Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Administrative Charges for Distributors of Proprietary Data Feed Products, 96152-96155 [2016-31482]
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asabaliauskas on DSK3SPTVN1PROD with NOTICES
96152
Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices
met the proposed new standards (but
not those in the existing rule) and there
is no evidence that they have proven
unfit for exchange trading. The
Exchange also believes that the proposal
to modify Section 102.06 to allow an AC
to conduct a tender offer for all shares
of all shareholders in exchange for a pro
rata share of the cash held in trust by
the AC in compliance with Rule 13e–4
and Regulation 14E under the Act
instead of soliciting a shareholder vote
protects investors and the public
interest, as it will help prevent
‘‘greenmail’’ strategies where
professional investors seek to force ACs
to give them consideration not available
to other shareholders as a condition for
voting in favor of an acquisition.
The Exchange believes that it is
consistent with the protection of
investors to delete the requirement that
a Business Combination not go forward
if shareholders exceeding a threshold
amount exercise their conversion rights,
as shareholders will be informed in
advance of the fact that the size of the
post-Business Combination entity will
vary depending on the amount of
securities that are converted and they
will be able to make their own informed
decisions as to whether to participate in
light of that disclosure. The Exchange
believes that the proposed amendments
to the continued listing standards are
consistent with the protection of
investors as the requirements for preBusiness Combination ACs would be as
high as those applied to operating
companies and the standard applied at
the time of the Business Combination
would be significantly higher than that
applied to other continued listings.
While the proposed amended
quantitative requirements for the listing
of ACs would be lower than those for
other listing applicants, the Exchange
does not believe that this difference is
unfairly discriminatory. The Exchange
believes this to be the case because
market value-based listing standards are
largely adopted to ensure adequate
trading liquidity and, consequently,
efficient market pricing of a company’s
securities. As an investment in an AC
prior to its Business Combination
represents a right to a pro rata share of
the AC’s assets held in trust, AC shares
typically have a trading price very close
to their liquidation value and the
liquidity and market efficiency concerns
relevant to listed operating companies
do not arise to the same degree. As such,
the Exchange does not believe it is
unfairly discriminatory to apply
different market value requirements to
ACs than to other listing applicants.
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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 that is not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change is designed to
harmonize the Exchange’s rules with
changes in the AC structure prevalent in
the marketplace and embodied in the
rules of other listing markets. As such,
it is intended to promote competition
for the listing of ACs.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or up to 90 days (i) as the
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) by order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be 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–
NYSE–2016–72 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–NYSE–2016–72. 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
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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–NYSE–
2016–72 and should be submitted on or
before January 19, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016–31488 Filed 12–28–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79667; File No. SR–BX–
2016–071]
Self-Regulatory Organizations;
NASDAQ BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Modify Administrative
Charges for Distributors of Proprietary
Data Feed Products
December 22, 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
14, 2016, NASDAQ BX, Inc. (‘‘BX’’ 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
10 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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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 the Substance
of the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s market data fees at Rule
7035 to change the billing cycle for
administrative fees paid by distributors
of BX market data from annual to
monthly, and to: (1) Replace the current
$500 annual administrative fee assessed
to distributors of delayed market data
with a $50 monthly administrative fee,
and (2) replace the current $1,000
annual administrative fee assessed to
distributors of real-time market data
with a $100 monthly administrative fee.
The proposal is described further
below.3
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://nasdaqbx.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
asabaliauskas on DSK3SPTVN1PROD with NOTICES
1. Purpose
The purpose of the proposed rule
change is to change the billing cycle for
3 The NASDAQ Stock Market LLC and NASDAQ
PHLX LLC are filing companion proposals similar
to this one. All three proposals will change the
billing cycle for administrative fees paid by
distributors of market data from annual to monthly,
and will: (1) Replace the current $500 annual
administrative fee assessed to distributors of
delayed market data with a $50 monthly
administrative fee, and (2) replace the current
$1,000 annual administrative fee assessed to
distributors of real-time market data with a $100
monthly administrative fee.
