Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange Data Fees at Rule 7052, 95213-95216 [2016-31109]
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Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices
Rule 1004 of Regulation SCI.
Specifically, the proposal will adopt
clear and objective criteria with respect
to the designation of Members that are
required to participate in the testing of
the Exchange’s BC/DR Plans, as well as
appropriate notification regarding such
designation. As set forth in the SCI
Adopting Release, ‘‘SROs have the
authority, and legal responsibility,
under Section 6 of the Exchange Act, to
adopt and enforce rules (including rules
to comply with Regulation SCI’s
requirements relating to BC/DR testing)
applicable to their members or
participants that are designed to, among
other things, foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.’’ 17 The Exchange
believes that this proposal is consistent
with such authority and legal
responsibility.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
To the contrary, the proposal is not a
competitive proposal but rather is
necessary for the Exchange’s
compliance with Regulation SCI.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
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
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) 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)(iii) of the Act 18 and
subparagraph (f)(6) of Rule 19b–4
thereunder.19
17 See
SCI Adopting Release, supra note 3 at
72350.
18 15 U.S.C. 78s(b)(3)(A)(iii).
19 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
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At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
ISEMercury–2016–24 and should be
submitted on or before January 17, 2017.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Eduardo A. Aleman,
Assistant Secretary.
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–
ISEMercury–2016–24 on the subject
line.
SECURITIES AND EXCHANGE
COMMISSION
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–ISEMercury–2016–24. 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
the Commission written notice of its intent to file
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. The Exchange has satisfied this
requirement.
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[FR Doc. 2016–31116 Filed 12–23–16; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–79617; File No. SR–
NASDAQ–2016–168]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Exchange Data Fees at Rule 7052
December 20, 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 December
12, 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
The Exchange proposes to amend the
Exchange’s data fees at Rule 7052 to
replace the current $500 per month fee
for both internal and external
distribution of short sale data with two
separate fees: (1) A $750 monthly fee for
the distribution of short sale data to
internal users, and (2) a $1,250 monthly
fee for the distribution of short sale data
to external users, as described further
below.
20 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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Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices
While these amendments are effective
upon filing, the Exchange has
designated the proposed amendments to
be operative on January 1, 2017.
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 the proposed rule
change is to replace the current $500 per
month fee for both internal and external
distribution of short sale data with two
separate fees: (1) A $750 monthly fee for
the distribution of short sale data to
internal users, and (2) a $1,250 monthly
fee for the distribution of short sale data
to external users.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Daily and Monthly Short Sale Files
Nasdaq distributes two types of short
sale data: (1) Daily Short Sale Volume
files, and (2) Monthly Short Sale
Transaction files.
The Daily Short Sale Volume files
reflect the aggregate number of shares
executed on the Nasdaq market during
regular trading hours on a daily basis.
At the security level, these files show
the volume for executed short sales and
the total trading volume for the Nasdaq
market. The files include data for
Nasdaq, NYSE and regional exchangelisted securities.
The Monthly Short Sale Transaction
files provide a trade-by-trade record of
all short sales executed on the Nasdaq
execution system and reported to a
consolidated tape in Nasdaq, NYSE and
regional exchange-listed securities. The
records include the transaction time,
price and number of shares for every
short sale transaction. The files are
provided on a monthly basis, separated
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into daily files. Historical files are
available from August 2005.
The current fee for internal and
external distribution of the Daily Short
Sale Volume and Monthly Short Sale
Transaction files is $500 per month.
Proposed Changes
The Exchange proposes to replace the
current $500 per month fee for both
internal and external distribution of
short sale data with two separate fees:
(1) a $750 monthly fee for the
distribution of short sale data to internal
users, and (2) a $1,250 monthly fee for
the distribution of short sale data to
external users.
The purpose of the proposed rule
change is to create a pricing system that
better reflects the value of the product
to our customers. External Distributors,
unlike Internal Distributors, are
typically compensated for the
distribution of short sale data through
subscription fees or other mechanisms.
