relevant statutory
standards.\26\ Accordingly, any findings of the court with respect to
that product may not be relevant to the product at issue in this
filing.
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\26\ It should also be noted that Section 916 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank
Act'') has amended paragraph (A) of Section 19(b)(3) of the Act, 15
U.S.C. 78s(b)(3), to make it clear that all exchange fees, including
fees for market data, may be filed by exchanges on an immediately
effective basis. See also NetCoalition v. SEC, 715 F.3d 342 (D.C.
Cir. 2013) (``NetCoalition II'') (finding no jurisdiction to review
Commission's non-suspension of immediately effective fee changes).
---------------------------------------------------------------------------
Moreover, fee liable data products such as NLS Plus are a means by
which exchanges compete to attract order flow, and this proposal simply
codifies the relevant fee structure into an Exchange rule. To the
extent that exchanges are successful in such competition, they earn
trading revenues and also enhance the value of their data products by
increasing the amount of data they are able to provide. Conversely, to
the extent that exchanges are unsuccessful, the inputs needed to add
value to data products are diminished. Accordingly, the need to compete
for order flow places substantial pressure upon exchanges to keep their
fees for both executions and data reasonable.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed fee structure is
designed to ensure a fair and reasonable use of Exchange resources by
allowing the Exchange to recoup costs while continuing to offer its
data products at competitive rates to firms.
The market for data products is extremely competitive and firms may
freely choose alternative venues and data vendors based on the
aggregate fees assessed, the data offered, and the value provided. This
rule proposal does not burden competition, which continues to offer
alternative data products and, like the Exchange, set fees,\27\ but
rather reflects the competition between data feed vendors and will
further enhance such competition. As described, NLS Plus competes
directly with existing similar products and potential products of
market data vendors. NASDAQ OMX Information LLC was constructed
specifically to establish a level playing field with market data
vendors and to preserve fair competition between them. Therefore,
NASDAQ OMX Information LLC receives NLS, BX Last Sale, and PSX Last
Sale from each NASDAQ-operated exchange in the same manner, at the same
speed, and reflecting the same fees as for all market data vendors.
Therefore, NASDAQ Information LLC has no competitive advantage with
respect to these last sale products and NASDAQ commits to maintaining
this level playing field in the future. In other words, NASDAQ will
continue to disseminate separately the underlying last sale products to
avoid creating a latency differential between NASDAQ OMX Information
LLC and other market data vendors, and to avoid creating a pricing
advantage for NASDAQ OMX Information LLC.
---------------------------------------------------------------------------
\27\ See, e.g., supra note 10.
---------------------------------------------------------------------------
NLS Plus joins the existing market for proprietary last sale data
products that is currently 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. Similarly, with respect to the FINRA/NASDAQ TRF
data that is a component of NLS and NLS Plus, allowing exchanges to
operate TRFs has permitted them to earn revenues by providing
technology and data in support of the non-exchange segment of the
market. This revenue opportunity has also resulted in fierce
competition between the two current TRF operators, with both TRFs
charging extremely low trade reporting fees and rebating the majority
of the revenues they receive from core market data to the parties
reporting trades.
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
[[Page 47972]]
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 trade executions,
exchange data products cannot exist. Moreover, 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, the operation of the
exchange is characterized by high fixed costs and low marginal costs.
This cost structure is common in content and content distribution
industries such as software, where developing new software typically
requires a large initial investment (and continuing large investments
to upgrade the software), but once the software is developed, the
incremental cost of providing that software to an additional user is
typically small, or even zero (e.g., if the software can be downloaded
over the Internet after being purchased).\28\ In NASDAQ's case, it is
costly to build and maintain a trading platform, but the incremental
cost of trading each additional share on an existing platform, or
distributing an additional instance of data, is very low. Market
information and executions are each produced jointly (in the sense that
the activities of trading and placing orders are the source of the
information that is distributed) and are each subject to significant
scale economies. In such cases, marginal cost pricing is not feasible
because if all sales were priced at the margin, NASDAQ would be unable
to defray its platform costs of providing the joint products.
Similarly, data products cannot make use of TRF trade reports without
the raw material of the trade reports themselves, and therefore
necessitate the costs of operating, regulating,\29\ and maintaining a
trade reporting system, costs that must be covered through the fees
charged for use of the facility and sales of associated data.
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\28\ See William J. Baumol and Daniel G. Swanson, ``The New
Economy and Ubiquitous Competitive Price Discrimination: Identifying
Defensible Criteria of Market Power,'' Antitrust Law Journal, Vol.
70, No. 3 (2003).
\29\ It should be noted that the costs of operating the FINRA/
NASDAQ TRF borne by NASDAQ include regulatory charges paid by NASDAQ
to FINRA.
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An exchange's BD customers view the costs of transaction executions
and of data as a unified cost of doing business with the exchange. A BD
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 BD 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 BD will choose not to buy it. Moreover, as a BD
chooses to direct fewer orders to a particular exchange, the value of
the product to that BD decreases, for two reasons. First, the product
will contain less information, because executions of the BD's trading
activity will not be reflected in it. Second, and perhaps more
important, the product will be less valuable to that BD because it does
not provide information about the venue to which it is directing its
orders. Data from the competing venue to which the BD is directing
orders will become correspondingly more valuable.
Similarly, in the case of products such as NLS Plus that are
distributed through market data vendors, the vendors provide 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 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 BDs,
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.
Exchanges, TRFs, 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.