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administrative fees paid by distributors
of BX market data from annual to
monthly, and to: (1) Replace the current
$500 annual administrative fee assessed
to distributors of delayed market data
with a $50 monthly administrative fee,
and (2) replace the current $1,000
annual administrative fee assessed to
distributors of real-time market data
with a $100 monthly administrative fee.
Annual Administrative Fee
BX assesses an annual administrative
fee to any market data distributor that
receives a proprietary market data
product. The amount of that fee is $500
for delayed market data and $1,000 for
real-time market data. Distributors of
both delayed and real-time market data
are not required to pay both fees; they
are charged only the higher fee. The
time difference between ‘‘delayed’’ and
‘‘real-time’’ data varies by product. BX
Last Sale (BLS), for example, is
considered delayed after 15 minutes,
while BX TotalView-ITCH data is
considered delayed after midnight ET.
The specific delay interval applicable to
each product is published on the
Nasdaq Trader Web site. The
administrative fee is waived for BX
members who, pursuant to BX rules,
solely conduct an options business. The
fee is not prorated if the distributor
receives the data feed for less than a
year.
Proposed Changes
The Exchange proposes to change the
billing cycle for administrative fees paid
by distributors of BX market data from
annual to monthly, and to: (1) Replace
the current $500 annual administrative
fee assessed to distributors of delayed
market data with a $50 monthly
administrative fee, and (2) replace the
current $1,000 annual administrative fee
assessed to distributors of real-time
market data with a $100 monthly
administrative fee.
The purposes of the proposal are to:
(1) Facilitate billing by aligning the
current annual administrative fee billing
cycle with the standard monthly billing
cycle used by the Exchange; (2) allocate
the fee more equitably by charging
distributors that receive less than a year
of market data an administrative fee
only for those months that they receive
market data; and (3) bring the BX
administrative fee into alignment with
the Nasdaq and PHLX market data
administrative fees, which, after current
proposals take effect, will be charged
the same administrative fees on the
same billing cycle.
The complexity of administering the
market data program has increased
significantly since the current fee was
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set in 2009. New, more complex
products and services require the
Exchange to expend more resources in
administration and monitoring. For
example, the introduction of Enhanced
Display Solutions—which allow
subscribers to view BX TotalView and
BX Basic on computer monitors and
export it to applications—required the
Exchange to create new reporting
systems and review mechanisms for the
use of market data. New reporting and
review mechanisms also had to be
created to implement Managed Data
Solutions, which allow electronic
systems access to BX TotalView without
human intervention. These programs
were created in response to customer
demand, and require administrative
expenditures that had not been
necessary when the amount of the
administrative fee was set in 2009.
The administrative fee is entirely
optional in that it applies only to firms
that elect to distribute BX market data.
The proposed changes do not raise the
cost of any other BX product, except to
the extent that they increase the total
cost of purchasing market data.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,4 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,5 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.’’ 6
Likewise, in NetCoalition v. Securities
and Exchange Commission 7
4 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
6 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
7 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
5 15
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asabaliauskas on DSK3SPTVN1PROD with NOTICES
(‘‘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.8 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.’’ 9
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’ . . . .’’ 10
The Exchange believes that the
proposal to replace the current $500
annual administrative fee assessed to
distributors of delayed market data with
a $50 monthly administrative fee, and
the current $1,000 annual
administrative fee assessed to
distributors of real-time data with a
$100 monthly administrative fee, is fair
and equitable in accordance with
Section 6(b)(4) of the Act, and not
unreasonably discriminatory in
accordance with Section 6(b)(5) of the
Act. As described above, the proposed
fee change is reasonable and necessary
to facilitate billing, allocate fees more
equitably, and align the administrative
fees with those of the Nasdaq and PHLX
exchanges. Moreover, administrative
fees are constrained by the Exchange’s
need to compete for order flow.
