Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7022(d), 1381-1383 [2016-31936]
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Federal Register / Vol. 82, No. 3 / Thursday, January 5, 2017 / Notices
Dated: January 3, 2017.
Martha P. Rico,
Secretary to the Board.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2017–00005 Filed 1–3–17; 11:15 am]
BILLING CODE 7905–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79701; File No. SR–
NASDAQ–2016–175]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend Rule
7022(d)
December 29, 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
15, 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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I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend
Rule 7022(d) to increase the monthly fee
for Nasdaq’s Daily List and
Fundamental Data report from $1,500 to
$1,750.
The text of the proposed rule change
is available on the Exchange’s Web site
at http://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.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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1. Purpose
The purpose of the proposed rule
change is to amend Rule 7022(d) to
increase the monthly fee for Nasdaq’s
Daily List and Fundamental Data report
from $1,500 to $1,750. The Daily List
provides important corporate action
data—including new listings, delistings,
symbol and name changes, and
dividends—for the Nasdaq Stock Market
and the Mutual Fund Quotation Service
(‘‘MFQS’’) to the trading and market
data community. Specifically, the Daily
List is comprised of the following four
data sets:
• Nasdaq Equity Data: Provides
advance notification of new listings,
delistings, corporate name changes,
trading symbol changes, market tier
changes, and Financial Status Indicator
changes that occur on all tiers of the
Nasdaq Stock Market.
• Mutual Fund Data: Provides
advance notification of new listings,
delistings, corporate name changes and
fund identifier changes for mutual
funds, money market funds and unit
investment trusts that report via MFQS.
• Dividends: Provides advance
notification of cash dividends, stock
dividends, and stock splits for Nasdaq
securities.
• Next Day Ex-Date: Summarizes the
securities with dividend adjustments to
be applied to the previous closing price
on the next business day.
In addition, Nasdaq recently
enhanced the Daily List by adding (i) a
tick pilot indicator that provides
information about the status of each
security under the Tick Size Pilot
Program 3 and (ii) a flag to identify
securities that are exchange-traded
funds (‘‘ETFs’’) and exchange-traded
managed funds (‘‘ETMFs’’).
Daily List files are available via
secured Web site or secured file transfer
protocol server and are posted and
updated intraday. The Daily List also
includes access to historical Daily List
data dating back to either 1998 or 1999
(depending on the information).
The Fundamental Data report
provides a summary file of the prior
3 Order Approving the National Market System
Plan to Implement a Tick Size Pilot Program by
BATS Exchange, Inc., BATS Y-Exchange, Inc.,
Chicago Stock Exchange, Inc., EDGA Exchange,
Inc., EDGX Exchange, Inc., Financial Industry
Regulatory Authority, Inc., NASDAQ OMX BX, Inc.,
NASDAQ OMX PHLX LLC, The Nasdaq Stock
Market LLC, New York Stock Exchange LLC, NYSE
MKT LLC, and NYSE Arca, Inc., as Modified by the
Commission, For a Two-Year Period, Securities
Exchange Act Release No. 74892 (May 6, 2015), 80
FR 27514 (May 13, 2015) (File No. 4–657).
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1381
day’s trading activity for all Nasdaqlisted issues. Specifically, the report
includes the following elements:
• Security Master Information: Issue
Name, Issue Symbol, Issue Type, Issue
Class, Listing Market Tier, Total Shares
Outstanding, Public Float and Nasdaq
Index Membership.
• Consolidated Market Statistics:
Daily High Price, Daily Low Price, Daily
Last Sale Price, Daily Share Volume, 52
Week High Price, 52 Week Low Price,
Year-To-Date Volume
• Nasdaq Market Center Statistics:
Nasdaq Official Closing Price and
Nasdaq Closing Bid/Ask Quotation
Prices.
Like the Daily List, Fundamental Data
files are available via secured Web site
or secured file transfer protocol server.
The information is provided on a T+1
basis.
Current fees for the Daily List and
Fundamental Data were established in
2013.4 Since that time, Nasdaq has
implemented the enhancements to the
Daily List product described above.
