Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Data Fees at Rule 7023, 8632-8636 [2017-01833]
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Federal Register / Vol. 82, No. 17 / Friday, January 27, 2017 / Notices
August 5, 2016.3 On September 15,
2016, the Commission temporarily
suspended the Exchange’s proposal and
simultaneously instituted proceedings
to determine whether to approve or
disapprove the proposed rule change.4
The Commission received no comments
regarding the proposal.
On January 10, 2017, the Exchange
withdrew the proposed rule change
(SR–BatsEDGX–2016–33).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.5
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–01830 Filed 1–26–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Submission for OMB Review;
Comment Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission Office of Investor
Education and Advocacy Washington,
DC 20549–0213
jstallworth on DSK7TPTVN1PROD with NOTICES
Extension:
Rule 18f–1 and Form N–18f–1 SEC File No.
270–187, OMB Control No. 3235–0211
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3520), the Securities
and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget a
request for extension of the previously
approved collection of information
discussed below.
Rule 18f–1 (17 CFR 270.18f–1)
enables a registered open-end
management investment company
(‘‘fund’’) that may redeem its securities
in-kind, by making a one-time election,
to commit to make cash redemptions
pursuant to certain requirements
without violating section 18(f) of the
Investment Company Act of 1940 (15
U.S.C. 80a–18(f)). A fund relying on the
rule must file Form N–18F–1 (17 CFR
274.51) to notify the Commission of this
election. The Commission staff
estimates that 38 funds file Form N–
18F–1 annually, and that each response
takes one hour. Based on these
estimates, the total annual burden hours
associated with the rule is estimated to
be 38 hours.
The estimate of average burden hours
is made solely for the purposes of the
3 See Securities Exchange Act Release No. 78452
(August 1, 2016), 81 FR 51951 (August 5, 2016).
4 See Securities Exchange Act Release No. 78850,
81 FR 64963 (September 21, 2016).
5 17 CFR 200.30–3(a)(12).
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Paperwork Reduction Act, and is not
derived from a comprehensive or even
a representative survey or study of the
costs of Commission rules. The
collection of information required by
rule 18f–1 is necessary to obtain the
benefits of the rule. Responses to the
collection of information will not be
kept confidential. An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information unless it displays a
currently valid control number.
The public may view the background
documentation for this information
collection at the following Web site,
www.reginfo.gov. Comments should be
directed to: (i) Desk Officer for the
Securities and Exchange Commission,
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10102, New Executive
Office Building, Washington, DC 20503,
or by sending an email to: Shagufta_
Ahmed@omb.eop.gov; and (ii) Pamela
Dyson, Director/Chief Information
Officer, Securities and Exchange
Commission, c/o Remi Pavlik-Simon,
100 F Street NE., Washington, DC 20549
or send an email to: PRA_Mailbox@
sec.gov. Comments must be submitted to
OMB within 30 days of this notice.
Dated: January 17, 2017.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–01836 Filed 1–26–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79859; File No. SR–
BatsBZX–2016–42]
Self-Regulatory Organizations; Bats
BZX Exchange, Inc.; Notice of
Withdrawal of a Proposed Rule Change
To Amend the Options Regulatory Fee
January 23, 2017.
On July 20, 2016, Bats BZX Exchange,
Inc. (the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’), pursuant to
Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ‘‘Act’’),1 and
Rule 19b–4 thereunder,2 a proposed rule
change to modify the Options
Regulatory Fee (‘‘ORF’’). The proposed
rule change was published for comment
in the Federal Register on August 5,
2016.3 On September 15, 2016, the
Commission temporarily suspended the
Exchange’s proposal and
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 78453
(August 1, 2016), 81 FR 51954 (August 5, 2016).
2 17
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simultaneously instituted proceedings
to determine whether to approve or
disapprove the proposed rule change.4
The Commission received three
comment letters on the proposal.5
On January 10, 2017, the Exchange
withdrew the proposed rule change
(SR–BatsBZX–2016–42).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.6
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–01829 Filed 1–26–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79863; File No. SR–
NASDAQ–2017–004]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Exchange’s Data Fees at Rule 7023
January 23, 2017.