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.
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
8 See
NetCoalition, at 534–535.
at 537.
10 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)).
9 Id.
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competitive market in which market
participants can readily favor competing
venues if they deem fee levels at a
particular venue to be excessive. 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 proposal is to replace the current
$500 annual administrative fee assessed
to distributors of delayed market data
with a $50 monthly administrative fee,
and the current $1,000 annual
administrative fee assessed to
distributors of real-time market data
with a $100 monthly administrative fee.
If the changes proposed herein are
unattractive to market participants, it is
likely that the Exchange will lose
market share as a result.
Specifically, market forces constrain
administrative fees in three respects.
First, all fees associated with
proprietary data are constrained by
competition among exchanges and other
entities attracting order flow. Second,
administrative fees impact the total cost
of market data, and are constrained by
the total cost of the market data offered
by other entities. Third, competition
among distributors constrains the total
cost of market data, including
administrative fees.
Competition for Order Flow
Administrative fees 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 thirteen selfregulatory 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
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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 market data
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
market 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 an exchange.
Administrative fees are part of the total
cost of proprietary data. A
supracompetitive increase in the fees
charged for either transactions or market
data has the potential to impair
revenues from both products.
Competition From Market Data
Providers
Administrative fees are constrained
by competition from other exchanges
that sell market data. If administrative
fees were to become excessive,
distributors may elect to discontinue
one or two products or services
purchased from the Exchange, or reduce
the level of their purchases, to signal
that the overall cost of market data had
become excessive. Such a reduction in
purchases would act as a discipline to
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Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Notices
the BX administrative fees, and would
constrain the Exchange in its pricing
decisions.
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2016–071 on the subject line.
Competition Among Distributors
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–BX–2016–071. 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–BX–
2016–071, and should be submitted on
or before January 19, 2017.
Distributors provide another form of
price discipline for market data
products. Distributors are in
competition for users, and can curtail
their purchases of market data if the
total price of market data, including
administrative fees, were set above
competitive levels.
In summary, market forces constrain
the level of administrative fees through
competition for order flow, competition
from other sources of proprietary data,
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.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: (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.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
IV. Solicitation of Comments
[FR Doc. 2016–31482 Filed 12–28–16; 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:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
11 15
U.S.C. 78s(b)(3)(A)(ii).
VerDate Sep<11>2014
18:41 Dec 28, 2016
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Eduardo A. Aleman,
Assistant Secretary.
BILLING CODE 8011–01–P
SMALL BUSINESS ADMINISTRATION
Announcement of the Aspire
Challenge—An Agency Prize
Competition
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
12 17
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96155
The Aspire Challenge is a
prize competition conducted under the
America Competes Act. The objective of
the prizes is to spur the development
and provision of innovative
entrepreneurial development and access
to capital resources for formerly
incarcerated individuals or those who
are non-violent ex-offenders
DATES: The submission period for
entries will begin on December 29, 2016
and close on February 13, 2017. SBA
anticipates that winners will be
announced no later than March 14,
2017.
FOR FURTHER INFORMATION CONTACT:
Matthew Stevens, Strategic Initiatives
Manager, Office of Entrepreneurial
Development, U.S. Small Business
Administration, 409 Third Street SW.,
6th Floor, Washington, DC 20416, (202)
205–7699, SI@sba.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
Background
The U.S. Small Business
Administration (SBA), officially
established in 1953, maintains and
strengthens the nation’s economy by
aiding, counseling, assisting, and
protecting the interests of small
businesses, and by helping families and
businesses to recover from national
disasters. The SBA’s mission includes
assisting small businesses to start, grow,
and compete in markets by providing
quality training, counseling, and access
to resources.
The Aspire Challenge is a prize
competition designed to spur the
development and provision of
innovative entrepreneurial development
and access to capital resources for
formerly incarcerated individuals or
those who are non-violent ex-offenders.