Additionally, in 2014 Nasdaq
introduced several enhancements to the
MFQS portion of the Daily List product:
A new ‘‘test Symbol Flag’’ field to
clearly delineate MFQS test instruments
from production instruments; a new
‘‘Symbol Reuse Flag’’ to alert market
data vendors that a previously used
MFQS symbol is being issued to a new
MFQS instrument; and a new
‘‘Instrument Registration’’ field to
clearly identify the U.S. regulatory agent
responsible for oversight of a given
MFQS instrument. Accordingly, to the
extent that the proposed price increase
exceeds the rate of overall inflation
during the preceding four years, Nasdaq
believes that it is warranted in light of
the increased value of the product to
market participants. Moreover, as
discussed below, Nasdaq believes that
the price of the product is constrained
by market forces, such that any increase
in the price of the product that was not
reasonable in light of the product’s
value would be met with a competitive
response.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,5 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,6 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
4 Securities Exchange Act Release No. 68636
(January 11, 2013), 78 FR 3940 (January 17, 2013)
(SR–NASDAQ–2013–009).
5 15 U.S.C. 78f(b).
6 15 U.S.C. 78f(b)(4) and (5).
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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.’’ 7
Likewise, in NetCoalition v. Securities
and Exchange Commission 8
(‘‘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.9 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.’’ 10
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’. . . .’’ 11
Nasdaq believes that periodically it
must adjust prices to reflect more
accurately the value of its products and
the investments made to enhance them.
Given that the fee for the Daily List and
Fundament Data product has not been
adjusted for four years, Nasdaq believes
that it is an appropriate time to adjust
7 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
8 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
9 See NetCoalition, at 534–535.
10 Id. at 537.
11 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 fee to more accurately reflect its
value, as well as the investments made
to enhance it through the addition of
additional data to the product.
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 overall fee levels
associated with interacting with a
particular venue to be excessive. In such
an environment, the Exchange must
continually adjust its fees to remain
competitive. Because competitors are
free to modify their own fees in
response, and because market
participants may readily adjust their
order routing and data consumption
practices, the Exchange believes that the
degree to which fee changes in this
market may impose any burden on
competition is extremely limited.
In this instance, the proposed change
to the fee for the Daily List and
Fundamental Data product does not
impose a burden on competition
because the product is completely
voluntary and is not necessary in order
to interact with the Exchange. Thus, if
the fee proposed herein is
disproportionate to the value provided
by this product, it is likely that the
Exchange will lose sales. Moreover, to
the extent that market participants use
the product in order to enhance their
participation with the Exchange, an
excessive fee may encourage them to
route orders to other venues.
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 the Daily List and Fundamental
Data product in three respects. First,
fees related to data products that
support interaction with an exchange
are constrained by competition among
exchanges and other entities attracting
order flow. Nasdaq believes that firms
make decisions regarding order routing
and consumption of proprietary data
based on the total cost of interacting
with the Exchange, and order flow
could be harmed by the
supracompetitive pricing of any
proprietary data product. Second, prices
for the data are constrained by the
potential for other exchanges and non-
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exchange data distributors to create
products that replicate the Daily List
and Fundamental Data product. Third,
competition among Distributors
constrains the cost of the data.
Competition for Order Flow
Fees related to this product are
constrained by competition among
exchanges and other entities seeking to
attract order flow. Order flow is the ‘‘life
blood’’ of exchanges. Broker-dealers
currently have numerous alternative
venues for their order flow, including
self-regulatory organization (‘‘SRO’’)
markets, 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
quotation information and transaction
reports, 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:
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Federal Register / Vol. 82, No. 3 / Thursday, January 5, 2017 / Notices
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 constrains
prices for proprietary data products.
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Substitute Products
The price of the data contained in the
Daily List and Fundamental Data
product is constrained by the ability of
a data vendor to obtain the information
necessary to create and sell competing
products. Nasdaq does not have unique
access to the information that is
provided through the product, and
market participants do not have an
unqualified need for the information
provided. Therefore, the price that
Nasdaq can charge for the product is
constrained by the ability of market
participants to reduce their demand for
the product and the ability of
competitors to enter the market and
profitably undercut any
supracompetitive price increase.
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 this
product were set above competitive
levels, Distributors could determine
whether the product was sufficiently
attractive to their own customers to
warrant incurring the costs associated
with purchasing it for distribution.
Since distributors are in competition
with one another to attract customers,
they must continually evaluate their
cost base and the value of their product
offering to customers to determine
whether they allow them to maximize
profitability. This competition for
customers provides another check on
the price for proprietary data products
such as the Daily List and Fundamental
Data.
In summary, market forces constrain
the price of the product through
competition for order flow, competition
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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 proposed rule change
has become effective pursuant to
Section 19(b)(3)(A)(ii) of the Act.12
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (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.