Moreover, NASDAQ believes that products such as NLS Plus can enhance
order flow to NASDAQ by providing more widespread distribution of
information about transactions in real time, thereby encouraging wider
participation in the market by investors with access to the internet or
television. Conversely, the value of such products to distributors and
investors decreases if order flow falls, because the products contain
less content.
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. NASDAQ pays rebates to attract orders, charges relatively
low prices for market information and charges relatively high prices
for accessing posted liquidity. Other platforms may choose a strategy
of paying lower liquidity rebates to attract orders, setting relatively
low prices for accessing posted liquidity, and setting relatively high
prices for market information. Still others may provide most data free
of charge and rely exclusively on transaction fees to recover their
costs. Finally, some platforms may incentivize use by providing
opportunities for equity ownership, which may allow them to charge
lower direct fees for executions and data.
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. Such regulation is unnecessary because an ``excessive'' price
for one of the joint products will ultimately have to be reflected in
lower prices for other products sold by the firm, or otherwise the firm
will experience a loss in the volume of its sales that will be adverse
to its overall profitability. In other words, an increase in the price
of data will ultimately have to be accompanied by a decrease in the
cost of executions, or the volume of both data and executions will
fall.
The level of competition and contestability in the market is
evident in the numerous alternative venues that compete for order flow,
including eleven SRO markets, as well as internalizing 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,
[[Page 47973]]
and two FINRA-regulated TRFs compete to attract internalized
transaction reports. It is common for BDs to further and exploit this
competition by sending their order flow and transaction reports to
multiple markets, rather than providing them all to a single market.
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 MKT, NYSE Arca, and BATS/Direct Edge.
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 BDs'
production of proprietary data products. The potential sources of
proprietary products are virtually limitless. Notably, the potential
sources of data include the BDs that submit trade reports to TRFs and
that have the ability to consolidate and distribute their data without
the involvement of FINRA or an exchange-operated TRF.
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 NYSE 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 a core data product,
an SRO proprietary product, and/or a non-SRO proprietary product, the
data available in proprietary products is exponentially greater than
the actual number of orders and transaction reports that exist in the
marketplace. Indeed, in the case of NLS Plus, the data provided through
that product appears both in (i) real-time core data products offered
by the SIPs for a fee, (ii) free SIP data products with a 15-minute
time delay, and (iii) individual exchange data products, and finds a
close substitute in last-sale products of competing venues.
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 BATS/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 BDs have
previously published their proprietary data individually, Regulation
NMS encourages market data vendors and BDs 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. In Europe, Cinnober aggregates and disseminates data from over
40 brokers and multilateral trading facilities.\30\
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\30\ See https://www.cinnober.com/boat-trade-reporting.
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In the case of TRFs, the rapid entry of several exchanges into this
space in 2006-2007 following the development and Commission approval of
the TRF structure demonstrates the contestability of this aspect of the
market.\31\ Given the demand for trade reporting services that is
itself a by-product of the fierce competition for transaction
executions--characterized notably by a proliferation of ATSs and BDs
offering internalization--any supra-competitive increase in the fees
associated with trade reporting or TRF data would shift trade report
volumes from one of the existing TRFs to the other \32\ and create
incentives for other TRF operators to enter the space. Alternatively,
because BDs reporting to TRFs are themselves free to consolidate the
market data that they report, the market for over-the-counter data
itself, separate and apart from the markets for execution and trade
reporting services--is fully contestable.
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\31\ The low cost exit of two TRFs from the market is also
evidence of a contestable market, because new entrants are reluctant
to enter a market where exit may involve substantial shut-down
costs.
\32\ It should be noted that the FINRA/NYSE TRF has, in recent
weeks, received reports for almost 10% of all over-the-counter
volume in NMS stocks.
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Moreover, consolidated data provides two additional measures of
pricing discipline for proprietary data products that are a subset of
the consolidated data stream. First, the consolidated data is widely
available in real-time at $1 per month for non-professional users.
Second, consolidated data is also available at no cost with a 15- or
20-minute delay. Because consolidated data contains marketwide
information, it effectively places a cap on the fees assessed for
proprietary data (such as last sale data) that is simply a subset of
the consolidated data. The mere availability of low-cost or free
consolidated data provides a powerful form of pricing discipline for
proprietary data products that contain data elements that are a subset
of the consolidated data, by highlighting the optional nature of
proprietary products.
In this environment, 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 I at 539. The existence of
fierce competition for order flow implies a high degree of price
sensitivity on the part of BDs with order flow, since they may readily
reduce costs by directing orders toward the lowest-cost trading venues.
A BD 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. If a platform increases its market
data fees, the change will affect the overall cost of doing business
with the platform, and affected BDs will assess whether they can lower
their trading costs by directing orders elsewhere and thereby lessening
the need for the more expensive data. Similarly, increases in the cost
of NLS Plus would impair the willingness of distributors to take a
product for which there are numerous alternatives, impacting NLS Plus
data revenues, the value of NLS Plus as a tool for attracting order
flow, and ultimately, the volume of orders routed to NASDAQ and the
value of its other data products.
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.\33\ At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend
[[Page 47974]]
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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\33\ 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-2015-088 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2015-088. 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 will also 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-2015-088 and
should be submitted on or before August 31, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
Robert W. Errett,
Deputy Secretary.
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\34\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-19537 Filed 8-7-15; 8:45 am]
BILLING CODE 8011-01-P