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 January
10, 2017, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III, below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s data fees at Rule 7023 to: (i)
Increase the monthly Nasdaq Level 2
Non-Professional Subscriber fee (‘‘Level
2 Non-Professional Fee’’) from $9 to
$14; and (ii) increase the monthly
Nasdaq Level 2 Professional Subscriber
fee (‘‘Level 2 Professional Fee’’) from
4 See Securities Exchange Act Release No. 78849,
81 FR 64960 (September 21, 2016).
5 See Letters to Brent J. Fields, Secretary,
Commission, from Ellen Greene, Managing Director,
Securities Industry and Financial Markets
Association, dated October 14, 2016; Joseph
Kinahan, Managing Director, Client Advocacy and
Market Structure, TD Ameritrade, Inc., dated
October 26, 2016; and Jeanine Hightower, Chief
Operating Officer, International Securities
Exchange, LLC, dated October 27, 2016.
6 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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$60 to $70, and to make conforming
changes.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaq.cchwallstreet.com, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The purpose of the proposed rule
change is to: (i) Increase the monthly
Level 2 Non-Professional Fee from $9 to
$14; and (ii) increase the monthly Level
2 Professional Fee from $60 to $70 for
any Display Usage, or for Non-Display
Usage based upon Indirect Access. The
fee increases will set the Level 2 NonProfessional Fee equal to the TotalView
fee for Non-Professional Subscribers
under Rule 7023(b)(2)(A), and will set
the Level 2 Professional Fee equal to the
TotalView fee for Professional
Subscribers set forth under Rule
7023(b)(2)(B).
The proposed change will equate the
price of Level 2 with TotalView in
anticipation of retiring Level 2 as a
separate product, which will occur on a
date to be determined by Nasdaq, based
on an analysis of customer demand.
Until Level 2 is retired, Nasdaq will
continue to support this legacy product
in tandem with its full-depth product,
TotalView.
Level 2 and Depth-of-Book Data
Nasdaq Level 2 provides best-price
orders and quotes from each market
participant in the Nasdaq Market Center
for Nasdaq-listed securities. It was
introduced in 1983 as the Nasdaq
Quotation Dissemination Service, and
was the first product to provide bestprice orders and quotes for Nasdaq
market participants. Level 2, like all of
Nasdaq’s depth-of-book data products,
is entirely optional.
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As part of Nasdaq’s continuing efforts
to augment its depth-of-book products,
Nasdaq created TotalView, a premier
product designed to substantially
enhance the amount of data available to
the investor. TotalView provides all
orders and quotes from all Nasdaq
members displayed in the Nasdaq
Market Center for Nasdaq-listed
securities. This allows the user to view
approximately 20 times more
information about market liquidity than
Level 2, which provides only the bestprice orders and quotes for each market
participant. In addition to a deeper view
of orders and quotes, TotalView also
provides other information not available
on Level 2, such as the Net Order
Imbalance Indicator, which supplies
data on the daily auctions that take
place at the open and close of the
market.
Along with Level 2 and TotalView,
Nasdaq also offers OpenView, which
provides the depth-of-book information
available in TotalView, except that
OpenView provides information for
securities not listed on Nasdaq.
OpenView is typically purchased as an
add-on to TotalView or Level 2.
Proposed Changes
Nasdaq intends to offer TotalView as
its main depth-of-book product. The
purpose of the proposed change is to
equate the prices of Level 2 and
TotalView in anticipation of retiring
Level 2. In response to feedback from
Distributors, the Exchange will continue
to offer Level 2 for those Distributors
that require time to transition their
systems from Level 2 to TotalView,
rather than retire Level 2 abruptly. The
price increase will compensate Nasdaq
for offering both the Level 2 and
TotalView data feeds during this
transition period.
Nasdaq anticipates retiring Level 2 for
three reasons.
First, demand for Level 2 has fallen
over the last two years. Nasdaq incurs
a cost to support multiple depth-of-book
products, and maintaining such an
expenditure is not viable in view of
falling demand.
Second, Level 2 has become less
viable as a stand-alone product as
industry standards have changed. While
there was a market for Level 2 when it
was first introduced, the market has
moved toward either high-level
products such as Nasdaq Basic (which
offers best bid and offer and last sale
information), or full depth-of-book data
similar to TotalView. The market niche
for intermediate products such as Level
2 is disappearing.
Third, the usefulness of Level 2 will
continue to decrease over time as full
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depth-of-book products continue to add
more features, such as the Net Order
Imbalance Indicator in TotalView.
Nasdaq plans to continue enhancing
TotalView with additional features,
which will further widen the gap in
functionality between TotalView and
Level 2.
Level 2 will not be retired
immediately. There may be customers
who, because of special circumstances,
continue to use Level 2 for the time
being. Nasdaq will monitor customer
demand to identify an appropriate
retirement date. Until Level 2 is retired,
Nasdaq will continue to support this
legacy product in tandem with its fulldepth product, TotalView.
