Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 7046, 70207-70210 [2016-24420]

Download as PDF Federal Register / Vol. 81, No. 196 / Tuesday, October 11, 2016 / Notices markets to all registered Options Market Makers equally. 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 written comments from members or other interested parties. asabaliauskas on DSK3SPTVN1PROD with NOTICES III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (A) Significantly affect the protection of investors or the public interest; (B) impose any significant burden on competition; and (C) by its terms, become operative for 30 days from the date on which it was filed or such shorter time as the Commission may designate it has become effective pursuant to Section 19(b)(3)(A) of the Act 9 and paragraph (f)(6) of Rule 19b– 4 thereunder,10 the Exchange has designated this rule filing as noncontroversial. The Exchange has given the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. 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: (1) Necessary or appropriate in the public interest; (2) for the protection of investors; or (3) 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: • Send an email to rule-comments@ sec.gov. Please include File Number SR– BatsBZX–2016–62 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–BatsBZX–2016–62. 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– BatsBZX–2016–62, and should be submitted on or before November 1, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–24424 Filed 10–7–16; 8:45 am] BILLING CODE 8011–01–P Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or 9 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4. VerDate Sep<11>2014 20:12 Oct 07, 2016 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–79035; File No. SR– NASDAQ–2016–124] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Rule 7046 October 4, 2016. 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 September 23, 2016, 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 Nasdaq is proposing to amend proposed [sic] Nasdaq Rule 7046 (Nasdaq Trading Insights) by adding the corresponding fee for the optional Nasdaq Trading Insights product. The text of the proposed rule change is available at nasdaq.cchwallstreet.com, at Nasdaq’s principal office, 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, Nasdaq included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those 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 parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Nasdaq Rule 7046 (Nasdaq Trading 1 15 10 17 11 17 Jkt 241001 70207 PO 00000 CFR 200.30–3(a)(12). Frm 00123 Fmt 4703 Sfmt 4703 2 17 E:\FR\FM\11OCN1.SGM U.S.C. 78s(b)(1). CFR 240.19b–4. 11OCN1 70208 Federal Register / Vol. 81, No. 196 / Tuesday, October 11, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES Insights) by adding the corresponding fees for the optional Nasdaq Trading Insights product.3 As discussed in the NTI Filing, the Nasdaq Trading Insights product is a single optional market data service comprised of four market data components: (a) Missed Opportunity— Liquidity; (b) Missed Opportunity— Latency; (c) Peer Benchmarking; and (d) Liquidity Dynamics Analysis. Upon request by a potential subscribing firm, Nasdaq will provide the Nasdaq Trading Insights product for a 14-day period at no charge. This waiver may be provided only once per firm. A firm will be charged the monthly fee rate listed in Nasdaq Rule 7046(b)(2) if it does not cancel by the conclusion of the trial offer and the fee will not be pro-rated. The monthly fee rates set forth in Nasdaq Rule 7046(b), as well as in the chart below, will apply to a firm that subscribes to the Nasdaq Trading Insights product. The monthly fee will be based on the number of ports the firm is subscribing to within the Nasdaq Trading Insights product and in no case will the Nasdaq Trading Insights fees be pro-rated. The fees for the Nasdaq Trading Insights product will be in accordance with the following table. 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 Nasdaq Trading Insights market data product is 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 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.7 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 Number of Monthly Tiers be set by the market as well. ports charges Moreover, fee liable data products Tier 1 ................ 1–5 $1,500 such as the Nasdaq Trading Insights Tier 2 ................ 6–15 2,000 product are a means by which Tier 3 ................ 16–25 2,500 exchanges compete to attract order flow, Tier 4 ................ 