Some External Distributors incorporate
short sale data into their own
proprietary products, which they sell to
downstream users. These distributors
may not charge separately for the
Nasdaq short sale data, but nevertheless
gain value from the data by
incorporating it into their product. The
price increase for External Distributors
reflects the additional value these
distributors gain from the product.
In addition, the value of the short sale
data has increased over time for all
distributors that have purchased short
sale data over a long period of time.
Short sale data is frequently used to
develop trading models, conduct
analyses and assess long-term risks. As
time passes, long-term distributors are
able to accrue a larger database,
rendering the data more valuable. The
proposed price increases reflect the
growing value of the data over time.
Purchases of the Daily Short Sale
Volume and Monthly Short Sale
Transaction files are entirely optional.
These reports are not necessary to
execute trades, but rather are typically
used to develop trading models,
conduct analyses and assess long-term
risks. This type of activity is entirely at
the discretion of the subscriber.
The proposed changes do not impact
or raise the cost of any other Nasdaq
product. Short sale reports from the
Nasdaq BX and PSX Exchanges will
continue to be provided free of charge,
as they have been since 2010.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
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of the Act,3 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,4 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The Commission and the courts have
repeatedly expressed their preference
for competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. In Regulation NMS, while
adopting a series of steps to improve the
current market model, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues and, also, recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 5
Likewise, in NetCoalition v. Securities
and Exchange Commission 6
(‘‘NetCoalition’’) the D.C. Circuit upheld
the Commission’s use of a market-based
approach in evaluating the fairness of
market data fees against a challenge
claiming that Congress mandated a costbased approach.7 As the court
emphasized, the Commission ‘‘intended
in Regulation NMS that ‘market forces,
rather than regulatory requirements’
play a role in determining the market
data . . . to be made available to
investors and at what cost.’’ 8
Further, ‘‘[n]o one disputes that
competition for order flow is ‘fierce.’
. . . As the SEC explained, ‘[i]n the U.S.
national market system, buyers and
sellers of securities, and the brokerdealers that act as their order-routing
agents, have a wide range of choices of
where to route orders for execution’;
[and] ‘no exchange can afford to take its
market share percentages for granted’
because ‘no exchange possesses a
monopoly, regulatory or otherwise, in
the execution of order flow from broker
dealers’. . . .’’ 9
The Exchange believes that the
proposal to replace the current fee of
$500 per month for the internal and
3 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
5 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
6 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
7 See NetCoalition, at 534–535.
8 Id. at 537.
9 Id. at 539 (quoting Securities Exchange Act
Release No. 59039 (December 2, 2008), 73 FR
74770, 74782–83 (December 9, 2008) (SR–
NYSEArca–2006–21)).
4 15
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asabaliauskas on DSK3SPTVN1PROD with NOTICES
external distribution of short sale data
with a monthly fee of $750 per month
for the distribution of short sale data to
internal users, and a monthly fee of
$1,250 for the distribution of short sale
data to external users, is fair and
equitable in accordance with Section
6(b)(4) of the Act, and not unreasonably
discriminatory in accordance with
Section 6(b)(5) of the Act. As described
above, it is reasonable for external
distributors to bear a higher proportion
of the cost because they receive greater
value from the product, and it is
reasonable for Nasdaq to increase a fee
for a product that has become more
valuable over time. Moreover, short sale
data fees, like all proprietary data fees,
are constrained by the Exchange’s need
to compete for order flow, and are
subject to competition from other
products, such as the short sale data
products produced by NYSE and BATS.
The Exchange believes that the
proposed change is an equitable
allocation and is not unfairly
discriminatory because the Exchange
will apply the same fee to all similarlysituated distributors.
likely that the Exchange will lose
market share as a result. Accordingly,
the Exchange does not believe that the
proposed changes will impair the ability
of members or competing order
execution venues to maintain their
competitive standing in the financial
markets.
Specifically, market forces constrain
fees for Daily Short Sale Volume files
and Monthly Short Sale Transaction
files in three respects. First, all fees
related to short sale data are constrained
by competition among exchanges and
other entities attracting order flow.