Because of the price increase for Level
2, the Exchange proposes three
conforming changes to market data rules
that reference Level 2.
First, under Rule 7023(c)(1), a
Distributor that is also a broker-dealer
may pay a monthly fee of $25,000 for
the right to provide Nasdaq TotalView
and Nasdaq OpenView for Display
Usage for Internal Distribution, or for
External Distribution to NonProfessional Subscribers with whom the
firm has a brokerage relationship.
Payment of this optional enterprise
license fee allows the purchaser to
obtain TotalView and OpenView at the
previous Level 2 rate because, under
Rule 7023(c)(1), the Enterprise License
shall not apply to relevant Level 1 and
Nasdaq Level 2 fees.3 In other words,
because Distributors receiving
TotalView also receive the information
contained in Nasdaq Level 2, those
Distributors must also pay persubscriber fees at the same level as the
Level 2 fees, in addition to the
Enterprise License fee.
Because the proposed language
equates Level 2 fees with the price of
TotalView, Distributors that purchase
the $25,000 Enterprise License would be
required to pay the monthly persubscriber fees at the new, higher rate,
unless the language is adjusted. To
maintain the current price structure, the
Exchange proposes to delete the
reference to Level 1 and Level 2 fees,
and replace it with a set fee that reflects
the current fee for Level 2. The proposal
would require Distributors to pay a
monthly fee of $9 for each NonProfessional Subscriber and a monthly
fee of $60 for each Professional
Subscriber for Display Usage based
upon Direct or Indirect Access, in
addition to the $25,000 monthly
3 The language regarding Level 1 has no effect
because Level 1 has never been a product owned
by Nasdaq. Level 1 is distributed under the UTP
Plan.
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Federal Register / Vol. 82, No. 17 / Friday, January 27, 2017 / Notices
enterprise license. This change
preserves the current per-subscriber fees
associated with the $25,000 enterprise
license. Deleting the reference to Level
1 has no effect because Level 1 is not a
Nasdaq product.
Second, under Rule 7023(c)(2), a
Distributor that is also a broker-dealer
may pay a monthly fee of $100,000 for
the right to provide Nasdaq TotalView
and Nasdaq OpenView for Display
Usage for Internal Distribution, or for
External Distribution to both
Professional and Non-Professional
Subscribers with whom the firm has a
brokerage relationship. Payment of this
optional enterprise license fee allows
the purchaser to obtain TotalView and
OpenView at the previous Level 2 rate
because, under Rule 7023(c)(2), the
Enterprise License shall not apply to
relevant Level 1 and Nasdaq Level 2
fees.
As was the case for the $25,000
Enterprise License under Rule
7023(c)(1), the proposed increase in the
price of Level 2 would require
Distributors that purchase the $100,000
Enterprise License to pay the monthly
per-subscriber fees at the new, higher
rate, unless the language is adjusted. To
maintain the prior price structure, the
Exchange proposes to delete the
reference to Level 1 and Level 2, and
replace it with a set fee for Professional
and Non-Professional Subscribers. The
proposal would require Distributors to
pay a monthly fee of $9 for each NonProfessional Subscriber and a monthly
fee of $60 for each Professional
Subscriber for Display Usage based
upon Direct or Indirect Access, in
addition to the $100,000 monthly
enterprise license. This change
preserves the current per-subscriber fees
associated with the $100,000 enterprise
license. As previously noted, deleting
the reference to Level 1 has no effect
because it is not a Nasdaq product.
Third, the Exchange proposes to
remove a sentence from Rule 7023(e)
that has been rendered meaningless.
That rule currently provides a 30-day
fee waiver for a trial offer of TotalView,
provided that the waiver does not
include incremental fees for the Nasdaq
Level 2-only service. Because the
proposal removes the price differential
between Level 2 and TotalView, no
incremental fees will exist, and the
Exchange therefore proposes deleting
that sentence.
The Level 2 Professional and NonProfessional fees are entirely optional,
in that they apply only to Subscribers
that opt to purchase Level 2. They do
not impact or raise the cost of any other
Nasdaq product, except for those
subscribers who opt to purchase
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OpenView together with Level 2, for
whom the price of the combined
product will rise by the same amount as
Level 2.
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
(‘‘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
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).