Of the 600,000 individuals released on
average each year from federal prisons,
an estimated 60 percent remain
unemployed one year after their release,
raising the risk of recidivism and
resulting in lost lifetime earnings. In
fact, two-thirds of these individuals
historically are rearrested within three
years of their release.
This challenge competition is separate
but builds on the momentum of the
Aspire Entrepreneurship Initiative, a
public-private partnership announced
in August 2016 between the SBA, W.K.
Kellogg Foundation and JUSTINE
Petersen. The three-year initiative is a
pilot to test entrepreneurship education
programming and microloan assistance
through SBA Microloan Intermediaries
to formerly incarcerated individuals in
St. Louis, MO, Chicago, IL, Louisville,
KY and Detroit, MI. The goal of the
Aspire Challenge is to source additional
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Agencies
[Federal Register Volume 81, Number 250 (Thursday, December 29, 2016)]
[Notices]
[Pages 96152-96155]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31482]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79667; File No. SR-BX-2016-071]
Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Modify
Administrative Charges for Distributors of Proprietary Data Feed
Products
December 22, 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 14, 2016, NASDAQ BX, Inc. (``BX'' 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
[[Page 96153]]
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 the
Substance of the Proposed Rule Change
The Exchange proposes to amend the Exchange's market data fees at
Rule 7035 to change the billing cycle for administrative fees paid by
distributors of BX market data from annual to monthly, and to: (1)
Replace the current $500 annual administrative fee assessed to
distributors of delayed market data with a $50 monthly administrative
fee, and (2) replace the current $1,000 annual administrative fee
assessed to distributors of real-time market data with a $100 monthly
administrative fee. The proposal is described further below.\3\
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\3\ The NASDAQ Stock Market LLC and NASDAQ PHLX LLC are filing
companion proposals similar to this one. All three proposals will
change the billing cycle for administrative fees paid by
distributors of market data from annual to monthly, and will: (1)
Replace the current $500 annual administrative fee assessed to
distributors of delayed market data with a $50 monthly
administrative fee, and (2) replace the current $1,000 annual
administrative fee assessed to distributors of real-time market data
with a $100 monthly administrative fee.
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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://nasdaqbx.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 change the billing
cycle for administrative fees paid by distributors of BX market data
from annual to monthly, and to: (1) Replace the current $500 annual
administrative fee assessed to distributors of delayed market data with
a $50 monthly administrative fee, and (2) replace the current $1,000
annual administrative fee assessed to distributors of real-time market
data with a $100 monthly administrative fee.
Annual Administrative Fee
BX assesses an annual administrative fee to any market data
distributor that receives a proprietary market data product. The amount
of that fee is $500 for delayed market data and $1,000 for real-time
market data. Distributors of both delayed and real-time market data are
not required to pay both fees; they are charged only the higher fee.
The time difference between ``delayed'' and ``real-time'' data varies
by product. BX Last Sale (BLS), for example, is considered delayed
after 15 minutes, while BX TotalView-ITCH data is considered delayed
after midnight ET. The specific delay interval applicable to each
product is published on the Nasdaq Trader Web site. The administrative
fee is waived for BX members who, pursuant to BX rules, solely conduct
an options business. The fee is not prorated if the distributor
receives the data feed for less than a year.
Proposed Changes
The Exchange proposes to change the billing cycle for
administrative fees paid by distributors of BX market data from annual
to monthly, and to: (1) Replace the current $500 annual administrative
fee assessed to distributors of delayed market data with a $50 monthly
administrative fee, and (2) replace the current $1,000 annual
administrative fee assessed to distributors of real-time market data
with a $100 monthly administrative fee.
The purposes of the proposal are to: (1) Facilitate billing by
aligning the current annual administrative fee billing cycle with the
standard monthly billing cycle used by the Exchange; (2) allocate the
fee more equitably by charging distributors that receive less than a
year of market data an administrative fee only for those months that
they receive market data; and (3) bring the BX administrative fee into
alignment with the Nasdaq and PHLX market data administrative fees,
which, after current proposals take effect, will be charged the same
administrative fees on the same billing cycle.