26+ 3,500 and this proposal simply adds the relevant fee structure into an Exchange 2. Statutory Basis rule. To the extent that exchanges are The Exchange believes that the successful in such competition, they proposed rule change is consistent with earn trading revenues and also enhance the provisions of Section 6 of the Act,4 the value of their data products by in general, and with Sections 6(b)(4) and increasing the amount of data they are (5) of the Act,5 in particular, in that it able to provide. Conversely, to the provides for the equitable allocation of extent that exchanges are unsuccessful, reasonable dues, fees, and other charges the inputs needed to add value to data among its members, issuers and other products are diminished. Accordingly, persons using its facilities, and does not the need to compete for order flow unfairly discriminate between places substantial pressure upon customers, issuers, brokers or dealers. exchanges to keep their fees for both In adopting Regulation NMS,6 the executions and data reasonable. Commission granted SROs and brokerThe fee structure for the Nasdaq dealers (‘‘BDs’’) increased authority and Trading Insights product, including the flexibility to offer new and unique 14-day trial offer, also reflects an market data to the public. It was equitable allocation and will not be unfairly discriminatory because it is a 3 This filing is referenced in the recently voluntary product designed to ensure approved Nasdaq Trading Insights filing (the ‘‘NTI that the amount of the charge is tailored Filing’’) that proposed Nasdaq Rule 7046 (Nasdaq to the specific port usage patterns of the Trading Insights) to the Exchange rule book. See subscriber. Thus, for example, a Securities Exchange Act Release No. 78886 (Sept. 20, 2016) (SR–NASDAQ–2016–101) (order granting subscriber’s monthly charge for approval). receiving access to the Nasdaq Trading 4 15 U.S.C. 78f. Insights product for five ports is $1,500, 5 15 U.S.C. 78f(b)(4) and (5). while a subscriber’s monthly charge for 6 See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). VerDate Sep<11>2014 20:12 Oct 07, 2016 Jkt 241001 7 Id. PO 00000 Frm 00124 Fmt 4703 Sfmt 4703 receiving access to the Nasdaq Trading Insights product for 26 ports is $3,500. The range of fee options further ensures that subscribers are not charged a fee that is inequitably disproportionate to the use that they make of the product. Additionally, the 14-day trial offer provides a potential subscriber an opportunity to try the product before signing on to receive it for a fee. The proposal would not permit unfair discrimination because the Nasdaq Trading Insights product will be available to all interested market participants opting to subscribe, regardless of whether they take advantage of the 14-day trial offer, and will help to protect a free and open market by continuing to provide additional non-core data (offered on an optional basis for a fee) to the marketplace and by providing investors with greater choices.8 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. The Nasdaq Trading Insights product is part of the existing market for proprietary market 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. 8 See Sec. Indus. Fin. Mkts. Ass’n (SIFMA), Initial Decision Release No. 1015, 2016 SEC LEXIS 2278 (ALJ June 1, 2016) (finding the existence of vigorous competition with respect to non-core market data). See also 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’’) (upholding the Commission’s reliance upon competitive markets to set reasonable and equitably allocated fees for market data). E:\FR\FM\11OCN1.SGM 11OCN1 asabaliauskas on DSK3SPTVN1PROD with NOTICES Federal Register / Vol. 81, No. 196 / Tuesday, October 11, 2016 / Notices Transaction execution and proprietary data products are complementary in that market data is both an input and a byproduct of the execution service. In fact, market data and trade execution are a paradigmatic example of joint products with joint costs. The decision whether and on which platform to post an order will depend on the attributes of the platform where the order can be posted, including the execution fees, data quality and price, and distribution of its data products. Without 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).9 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 9 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). VerDate Sep<11>2014 20:12 Oct 07, 2016 Jkt 241001 to defray its platform costs of providing the joint products. Competition among trading platforms can be expected to constrain the aggregate return each platform earns from the sale of its joint products, but different platforms may choose from a range of possible, and equally reasonable, pricing strategies as the means of recovering total costs. Nasdaq pays rebates and credits 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.10 10 Moreover, 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, and two FINRAregulated 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. PO 00000 Frm 00125 Fmt 4703 Sfmt 4703 70209 The proposed charges for the Nasdaq Trading Insights product are designed to ensure a fair and reasonable use of Exchange resources by allowing the Exchange to recoup costs and ease administrative burden while continuing to offer its data products at competitive rates to firms. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.11 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: 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–2016–124 on the subject line. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2016–124. 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 11 15 E:\FR\FM\11OCN1.SGM U.S.C. 78s(b)(3)(A)(ii). 11OCN1 70210 Federal Register / Vol. 81, No. 196 / Tuesday, October 11, 2016 / Notices 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NASDAQ–2016–124, and should be submitted on or before November 1, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Robert W. Errett, Deputy Secretary. [FR Doc. 2016–24420 Filed 10–7–16; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. IC–32303; File No. 812–14452] Terra Income Fund 6, Inc., et al.; Notice of Application October 4, 2016. Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of application for an order under sections 17(d) and 57(i) of the Investment Company Act of 1940 (the ‘‘Act’’) and rule 17d–1 under the Act permitting certain joint transactions otherwise prohibited by sections 17(d) and 57(a)(4) of the Act and rule 17d–1 under the Act. AGENCY: Applicants request an order to permit a business development company (‘‘BDC’’) and certain closed-end investment companies to co-invest in portfolio companies with each other and with affiliated investment funds. APPLICANTS: Terra Income Fund 6, Inc. (‘‘Terra 6’’), Terra Secured Income Fund, LLC (‘‘TSIF’’), Terra Secured Income Fund 2, LLC (‘‘TSIF 2’’), Terra asabaliauskas on DSK3SPTVN1PROD with NOTICES SUMMARY OF APPLICATION: 12 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 20:12 Oct 07, 2016 Jkt 241001 Secured Income Fund 3, LLC (‘‘TSIF 3’’), Terra Secured Income Fund 4, LLC (‘‘TSIF 4’’), Terra Secured Income Fund 5, LLC (‘‘TSIF 5’’), Terra Property Trust, Inc. (‘‘Terra REIT’’), Terra Secured Income Fund 5 International (‘‘Terra International’’), and Terra Income Advisors, LLC (‘‘Terra Income Advisors’’), on behalf of itself and its successors.1 FILING DATES: The application was filed on April 29, 2015 and amended on November 3, 2015, May 11, 2016 and September 14, 2016. HEARING OR NOTIFICATION OF HEARING: An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission’s Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on October 31, 2016, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Pursuant to rule 0–5 under the Act, hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission’s Secretary. ADDRESSES: Brent J. Fields, Secretary, U.S. Securities and Exchange Commission, 100 F St. NE., Washington, DC 20549–1090. Applicants: Bruce D. Batkin, 805 Third Avenue, 8th Floor, New York, NY 10022. FOR FURTHER INFORMATION CONTACT: KayMario Vobis, Senior Counsel, at (202) 551–6728, or Mary Kay Frech, Branch Chief, at (202) 551–6821 (Chief Counsel’s Office, Division of Investment Management). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s Web site by searching for the file number, or for an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. Applicants’ Representations 1. Terra 6 is a Maryland corporation organized as a closed-end management investment company that has elected to be regulated as a BDC within the 1 The term ‘‘successor’’ means an entity that results from a reorganization into another jurisdiction or change in the type of business organization. PO 00000 Frm 00126 Fmt 4703 Sfmt 4703 meaning of section 2(a)(48) of the Act.2 Terra 6 is a specialty finance company formed to invest primarily in commercial real estate loans to, and preferred equity investments in, U.S. companies qualifying as ‘‘eligible portfolio companies’’ under the Act. Terra 6 may also purchase other select commercial real estate-related debt securities of private companies. Terra 6’s Objectives and Strategies 3 are to pay attractive and stable cash distributions and to preserve, protect and return capital contributions to stockholders. The board of directors (‘‘Board’’) of Terra 6 is comprised of five directors, three of whom are not ‘‘interested persons,’’ within the meaning of section 2(a)(19) of the Act (the ‘‘Non-Interested Directors’’), of Terra 6. 2. Each of TSIF, TSIF 2, TSIF 3, TSIF 4 and TSIF 5 is organized as a Delaware limited liability company and would be an investment company but for section 3(c)(5)(C) of the Act. Each of TSIF, TSIF 2, TSIF 3, TSIF 4 and TSIF 5 was formed to originate, fund, acquire and structure real estate-related loans, including mezzanine loans, first and second mortgage loans, subordinated mortgage loans, bridge loans, preferred equity investments and other loans related to high quality commercial real estate in the United States. TSIF, TSIF 2, TSIF 3 and TSIF 4 currently exist as wholly-owned subsidiaries of TSIF 5. 3. Terra REIT is a Maryland corporation that intends to qualify to be taxed as a REIT and would be an investment company but for section 3(c)(5)(C) of the Act. Terra REIT exists as a wholly-owned subsidiary of TSIF 5 and holds the portfolio assets of each of TSIF, TSIF 2, TSIF 3, TSIF 4 and TSIF 5. 4. Terra International is a Cayman Islands exempted company and would be an investment company but for section 3(c)(1) of the Act. Terra International was formed to acquire real estate-related loans, including mezzanine loans, first and second mortgage loans, subordinated mortgage loans, bridge loans and other loans 2 Section 2(a)(48) defines a BDC to be any closedend investment company that operates for the purpose of making investments in securities described in section 55(a)(1) through 55(a)(3) of the Act and makes available significant managerial assistance with respect to the issuers of such securities. 3 ‘‘Objectives and Strategies’’ means, with respect to a Regulated Fund (defined below), the investment objectives and strategies, as described in the Regulated Fund’s registration statement on Form N–2, other filings the Regulated Fund has made with the Commission under the Securities Act of 1933 (the ‘‘Securities Act’’), or under the Securities Exchange Act of 1934, and the Regulated Fund’s reports to shareholders. E:\FR\FM\11OCN1.SGM 11OCN1