8 See NetCoalition, at 534–535.
9 Id. at 537.
5 15
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the execution of order flow from broker
dealers’. . . .’’ 10
The Exchange believes that the
proposals to increase the monthly Level
2 Non-Professional Fee and the Level 2
Professional Fee—which will be
implemented in anticipation of retiring
Level 2 as a separate product—are
reasonable. The Exchange is providing
time for Distributors to transition from
Level 2 to TotalView feeds, and the
price increase compensates Nasdaq for
providing both feeds during that
transition period. The fees for Level 2,
like all proprietary data fees, are
constrained by the Exchange’s need to
compete for order flow, and are subject
to competition from other products and
among broker-dealers for customers. If
Nasdaq is incorrect in its assessment of
the Level 2 market, there are no barriers
to entry for competitors with
substantially similar products.
The Exchange believes that the
proposed fee changes are an equitable
allocation and not unfairly
discriminatory because the Exchange
will apply the same fee to all similarlysituated subscribers.
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 proposed fees will: (i) Increase
the monthly Level 2 Non-Professional
Fee from $9 to $14; and (ii) increase the
monthly Level 2 Professional Fee from
$60 to $70. If the changes proposed
herein are unattractive to market
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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participants, it is likely that the
Exchange will lose market share as a
result. Accordingly, the Exchange does
not believe that the proposed changes
will impair the ability of members or
competing order execution venues to
maintain their competitive standing in
the financial markets.
Specifically, market forces constrain
fees for Level 2 in three respects. First,
all fees related to Level 2 are
constrained by competition among
exchanges and other entities attracting
order flow. Firms make decisions
regarding Level 2 and other proprietary
data based on the total cost of
interacting with the Exchange, and
order flow would be harmed by the
supracompetitive pricing of any
proprietary data product. Second, the
price of Level 2 is constrained by the
existence of substitutes that are offered,
or may be offered, by entities that offer
proprietary data. Third, competition
among Distributors for customers will
further constrain the cost of Level 2. An
example of the impact of market forces
on the price of proprietary data is the
decrease in the Nasdaq Basic enterprise
license fee for broker-dealers
distributing such information to
subscribers in the context of a brokerage
relationship, which was recently
decreased from $350,000 to $100,000.
Competition for Order Flow
Fees related to Level 2 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 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
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/
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Competition Among Distributors
Direct Edge. A proliferation of dark
pools and other ATSs operate profitably
with fragmentary shares of consolidated
market volume. For a variety of reasons,
competition from new entrants,
especially for order execution, has
increased dramatically over the last
decade.
Each SRO, TRF, ATS, and BD that
competes for order flow is permitted to
produce proprietary data products.
Many currently do or have announced
plans to do so, including NYSE, NYSE
Amex, NYSE Arca, BATS, and IEX. This
is because Regulation NMS deregulated
the market for proprietary data. While
BDs had previously published their
proprietary data individually,
Regulation NMS encourages market data
vendors and BDs to produce proprietary
products cooperatively in a manner
never before possible. Order routers and
market data vendors can facilitate
production of proprietary data products
for single or multiple BDs. The potential
sources of proprietary products are
virtually limitless.
The markets for order flow and
proprietary data are inextricably linked:
A trading platform cannot generate
market information unless it receives
trade orders. As a result, the
competition for order flow constrains
the prices that platforms can charge for
proprietary data products. Firms make
decisions on how much and what types
of data to consume based on the total
cost of interacting with Nasdaq and
other exchanges. Data fees are but one
factor in a total platform analysis. If the
cost of the product exceeds its expected
value, the broker-dealer will choose not
to buy it. A supracompetitive increase
in the fees charged for either
transactions or proprietary data has the
potential to impair revenues from both
products. In this manner, the
competition for order flow will
constrain prices for proprietary data
products.
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.
Substitute Products
IV. Solicitation of Comments
The price of depth-of-book data is
constrained by the existence of
competition from other exchanges, such
as NYSE and BATS, which sell
proprietary depth-of-book data. While a
small number of highly sophisticated
traders purchase depth-of-book products
from multiple exchanges, most
customers do not. Because most
customers would not pay an excessive
price for Level 2 when substitute data is
available from other proprietary sources,
the Exchange is constrained in its
pricing decisions.
Interested persons are invited to
submit written data, views and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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Competition among Distributors
provides another form of price
discipline for proprietary data products.
If the price of Level 2 were set above
competitive levels, Distributors
purchasing Level 2 would be at a
disadvantage relative to their
competitors, and would therefore either
purchase a substitute or forego the
product altogether.
In summary, market forces constrain
the price of depth-of-book data such as
Level 2 through competition for order
flow, competition from substitute
products, and in the competition among
vendors 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
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
11 15
E:\FR\FM\27JAN1.SGM
U.S.C. 78s(b)(3)(A)(ii).