The complexity of administering the market data program has
increased significantly since the current fee was set in 2009. New,
more complex products and services require the Exchange to expend more
resources in administration and monitoring. For example, the
introduction of Enhanced Display Solutions--which allow subscribers to
view BX TotalView and BX Basic on computer monitors and export it to
applications--required the Exchange to create new reporting systems and
review mechanisms for the use of market data. New reporting and review
mechanisms also had to be created to implement Managed Data Solutions,
which allow electronic systems access to BX TotalView without human
intervention. These programs were created in response to customer
demand, and require administrative expenditures that had not been
necessary when the amount of the administrative fee was set in 2009.
The administrative fee is entirely optional in that it applies only
to firms that elect to distribute BX market data.
The proposed changes do not raise the cost of any other BX product,
except to the extent that they increase the total cost of purchasing
market data.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\4\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\5\ 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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\4\ 15 U.S.C. 78f(b).
\5\ 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.'' \6\
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\6\ 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 \7\
[[Page 96154]]
(``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.\8\ 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.'' \9\
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\7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\8\ See NetCoalition, at 534-535.
\9\ 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' . . . .'' \10\
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\10\ 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 $500
annual administrative fee assessed to distributors of delayed market
data with a $50 monthly administrative fee, and the current $1,000
annual administrative fee assessed to distributors of real-time data
with a $100 monthly administrative fee, is fair and equitable in
accordance with Section 6(b)(4) of the Act, and not unreasonably
discriminatory in accordance with Section 6(b)(5) of the Act. As
described above, the proposed fee change is reasonable and necessary to
facilitate billing, allocate fees more equitably, and align the
administrative fees with those of the Nasdaq and PHLX exchanges.
Moreover, administrative fees are constrained by the Exchange's need to
compete for order flow.
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. 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 proposal is to replace the current $500 annual administrative
fee assessed to distributors of delayed market data with a $50 monthly
administrative fee, and the current $1,000 annual administrative fee
assessed to distributors of real-time market data with a $100 monthly
administrative fee. If the changes proposed herein are unattractive to
market participants, it is likely that the Exchange will lose market
share as a result.
Specifically, market forces constrain administrative fees in three
respects. First, all fees associated with proprietary data are
constrained by competition among exchanges and other entities
attracting order flow. Second, administrative fees impact the total
cost of market data, and are constrained by the total cost of the
market data offered by other entities. Third, competition among
distributors constrains the total cost of market data, including
administrative fees.
Competition for Order Flow
Administrative fees 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 thirteen 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 market data 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 market 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 an exchange.
Administrative fees are part of the total cost of proprietary data. A
supracompetitive increase in the fees charged for either transactions
or market data has the potential to impair revenues from both products.
Competition From Market Data Providers
Administrative fees are constrained by competition from other
exchanges that sell market data. If administrative fees were to become
excessive, distributors may elect to discontinue one or two products or
services purchased from the Exchange, or reduce the level of their
purchases, to signal that the overall cost of market data had become
excessive. Such a reduction in purchases would act as a discipline to
[[Page 96155]]
the BX administrative fees, and would constrain the Exchange in its
pricing decisions.
Competition Among Distributors
Distributors provide another form of price discipline for market
data products. Distributors are in competition for users, and can
curtail their purchases of market data if the total price of market
data, including administrative fees, were set above competitive levels.
In summary, market forces constrain the level of administrative
fees through competition for order flow, competition from other sources
of proprietary data, 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.\11\
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\11\ 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-BX-2016-071 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2016-071. 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-BX-2016-071, and should be
submitted on or before January 19, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31482 Filed 12-28-16; 8:45 am]
BILLING CODE 8011-01-P