Firms make decisions regarding short
sale data and other proprietary data
based on the total cost of interacting
with the Exchange, and order flow
would be harmed by the
supracompetitive pricing of any
proprietary data product. Second, prices
for short sale data are constrained by the
sale of short sale data by other
exchanges. Third, competition among
Distributors will constrain the cost of
short sale data.
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. In terms of
inter-market competition, the Exchange
notes that it operates in a highly
competitive market in which market
participants can readily favor competing
venues if they deem fee levels at a
particular venue to be excessive, or
rebate opportunities available at other
venues to be more favorable. In such an
environment, the Exchange must
continually adjust its fees to remain
competitive with other exchanges and
with alternative trading systems that
have been exempted from compliance
with the statutory standards applicable
to exchanges. Because competitors are
free to modify their own fees in
response, and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which fee
changes in this market may impose any
burden on competition is extremely
limited.
The proposed fees replace the current
fee of $500 per month for the internal
and external distribution of short sale
data with a monthly fee of $750 per
month for distribution to internal users,
and a monthly fee of $1,250 for
distribution to external users. If the
changes proposed herein are
unattractive to market participants, it is
Fees related to short sale data are
constrained by competition among
exchanges and other entities seeking to
attract order flow. Order flow is the ‘‘life
blood’’ of the exchanges. Broker-dealers
currently have numerous alternative
venues for their order flow, including
self-regulatory organization (‘‘SRO’’)
markets, as well as internalizing brokerdealers (‘‘BDs’’) and various forms of
alternative trading systems (‘‘ATSs’’),
including dark pools and electronic
communication networks (‘‘ECNs’’).
Each SRO market competes to produce
transaction reports via trade executions,
and two FINRA-regulated Trade
Reporting Facilities (‘‘TRFs’’) compete
to attract internalized transaction
reports. The existence of fierce
competition for order flow implies a
high degree of price sensitivity on the
part of BDs, which may readily reduce
costs by directing orders toward the
lowest-cost trading venues.
The level of competition and
contestability in the market for order
flow is demonstrated by the numerous
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. For a variety of reasons,
competition from new entrants,
especially for order execution, has
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Competition for Order Flow
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95215
increased dramatically over the last
decade.
Each SRO, TRF, ATS, and BD that
competes for order flow is permitted to
produce proprietary data products.
Many currently do or have announced
plans to do so, including NYSE, NYSE
Amex, NYSE Arca, BATS, and IEX. This
is because Regulation NMS deregulated
the market for proprietary data. While
BDs had 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. Order routers and
market data vendors can facilitate
production of proprietary data products
for single or multiple BDs. The potential
sources of proprietary products are
virtually limitless.
The markets for order flow and
proprietary data are inextricably linked:
a trading platform cannot generate
market information unless it receives
trade orders. As a result, the
competition for order flow constrains
the prices that platforms can charge for
proprietary data products. Firms make
decisions on how much and what types
of data to consume based on the total
cost of interacting with Nasdaq and
other exchanges. Data fees are but one
factor in a total platform analysis. If the
cost of the product exceeds its expected
value, the broker-dealer will choose not
to buy it. A supracompetitive increase
in the fees charged for either
transactions or proprietary data has the
potential to impair revenues from both
products. In this manner, the
competition for order flow will
constrain prices for proprietary data
products.
Substitute Products
The price of short sale data from
Nasdaq is constrained by the availability
of short sale data from other exchanges,
such as NYSE and BATS. Short sale
data is used to support various
analytical tools, and Distributors would
not pay an excessive price for such data
when similar information is available
from other sources.
Competition Among Distributors
Distributors provide another form of
price discipline for proprietary data
products. Distributors are in
competition for users, and can simply
refuse to purchase any proprietary data
product that fails to provide sufficient
value for the price. If the price of short
sale data were set above competitive
levels, Distributors purchasing such
data would be at a disadvantage relative
to their competitors, and would
therefore either purchase a substitute or
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Federal Register / Vol. 81, No. 248 / Tuesday, December 27, 2016 / Notices
forego the product altogether. This
competition for customers provides
another check on the price for short sale
data.