27JAN1
8636
Federal Register / Vol. 82, No. 17 / Friday, January 27, 2017 / Notices
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2017–004 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–2017–004. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NASDAQ–2017–004 and should be
submitted on or before February 17,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–01833 Filed 1–26–17; 8:45 am]
jstallworth on DSK7TPTVN1PROD with NOTICES
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79861; File No. SR–C2–
2017–004]
Self-Regulatory Organizations; C2
Options Exchange, Incorporated;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change Relating to the Give Up of a
Clearing Trading Permit Holder
January 23, 2017.
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 January
10, 2017, C2 Options Exchange,
Incorporated (the ‘‘Exchange’’ or ‘‘C2’’)
filed with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II, below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
thereunder.4 The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
rules governing the give up of a Clearing
Participant by a Participant on Exchange
Transactions. The text of the proposed
rule change is available on the
Exchange’s Web site (https://
www.cboe.com/AboutCBOE/
CBOELegalRegulatoryHome.aspx), at
the Exchange’s Office of the Secretary,
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
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
12 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
13:58 Jan 26, 2017
Jkt 241001
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Frm 00038
Fmt 4703
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to augment its
requirements in C2 Rule 6.30 related to
the give up of a Clearing Participant by
a Participant on Exchange transactions.
By way of background, to enter
transactions on the Exchange, a
Participant must either be a Clearing
Participant or must have a Clearing
Participant agree to accept financial
responsibility for all of its transactions.
Additionally, Rule 6.30 currently
provides that when a Participant
executes a transaction on the Exchange,
it must give up the name of the Clearing
Participant (the ‘‘Give Up’’) through
which the transaction will be cleared
(i.e., ‘‘give up’’).
Designated Give Ups and Guarantors
The Exchange seeks to amend Rule
6.30 to provide that a Participant may
only give up a ‘‘Designated Give Up’’ or
its ‘‘Guarantor.’’ The Exchange proposes
to introduce and define the term
‘‘Designated Give Up.’’ For purposes of
Rule 6.30, a ‘‘Designated Give Up,’’ is
any Clearing Participant that a
Participant (other than a MarketMaker 5) identifies to the Exchange, in
writing, as a Clearing Participant that
the Participant would like to have the
ability to give up. To designate a
‘‘Designated Give Up’’ a Participant
must submit written notification, in a
form and manner determined by the
Exchange, to the Registration Services
Department (‘‘RSD’’). Specifically, the
Exchange anticipates using a
standardized form (‘‘Notification Form’’)
that a Participant would need to
complete and submit to the RSD. A copy
of the proposed Notification Form is
included with this filing in Exhibit 3.
Similarly, should a Participant no
longer want the ability to give up a
particular Designated Give Up, it must
submit written notification, in a form
and manner determined by the
Exchange, to the RSD. The Exchanges
[sic] notes that a Participant may
designate any Clearing Participant as a
Designated Give Up. Additionally, there
is no minimum or maximum number of
Designated Give Ups that a Participant
must identify. The Exchange shall notify
a Clearing Participant, in writing and as
soon as practicable, of each Participant
that has identified it as a Designated
5 For purposes of this rule, references to ‘‘MarketMaker’’ shall refer to Participants acting in the
capacity of a Market-Maker and shall include all
Exchange Market-Maker capacities (e.g., Designated
Primary Market-Makers).
E:\FR\FM\27JAN1.SGM
27JAN1
]]>Agencies
[Federal Register Volume 82, Number 17 (Friday, January 27, 2017)]
[Notices]
[Pages 8632-8636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01833]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79863; File No. SR-NASDAQ-2017-004]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchange's Data Fees at Rule 7023
January 23, 2017.
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 January 10, 2017, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III, below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's data fees at Rule
7023 to: (i) Increase the monthly Nasdaq Level 2 Non-Professional
Subscriber fee (``Level 2 Non-Professional Fee'') from $9 to $14; and
(ii) increase the monthly Nasdaq Level 2 Professional Subscriber fee
(``Level 2 Professional Fee'') from
[[Page 8633]]
$60 to $70, and to make conforming changes.