1383
post all comments on the Commission’s
Internet Web site (http://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–
NASDAQ–2016–175, and should be
submitted on or before January 26, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Eduardo A. Aleman,
Assistant Secretary.
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:
[FR Doc. 2016–31936 Filed 1–4–17; 8:45 am]
Electronic Comments
• Use the Commission’s Internet
comment form (http://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2016–175 on the subject line.
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of a
Proposed Rule Change Related to a
Change to the Trading Symbol for
P.M.-Settled Options on the Standard &
Poor’s 500 Index
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NASDAQ–2016–175. 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
December 29, 2016.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79712; File No. SR–CBOE–
2016–091]
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on December
16, 2016, Chicago Board Options
Exchange, Incorporated (the ‘‘Exchange’’
or ‘‘CBOE’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
12 15
PO 00000
U.S.C. 78s(b)(3)(A)(ii).
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Agencies
[Federal Register Volume 82, Number 3 (Thursday, January 5, 2017)]
[Notices]
[Pages 1381-1383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31936]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79701; File No. SR-NASDAQ-2016-175]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Rule 7022(d)
December 29, 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 15, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III, below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 7022(d) to increase the monthly
fee for Nasdaq's Daily List and Fundamental Data report from $1,500 to
$1,750.
The text of the proposed rule change is available on the Exchange's
Web site at http://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 amend Rule 7022(d) to
increase the monthly fee for Nasdaq's Daily List and Fundamental Data
report from $1,500 to $1,750. The Daily List provides important
corporate action data--including new listings, delistings, symbol and
name changes, and dividends--for the Nasdaq Stock Market and the Mutual
Fund Quotation Service (``MFQS'') to the trading and market data
community. Specifically, the Daily List is comprised of the following
four data sets:
Nasdaq Equity Data: Provides advance notification of new
listings, delistings, corporate name changes, trading symbol changes,
market tier changes, and Financial Status Indicator changes that occur
on all tiers of the Nasdaq Stock Market.
Mutual Fund Data: Provides advance notification of new
listings, delistings, corporate name changes and fund identifier
changes for mutual funds, money market funds and unit investment trusts
that report via MFQS.
Dividends: Provides advance notification of cash
dividends, stock dividends, and stock splits for Nasdaq securities.
Next Day Ex-Date: Summarizes the securities with dividend
adjustments to be applied to the previous closing price on the next
business day.
In addition, Nasdaq recently enhanced the Daily List by adding (i)
a tick pilot indicator that provides information about the status of
each security under the Tick Size Pilot Program \3\ and (ii) a flag to
identify securities that are exchange-traded funds (``ETFs'') and
exchange-traded managed funds (``ETMFs'').
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\3\ Order Approving the National Market System Plan to Implement
a Tick Size Pilot Program by BATS Exchange, Inc., BATS Y-Exchange,
Inc., Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX
Exchange, Inc., Financial Industry Regulatory Authority, Inc.,
NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, The Nasdaq Stock Market
LLC, New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc.,
as Modified by the Commission, For a Two-Year Period, Securities
Exchange Act Release No. 74892 (May 6, 2015), 80 FR 27514 (May 13,
2015) (File No. 4-657).
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Daily List files are available via secured Web site or secured file
transfer protocol server and are posted and updated intraday. The Daily
List also includes access to historical Daily List data dating back to
either 1998 or 1999 (depending on the information).
The Fundamental Data report provides a summary file of the prior
day's trading activity for all Nasdaq-listed issues. Specifically, the
report includes the following elements:
Security Master Information: Issue Name, Issue Symbol,
Issue Type, Issue Class, Listing Market Tier, Total Shares Outstanding,
Public Float and Nasdaq Index Membership.
Consolidated Market Statistics: Daily High Price, Daily
Low Price, Daily Last Sale Price, Daily Share Volume, 52 Week High
Price, 52 Week Low Price, Year-To-Date Volume
Nasdaq Market Center Statistics: Nasdaq Official Closing
Price and Nasdaq Closing Bid/Ask Quotation Prices.
Like the Daily List, Fundamental Data files are available via
secured Web site or secured file transfer protocol server. The
information is provided on a T+1 basis.
Current fees for the Daily List and Fundamental Data were
established in 2013.\4\ Since that time, Nasdaq has implemented the
enhancements to the Daily List product described above. Additionally,
in 2014 Nasdaq introduced several enhancements to the MFQS portion of
the Daily List product: A new ``test Symbol Flag'' field to clearly
delineate MFQS test instruments from production instruments; a new
``Symbol Reuse Flag'' to alert market data vendors that a previously
used MFQS symbol is being issued to a new MFQS instrument; and a new
``Instrument Registration'' field to clearly identify the U.S.
regulatory agent responsible for oversight of a given MFQS instrument.