Agencies

[Federal Register Volume 81, Number 196 (Tuesday, October 11, 2016)]
[Notices]
[Pages 70207-70210]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24420]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79035; File No. SR-NASDAQ-2016-124]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Nasdaq Rule 7046

October 4, 2016.
    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 September 23, 2016, 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.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq is proposing to amend proposed [sic] Nasdaq Rule 7046 
(Nasdaq Trading Insights) by adding the corresponding fee for the 
optional Nasdaq Trading Insights product.
    The text of the proposed rule change is available at 
nasdaq.cchwallstreet.com, at Nasdaq's principal office, 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, Nasdaq included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of those 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 parts of such 
statements.

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

1. Purpose
    The Exchange proposes to amend Nasdaq Rule 7046 (Nasdaq Trading

[[Page 70208]]

Insights) by adding the corresponding fees for the optional Nasdaq 
Trading Insights product.\3\ As discussed in the NTI Filing, the Nasdaq 
Trading Insights product is a single optional market data service 
comprised of four market data components: (a) Missed Opportunity--
Liquidity; (b) Missed Opportunity--Latency; (c) Peer Benchmarking; and 
(d) Liquidity Dynamics Analysis.
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    \3\ This filing is referenced in the recently approved Nasdaq 
Trading Insights filing (the ``NTI Filing'') that proposed Nasdaq 
Rule 7046 (Nasdaq Trading Insights) to the Exchange rule book. See 
Securities Exchange Act Release No. 78886 (Sept. 20, 2016) (SR-
NASDAQ-2016-101) (order granting approval).
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    Upon request by a potential subscribing firm, Nasdaq will provide 
the Nasdaq Trading Insights product for a 14-day period at no charge. 
This waiver may be provided only once per firm. A firm will be charged 
the monthly fee rate listed in Nasdaq Rule 7046(b)(2) if it does not 
cancel by the conclusion of the trial offer and the fee will not be 
pro-rated.
    The monthly fee rates set forth in Nasdaq Rule 7046(b), as well as 
in the chart below, will apply to a firm that subscribes to the Nasdaq 
Trading Insights product. The monthly fee will be based on the number 
of ports the firm is subscribing to within the Nasdaq Trading Insights 
product and in no case will the Nasdaq Trading Insights fees be pro-
rated. The fees for the Nasdaq Trading Insights product will be in 
accordance with the following table.