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaq.cchwallstreet.com, at the principal office of
the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to: (i) Increase the
monthly Level 2 Non-Professional Fee from $9 to $14; and (ii) increase
the monthly Level 2 Professional Fee from $60 to $70 for any Display
Usage, or for Non-Display Usage based upon Indirect Access. The fee
increases will set the Level 2 Non-Professional Fee equal to the
TotalView fee for Non-Professional Subscribers under Rule
7023(b)(2)(A), and will set the Level 2 Professional Fee equal to the
TotalView fee for Professional Subscribers set forth under Rule
7023(b)(2)(B).
The proposed change will equate the price of Level 2 with TotalView
in anticipation of retiring Level 2 as a separate product, which will
occur on a date to be determined by Nasdaq, based on an analysis of
customer demand. Until Level 2 is retired, Nasdaq will continue to
support this legacy product in tandem with its full-depth product,
TotalView.
Level 2 and Depth-of-Book Data
Nasdaq Level 2 provides best-price orders and quotes from each
market participant in the Nasdaq Market Center for Nasdaq-listed
securities. It was introduced in 1983 as the Nasdaq Quotation
Dissemination Service, and was the first product to provide best-price
orders and quotes for Nasdaq market participants. Level 2, like all of
Nasdaq's depth-of-book data products, is entirely optional.
As part of Nasdaq's continuing efforts to augment its depth-of-book
products, Nasdaq created TotalView, a premier product designed to
substantially enhance the amount of data available to the investor.
TotalView provides all orders and quotes from all Nasdaq members
displayed in the Nasdaq Market Center for Nasdaq-listed securities.
This allows the user to view approximately 20 times more information
about market liquidity than Level 2, which provides only the best-price
orders and quotes for each market participant. In addition to a deeper
view of orders and quotes, TotalView also provides other information
not available on Level 2, such as the Net Order Imbalance Indicator,
which supplies data on the daily auctions that take place at the open
and close of the market.
Along with Level 2 and TotalView, Nasdaq also offers OpenView,
which provides the depth-of-book information available in TotalView,
except that OpenView provides information for securities not listed on
Nasdaq. OpenView is typically purchased as an add-on to TotalView or
Level 2.
Proposed Changes
Nasdaq intends to offer TotalView as its main depth-of-book
product. The purpose of the proposed change is to equate the prices of
Level 2 and TotalView in anticipation of retiring Level 2. In response
to feedback from Distributors, the Exchange will continue to offer
Level 2 for those Distributors that require time to transition their
systems from Level 2 to TotalView, rather than retire Level 2 abruptly.
The price increase will compensate Nasdaq for offering both the Level 2
and TotalView data feeds during this transition period.
Nasdaq anticipates retiring Level 2 for three reasons.
First, demand for Level 2 has fallen over the last two years.
Nasdaq incurs a cost to support multiple depth-of-book products, and
maintaining such an expenditure is not viable in view of falling
demand.
Second, Level 2 has become less viable as a stand-alone product as
industry standards have changed. While there was a market for Level 2
when it was first introduced, the market has moved toward either high-
level products such as Nasdaq Basic (which offers best bid and offer
and last sale information), or full depth-of-book data similar to
TotalView. The market niche for intermediate products such as Level 2
is disappearing.
Third, the usefulness of Level 2 will continue to decrease over
time as full depth-of-book products continue to add more features, such
as the Net Order Imbalance Indicator in TotalView. Nasdaq plans to
continue enhancing TotalView with additional features, which will
further widen the gap in functionality between TotalView and Level 2.
Level 2 will not be retired immediately. There may be customers
who, because of special circumstances, continue to use Level 2 for the
time being. Nasdaq will monitor customer demand to identify an
appropriate retirement date. Until Level 2 is retired, Nasdaq will
continue to support this legacy product in tandem with its full-depth
product, TotalView.
Because of the price increase for Level 2, the Exchange proposes
three conforming changes to market data rules that reference Level 2.
First, under Rule 7023(c)(1), a Distributor that is also a broker-
dealer may pay a monthly fee of $25,000 for the right to provide Nasdaq
TotalView and Nasdaq OpenView for Display Usage for Internal
Distribution, or for External Distribution to Non-Professional
Subscribers with whom the firm has a brokerage relationship. Payment of
this optional enterprise license fee allows the purchaser to obtain
TotalView and OpenView at the previous Level 2 rate because, under Rule
7023(c)(1), the Enterprise License shall not apply to relevant Level 1
and Nasdaq Level 2 fees.\3\ In other words, because Distributors
receiving TotalView also receive the information contained in Nasdaq
Level 2, those Distributors must also pay per-subscriber fees at the
same level as the Level 2 fees, in addition to the Enterprise License
fee.