In summary, market forces constrain
the price of short sale data through
competition for order flow, competition
from substitute products, and in the
competition among distributors for
customers. For these reasons, the
Exchange has provided a substantial
basis demonstrating that the fee is
equitable, fair, reasonable, and not
unreasonably discriminatory, and
therefore consistent with and in
furtherance of the purposes of the
Exchange Act.
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
All submissions should refer to File
Number SR–NASDAQ–2016–168. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2016–168 and should be
submitted on or before January 17, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Eduardo A. Aleman,
Assistant Secretary.
IV. Solicitation of Comments
[FR Doc. 2016–31109 Filed 12–23–16; 8:45 am]
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:
BILLING CODE 8011–01–P
Electronic Comments
asabaliauskas on DSK3SPTVN1PROD with NOTICES
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.10
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
Self-Regulatory Organizations; ISE
Gemini, LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Exchange
Rules in Connection With Business
Continuity and Disaster Recovery
Plans Testing Requirements
• 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–2016–168 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79626; File No. SR–
ISEGemini–2016–24]
December 20, 2016.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
10 15
U.S.C. 78s(b)(3)(A)(ii).
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notice is hereby given that on December
15, 2016, ISE Gemini, LLC (‘‘ISE
Gemini’’ 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 ISE
Gemini Rule 803 at Supplementary
Material .02 in connection with
business continuity and disaster
recovery plans (‘‘BC/DR Plans’’) testing
requirements for certain Members in
connection with Regulation Systems
Compliance and Integrity (‘‘Regulation
SCI’’).3
The text of the proposed rule change
is available on the Exchange’s Web site
at www.ise.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 Exchange proposes to amend ISE
Gemini Rule 803 at Supplementary
Material .02 to conform the current rule
text regarding BC/DR Plans testing
requirements with that of NASDAQ
PHLX LLC (‘‘Phlx’’) Rule 926,4 The
NASDAQ Stock Market LLC (‘‘Nasdaq’’)
3 See Securities Exchange Act Release No. 73639
(November 19, 2014), 79 FR 72252 (December 5,
2014) (‘‘SCI Adopting Release’’).
4 Phlx Rule 926 is titled ‘‘The Exchange’s
Business Continuity and Disaster Recovery Plan
Testing Requirements for Member Organizations
and PSX Participants Pursuant to Regulation SCI.’’
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Agencies
[Federal Register Volume 81, Number 248 (Tuesday, December 27, 2016)]
[Notices]
[Pages 95213-95216]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31109]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79617; File No. SR-NASDAQ-2016-168]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchange Data Fees at Rule 7052
December 20, 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 December 12, 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.
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\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
The Exchange proposes to amend the Exchange's data fees at Rule
7052 to replace the current $500 per month fee for both internal and
external distribution of short sale data with two separate fees: (1) A
$750 monthly fee for the distribution of short sale data to internal
users, and (2) a $1,250 monthly fee for the distribution of short sale
data to external users, as described further below.
[[Page 95214]]
While these amendments are effective upon filing, the Exchange has
designated the proposed amendments to be operative on January 1, 2017.
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 the proposed rule change is to replace the current
$500 per month fee for both internal and external distribution of short
sale data with two separate fees: (1) A $750 monthly fee for the
distribution of short sale data to internal users, and (2) a $1,250
monthly fee for the distribution of short sale data to external users.
Daily and Monthly Short Sale Files
Nasdaq distributes two types of short sale data: (1) Daily Short
Sale Volume files, and (2) Monthly Short Sale Transaction files.
The Daily Short Sale Volume files reflect the aggregate number of
shares executed on the Nasdaq market during regular trading hours on a
daily basis. At the security level, these files show the volume for
executed short sales and the total trading volume for the Nasdaq
market. The files include data for Nasdaq, NYSE and regional exchange-
listed securities.