Accordingly, to the extent that the proposed price increase exceeds the
rate of overall inflation during the preceding four years, Nasdaq
believes that it is warranted in light of the increased value of the
product to market participants. Moreover, as discussed below, Nasdaq
believes that the price of the product is constrained by market forces,
such that any increase in the price of the product that was not
reasonable in light of the product's value would be met with a
competitive response.
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\4\ Securities Exchange Act Release No. 68636 (January 11,
2013), 78 FR 3940 (January 17, 2013) (SR-NASDAQ-2013-009).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\5\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\6\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
[[Page 1382]]
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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\5\ 15 U.S.C. 78f(b).
\6\ 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.'' \7\
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\7\ 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 \8\
(``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.\9\ 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.'' \10\
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\8\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\9\ See NetCoalition, at 534-535.
\10\ 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'. . . .'' \11\
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\11\ 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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Nasdaq believes that periodically it must adjust prices to reflect
more accurately the value of its products and the investments made to
enhance them. Given that the fee for the Daily List and Fundament Data
product has not been adjusted for four years, Nasdaq believes that it
is an appropriate time to adjust the fee to more accurately reflect its
value, as well as the investments made to enhance it through the
addition of additional data to the product.
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 overall fee levels associated with
interacting with a particular venue to be excessive. In such an
environment, the Exchange must continually adjust its fees to remain
competitive. Because competitors are free to modify their own fees in
response, and because market participants may readily adjust their
order routing and data consumption practices, the Exchange believes
that the degree to which fee changes in this market may impose any
burden on competition is extremely limited.
In this instance, the proposed change to the fee for the Daily List
and Fundamental Data product does not impose a burden on competition
because the product is completely voluntary and is not necessary in
order to interact with the Exchange. Thus, if the fee proposed herein
is disproportionate to the value provided by this product, it is likely
that the Exchange will lose sales. Moreover, to the extent that market
participants use the product in order to enhance their participation
with the Exchange, an excessive fee may encourage them to route orders
to other venues. 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 the Daily List and
Fundamental Data product in three respects. First, fees related to data
products that support interaction with an exchange are constrained by
competition among exchanges and other entities attracting order flow.
Nasdaq believes that firms make decisions regarding order routing and
consumption of proprietary data based on the total cost of interacting
with the Exchange, and order flow could be harmed by the
supracompetitive pricing of any proprietary data product. Second,
prices for the data are constrained by the potential for other
exchanges and non-exchange data distributors to create products that
replicate the Daily List and Fundamental Data product. Third,
competition among Distributors constrains the cost of the data.
Competition for Order Flow
Fees related to this product are constrained by competition among
exchanges and other entities seeking to attract order flow. Order flow
is the ``life blood'' of exchanges. Broker-dealers currently have
numerous alternative venues for their order flow, including self-
regulatory organization (``SRO'') markets, 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 quotation information and
transaction reports, 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:
[[Page 1383]]
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 constrains prices for proprietary data
products.
Substitute Products
The price of the data contained in the Daily List and Fundamental
Data product is constrained by the ability of a data vendor to obtain
the information necessary to create and sell competing products. Nasdaq
does not have unique access to the information that is provided through
the product, and market participants do not have an unqualified need
for the information provided. Therefore, the price that Nasdaq can
charge for the product is constrained by the ability of market
participants to reduce their demand for the product and the ability of
competitors to enter the market and profitably undercut any
supracompetitive price increase.
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 this
product were set above competitive levels, Distributors could determine
whether the product was sufficiently attractive to their own customers
to warrant incurring the costs associated with purchasing it for
distribution. Since distributors are in competition with one another to
attract customers, they must continually evaluate their cost base and
the value of their product offering to customers to determine whether
they allow them to maximize profitability. This competition for
customers provides another check on the price for proprietary data
products such as the Daily List and Fundamental Data.
In summary, market forces constrain the price of the product
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 proposed rule change has become effective pursuant to
Section 19(b)(3)(A)(ii) of the Act.\12\
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\12\ 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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2016-175 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASDAQ-2016-175. 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 (http://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-NASDAQ-2016-175, and should
be submitted on or before January 26, 2017.
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\13\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31936 Filed 1-4-17; 8:45 am]
BILLING CODE 8011-01-P