---------------------------------------------------------------------------
\3\ The language regarding Level 1 has no effect because Level 1
has never been a product owned by Nasdaq. Level 1 is distributed
under the UTP Plan.
---------------------------------------------------------------------------
Because the proposed language equates Level 2 fees with the price
of TotalView, Distributors that purchase the $25,000 Enterprise License
would be required to pay the monthly per-subscriber fees at the new,
higher rate, unless the language is adjusted. To maintain the current
price structure, the Exchange proposes to delete the reference to Level
1 and Level 2 fees, and replace it with a set fee that reflects the
current fee for Level 2. The proposal would require Distributors to pay
a monthly fee of $9 for each Non-Professional Subscriber and a monthly
fee of $60 for each Professional Subscriber for Display Usage based
upon Direct or Indirect Access, in addition to the $25,000 monthly
[[Page 8634]]
enterprise license. This change preserves the current per-subscriber
fees associated with the $25,000 enterprise license. Deleting the
reference to Level 1 has no effect because Level 1 is not a Nasdaq
product.
Second, under Rule 7023(c)(2), a Distributor that is also a broker-
dealer may pay a monthly fee of $100,000 for the right to provide
Nasdaq TotalView and Nasdaq OpenView for Display Usage for Internal
Distribution, or for External Distribution to both Professional and
Non-Professional Subscribers with whom the firm has a brokerage
relationship. Payment of this optional enterprise license fee allows
the purchaser to obtain TotalView and OpenView at the previous Level 2
rate because, under Rule 7023(c)(2), the Enterprise License shall not
apply to relevant Level 1 and Nasdaq Level 2 fees.
As was the case for the $25,000 Enterprise License under Rule
7023(c)(1), the proposed increase in the price of Level 2 would require
Distributors that purchase the $100,000 Enterprise License to pay the
monthly per-subscriber fees at the new, higher rate, unless the
language is adjusted. To maintain the prior price structure, the
Exchange proposes to delete the reference to Level 1 and Level 2, and
replace it with a set fee for Professional and Non-Professional
Subscribers. The proposal would require Distributors to pay a monthly
fee of $9 for each Non-Professional Subscriber and a monthly fee of $60
for each Professional Subscriber for Display Usage based upon Direct or
Indirect Access, in addition to the $100,000 monthly enterprise
license. This change preserves the current per-subscriber fees
associated with the $100,000 enterprise license. As previously noted,
deleting the reference to Level 1 has no effect because it is not a
Nasdaq product.
Third, the Exchange proposes to remove a sentence from Rule 7023(e)
that has been rendered meaningless. That rule currently provides a 30-
day fee waiver for a trial offer of TotalView, provided that the waiver
does not include incremental fees for the Nasdaq Level 2-only service.
Because the proposal removes the price differential between Level 2 and
TotalView, no incremental fees will exist, and the Exchange therefore
proposes deleting that sentence.
The Level 2 Professional and Non-Professional fees are entirely
optional, in that they apply only to Subscribers that opt to purchase
Level 2. They do not impact or raise the cost of any other Nasdaq
product, except for those subscribers who opt to purchase OpenView
together with Level 2, for whom the price of the combined product will
rise by the same amount as Level 2.
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.
---------------------------------------------------------------------------
\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------
Likewise, in NetCoalition v. Securities and Exchange Commission \7\
(``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\
---------------------------------------------------------------------------
\7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\8\ See NetCoalition, at 534-535.
\9\ Id. at 537.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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)).
---------------------------------------------------------------------------
The Exchange believes that the proposals to increase the monthly
Level 2 Non-Professional Fee and the Level 2 Professional Fee--which
will be implemented in anticipation of retiring Level 2 as a separate
product--are reasonable. The Exchange is providing time for
Distributors to transition from Level 2 to TotalView feeds, and the
price increase compensates Nasdaq for providing both feeds during that
transition period. The fees for Level 2, like all proprietary data
fees, are constrained by the Exchange's need to compete for order flow,
and are subject to competition from other products and among broker-
dealers for customers. If Nasdaq is incorrect in its assessment of the
Level 2 market, there are no barriers to entry for competitors with
substantially similar products.
The Exchange believes that the proposed fee changes are an
equitable allocation and not unfairly discriminatory because the
Exchange will apply the same fee to all similarly-situated subscribers.
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 proposed fees will: (i) Increase the monthly Level 2 Non-
Professional Fee from $9 to $14; and (ii) increase the monthly Level 2
Professional Fee from $60 to $70. If the changes proposed herein are
unattractive to market
[[Page 8635]]
participants, it is likely that the Exchange will lose market share as
a result. Accordingly, the Exchange does not believe that the proposed
changes will impair the ability of members or competing order execution
venues to maintain their competitive standing in the financial markets.