The Monthly Short Sale Transaction files provide a trade-by-trade
record of all short sales executed on the Nasdaq execution system and
reported to a consolidated tape in Nasdaq, NYSE and regional exchange-
listed securities. The records include the transaction time, price and
number of shares for every short sale transaction. The files are
provided on a monthly basis, separated into daily files. Historical
files are available from August 2005.
The current fee for internal and external distribution of the Daily
Short Sale Volume and Monthly Short Sale Transaction files is $500 per
month.
Proposed Changes
The Exchange proposes to replace the current $500 per month fee for
both internal and external distribution of short sale data with two
separate fees: (1) a $750 monthly fee for the distribution of short
sale data to internal users, and (2) a $1,250 monthly fee for the
distribution of short sale data to external users.
The purpose of the proposed rule change is to create a pricing
system that better reflects the value of the product to our customers.
External Distributors, unlike Internal Distributors, are typically
compensated for the distribution of short sale data through
subscription fees or other mechanisms. Some External Distributors
incorporate short sale data into their own proprietary products, which
they sell to downstream users. These distributors may not charge
separately for the Nasdaq short sale data, but nevertheless gain value
from the data by incorporating it into their product. The price
increase for External Distributors reflects the additional value these
distributors gain from the product.
In addition, the value of the short sale data has increased over
time for all distributors that have purchased short sale data over a
long period of time. Short sale data is frequently used to develop
trading models, conduct analyses and assess long-term risks. As time
passes, long-term distributors are able to accrue a larger database,
rendering the data more valuable. The proposed price increases reflect
the growing value of the data over time.
Purchases of the Daily Short Sale Volume and Monthly Short Sale
Transaction files are entirely optional. These reports are not
necessary to execute trades, but rather are typically used to develop
trading models, conduct analyses and assess long-term risks. This type
of activity is entirely at the discretion of the subscriber.
The proposed changes do not impact or raise the cost of any other
Nasdaq product. Short sale reports from the Nasdaq BX and PSX Exchanges
will continue to be provided free of charge, as they have been since
2010.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\3\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\4\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility, and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\3\ 15 U.S.C. 78f(b).
\4\ 15 U.S.C. 78f(b)(4) and (5).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and SRO revenues and, also, recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \5\
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\5\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission \6\
(``NetCoalition'') the D.C. Circuit upheld the Commission's use of a
market-based approach in evaluating the fairness of market data fees
against a challenge claiming that Congress mandated a cost-based
approach.\7\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \8\
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\6\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\7\ See NetCoalition, at 534-535.
\8\ Id. at 537.
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Further, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .'' \9\
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\9\ Id. at 539 (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008)
(SR-NYSEArca-2006-21)).
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The Exchange believes that the proposal to replace the current fee
of $500 per month for the internal and
[[Page 95215]]
external distribution of short sale data with a monthly fee of $750 per
month for the distribution of short sale data to internal users, and a
monthly fee of $1,250 for the distribution of short sale data to
external users, is fair and equitable in accordance with Section
6(b)(4) of the Act, and not unreasonably discriminatory in accordance
with Section 6(b)(5) of the Act. As described above, it is reasonable
for external distributors to bear a higher proportion of the cost
because they receive greater value from the product, and it is
reasonable for Nasdaq to increase a fee for a product that has become
more valuable over time. Moreover, short sale data fees, like all
proprietary data fees, are constrained by the Exchange's need to
compete for order flow, and are subject to competition from other
products, such as the short sale data products produced by NYSE and
BATS.
The Exchange believes that the proposed change is an equitable
allocation and is not unfairly discriminatory because the Exchange will
apply the same fee to all similarly-situated distributors.
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. In terms of inter-market
competition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive, or rebate opportunities available at other venues to be more
favorable. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges and with
alternative trading systems that have been exempted from compliance
with the statutory standards applicable to exchanges. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
The proposed fees replace the current fee of $500 per month for the
internal and external distribution of short sale data with a monthly
fee of $750 per month for distribution to internal users, and a monthly
fee of $1,250 for distribution to external users. If the changes
proposed herein are unattractive to market participants, it is likely
that the Exchange will lose market share as a result. Accordingly, the
Exchange does not believe that the proposed changes will impair the
ability of members or competing order execution venues to maintain
their competitive standing in the financial markets.