------------------------------------------------------------------------
                                                 Number of     Monthly
                     Tiers                         ports       charges
------------------------------------------------------------------------
Tier 1........................................          1-5       $1,500
Tier 2........................................         6-15        2,000
Tier 3........................................        16-25        2,500
Tier 4........................................          26+        3,500
------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\4\ in general, and with 
Sections 6(b)(4) and (5) of the Act,\5\ 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.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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    In adopting Regulation NMS,\6\ 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 Nasdaq Trading Insights market data product is 
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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    \6\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting 
Release'').

    [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.\7\
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    \7\ Id.

    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.
    Moreover, fee liable data products such as the Nasdaq Trading 
Insights product are a means by which exchanges compete to attract 
order flow, and this proposal simply adds 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.
    The fee structure for the Nasdaq Trading Insights product, 
including the 14-day trial offer, also reflects an equitable allocation 
and will not be unfairly discriminatory because it is a voluntary 
product designed to ensure that the amount of the charge is tailored to 
the specific port usage patterns of the subscriber. Thus, for example, 
a subscriber's monthly charge for receiving access to the Nasdaq 
Trading Insights product for five ports is $1,500, while a subscriber's 
monthly charge for receiving access to the Nasdaq Trading Insights 
product for 26 ports is $3,500. The range of fee options further 
ensures that subscribers are not charged a fee that is inequitably 
disproportionate to the use that they make of the product. 
Additionally, the 14-day trial offer provides a potential subscriber an 
opportunity to try the product before signing on to receive it for a 
fee.
    The proposal would not permit unfair discrimination because the 
Nasdaq Trading Insights product will be available to all interested 
market participants opting to subscribe, regardless of whether they 
take advantage of the 14-day trial offer, and will help to protect a 
free and open market by continuing to provide additional non-core data 
(offered on an optional basis for a fee) to the marketplace and by 
providing investors with greater choices.\8\
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    \8\ See Sec. Indus. Fin. Mkts. Ass'n (SIFMA), Initial Decision 
Release No. 1015, 2016 SEC LEXIS 2278 (ALJ June 1, 2016) (finding 
the existence of vigorous competition with respect to non-core 
market data). See also 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'') (upholding the 
Commission's reliance upon competitive markets to set reasonable and 
equitably allocated fees for market data).
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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. The 
Nasdaq Trading Insights product is part of the existing market for 
proprietary market 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.

[[Page 70209]]

    Transaction execution and proprietary data products are 
complementary in that market data is both an input and a byproduct of 
the execution service. In fact, market data and trade execution are a 
paradigmatic example of joint products with joint costs. The decision 
whether and on which platform to post an order will depend on the 
attributes of the platform where the order can be posted, including the 
execution fees, data quality and price, and distribution of its data 
products. Without 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).\9\ 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.
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    \9\ 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).
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    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products, but different platforms may choose from a range of possible, 
and equally reasonable, pricing strategies as the means of recovering 
total costs. Nasdaq pays rebates and credits 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.\10\
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    \10\ Moreover, 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, 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.
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    The proposed charges for the Nasdaq Trading Insights product are 
designed to ensure a fair and reasonable use of Exchange resources by 
allowing the Exchange to recoup costs and ease administrative burden 
while continuing to offer its data products at competitive rates to 
firms.

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\11\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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:

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-2016-124 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2016-124. 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

[[Page 70210]]

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 
such filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NASDAQ-2016-124, and should be submitted on or before 
November 1, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Robert W. Errett,
Deputy Secretary.
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    \12\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-24420 Filed 10-7-16; 8:45 am]
 BILLING CODE 8011-01-P
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