Specifically, market forces constrain fees for Level 2 in three
respects. First, all fees related to Level 2 are constrained by
competition among exchanges and other entities attracting order flow.
Firms make decisions regarding Level 2 and other proprietary data based
on the total cost of interacting with the Exchange, and order flow
would be harmed by the supracompetitive pricing of any proprietary data
product. Second, the price of Level 2 is constrained by the existence
of substitutes that are offered, or may be offered, by entities that
offer proprietary data. Third, competition among Distributors for
customers will further constrain the cost of Level 2. An example of the
impact of market forces on the price of proprietary data is the
decrease in the Nasdaq Basic enterprise license fee for broker-dealers
distributing such information to subscribers in the context of a
brokerage relationship, which was recently decreased from $350,000 to
$100,000.
Competition for Order Flow
Fees related to Level 2 are constrained by competition among
exchanges and other entities seeking to attract order flow. Order flow
is the ``life blood'' of the exchanges. Broker-dealers currently have
numerous alternative venues for their order flow, including self-
regulatory organization (``SRO'') markets, as well as internalizing
broker-dealers (``BDs'') and various forms of alternative trading
systems (``ATSs''), including dark pools and electronic communication
networks (``ECNs''). Each SRO market competes to produce transaction
reports via trade executions, and two FINRA-regulated Trade Reporting
Facilities (``TRFs'') compete to attract internalized transaction
reports. The existence of fierce competition for order flow implies a
high degree of price sensitivity on the part of BDs, which may readily
reduce costs by directing orders toward the lowest-cost trading venues.
The level of competition and contestability in the market for order
flow is demonstrated by the numerous examples of entrants that swiftly
grew into some of the largest electronic trading platforms and
proprietary data producers: Archipelago, Bloomberg Tradebook, Island,
RediBook, Attain, TracECN, BATS Trading and BATS/Direct Edge. A
proliferation of dark pools and other ATSs operate profitably with
fragmentary shares of consolidated market volume. For a variety of
reasons, competition from new entrants, especially for order execution,
has increased dramatically over the last decade.
Each SRO, TRF, ATS, and BD that competes for order flow is
permitted to produce proprietary data products. Many currently do or
have announced plans to do so, including NYSE, NYSE Amex, NYSE Arca,
BATS, and IEX. This is because Regulation NMS deregulated the market
for proprietary data. While BDs had previously published their
proprietary data individually, Regulation NMS encourages market data
vendors and BDs to produce proprietary products cooperatively in a
manner never before possible. Order routers and market data vendors can
facilitate production of proprietary data products for single or
multiple BDs. The potential sources of proprietary products are
virtually limitless.
The markets for order flow and proprietary data are inextricably
linked: A trading platform cannot generate market information unless it
receives trade orders. As a result, the competition for order flow
constrains the prices that platforms can charge for proprietary data
products. Firms make decisions on how much and what types of data to
consume based on the total cost of interacting with Nasdaq and other
exchanges. Data fees are but one factor in a total platform analysis.
If the cost of the product exceeds its expected value, the broker-
dealer will choose not to buy it. A supracompetitive increase in the
fees charged for either transactions or proprietary data has the
potential to impair revenues from both products. In this manner, the
competition for order flow will constrain prices for proprietary data
products.
Substitute Products
The price of depth-of-book data is constrained by the existence of
competition from other exchanges, such as NYSE and BATS, which sell
proprietary depth-of-book data. While a small number of highly
sophisticated traders purchase depth-of-book products from multiple
exchanges, most customers do not. Because most customers would not pay
an excessive price for Level 2 when substitute data is available from
other proprietary sources, the Exchange is constrained in its pricing
decisions.
Competition Among Distributors
Competition among Distributors provides another form of price
discipline for proprietary data products. If the price of Level 2 were
set above competitive levels, Distributors purchasing Level 2 would be
at a disadvantage relative to their competitors, and would therefore
either purchase a substitute or forego the product altogether.
In summary, market forces constrain the price of depth-of-book data
such as Level 2 through competition for order flow, competition from
substitute products, and in the competition among vendors 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\
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (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
[[Page 8636]]
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2017-004 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-2017-004. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2017-004 and should
be submitted on or before February 17, 2017.
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\12\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01833 Filed 1-26-17; 8:45 am]
BILLING CODE 8011-01-P