Specifically, market forces constrain fees for Daily Short Sale
Volume files and Monthly Short Sale Transaction files in three
respects. First, all fees related to short sale data are constrained by
competition among exchanges and other entities attracting order flow.
Firms make decisions regarding short sale data and other proprietary
data based on the total cost of interacting with the Exchange, and
order flow would be harmed by the supracompetitive pricing of any
proprietary data product. Second, prices for short sale data are
constrained by the sale of short sale data by other exchanges. Third,
competition among Distributors will constrain the cost of short sale
data.
Competition for Order Flow
Fees related to short sale data are constrained by competition
among exchanges and other entities seeking to attract order flow. Order
flow is the ``life blood'' of the exchanges. Broker-dealers currently
have numerous alternative venues for their order flow, including self-
regulatory organization (``SRO'') markets, as well as internalizing
broker-dealers (``BDs'') and various forms of alternative trading
systems (``ATSs''), including dark pools and electronic communication
networks (``ECNs''). Each SRO market competes to produce transaction
reports via trade executions, and two FINRA-regulated Trade Reporting
Facilities (``TRFs'') compete to attract internalized transaction
reports. The existence of fierce competition for order flow implies a
high degree of price sensitivity on the part of BDs, which may readily
reduce costs by directing orders toward the lowest-cost trading venues.
The level of competition and contestability in the market for order
flow is demonstrated by the numerous 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. For a variety of
reasons, competition from new entrants, especially for order execution,
has increased dramatically over the last decade.
Each SRO, TRF, ATS, and BD that competes for order flow is
permitted to produce proprietary data products. Many currently do or
have announced plans to do so, including NYSE, NYSE Amex, NYSE Arca,
BATS, and IEX. This is because Regulation NMS deregulated the market
for proprietary data. While BDs had 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. Order routers and market data vendors can
facilitate production of proprietary data products for single or
multiple BDs. The potential sources of proprietary products are
virtually limitless.
The markets for order flow and proprietary data are inextricably
linked: a trading platform cannot generate market information unless it
receives trade orders. As a result, the competition for order flow
constrains the prices that platforms can charge for proprietary data
products. Firms make decisions on how much and what types of data to
consume based on the total cost of interacting with Nasdaq and other
exchanges. Data fees are but one factor in a total platform analysis.
If the cost of the product exceeds its expected value, the broker-
dealer will choose not to buy it. A supracompetitive increase in the
fees charged for either transactions or proprietary data has the
potential to impair revenues from both products. In this manner, the
competition for order flow will constrain prices for proprietary data
products.
Substitute Products
The price of short sale data from Nasdaq is constrained by the
availability of short sale data from other exchanges, such as NYSE and
BATS. Short sale data is used to support various analytical tools, and
Distributors would not pay an excessive price for such data when
similar information is available from other sources.
Competition Among Distributors
Distributors provide another form of price discipline for
proprietary data products. Distributors are in competition for users,
and can simply refuse to purchase any proprietary data product that
fails to provide sufficient value for the price. If the price of short
sale data were set above competitive levels, Distributors purchasing
such data would be at a disadvantage relative to their competitors, and
would therefore either purchase a substitute or
[[Page 95216]]
forego the product altogether. This competition for customers provides
another check on the price for short sale data.
In summary, market forces constrain the price of short sale data
through competition for order flow, competition from substitute
products, and in the competition among distributors for customers. For
these reasons, the Exchange has provided a substantial basis
demonstrating that the fee is equitable, fair, reasonable, and not
unreasonably discriminatory, and therefore consistent with and in
furtherance of the purposes of the Exchange Act.
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.\10\
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\10\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2016-168 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-2016-168. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2016-168 and should
be submitted on or before January 17, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31109 Filed 12-23-16; 8:45 am]
BILLING CODE 8011-01-P