Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Its Fees at Rule 7023, 4092-4097 [2018-01534]
Download as PDF
<![CDATA[
4092
Federal Register / Vol. 83, No. 19 / Monday, January 29, 2018 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the proposed rule change
does not (i) significantly affect the
protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 27 and Rule 19b–4(f)(6)
thereunder.28
A proposed rule change filed under
Rule 19b–4(f)(6) 29 normally does not
become operative for 30 days after the
date of filing. However, pursuant to
Rule 19b–4(f)(6)(iii),30 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
upon filing. The Commission believes
that waiving the 30-day operative delay
is consistent with the protection of
investors and the public interest as it
will allow the Exchange to align its
initial options listing standards with
that of its affiliates, and the Exchange’s
proposal does not raise new issues.
Accordingly, the Commission hereby
waives the 30-day operative delay
requirement and designates the
proposed rule change as operative upon
filing.31
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
27 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
29 17 CFR 240.19b–4(f)(6).
30 17 CFR 240.19b–4(f)(6)(iii).
31 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
sradovich on DSK3GMQ082PROD with NOTICES
28 17
VerDate Sep<11>2014
18:19 Jan 26, 2018
Jkt 244001
action is necessary or appropriate in the
public interest, for the protection of
investors, or 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.
Number SR–NASDAQ–2018–005, and
should be submitted on or before
February 20, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
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. 2018–01541 Filed 1–26–18; 8:45 am]
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2018–005 on the subject line.
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend Its Fees at
Rule 7023
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–2018–005. 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 website (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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
PO 00000
Frm 00070
Fmt 4703
Sfmt 4703
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82567; File No. SR–BX–
2018–005]
January 23, 2018.
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
18, 2018, Nasdaq BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
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 its
fees at Rule 7023 to modify the fee
schedule for BX TotalView to reflect
substantial enhancements to this
product since the current BX TotalView
fees were set in 2010.
The text of the proposed rule change
is available on the Exchange’s website at
https://nasdaqbx.cchwallstreet.com/, at
the principal office of the Exchange, and
at the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
32 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\29JAN1.SGM
29JAN1
Federal Register / Vol. 83, No. 19 / Monday, January 29, 2018 / Notices
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to adjust the
fee schedule for BX TotalView to reflect
substantial enhancements to this
product since the current non-display
usage fees and enterprise license fees
were set in 2010.3 Specifically, the
Exchange proposes to: (i) Introduce a
monthly non-display usage 4 fee of $55
per Professional Subscriber 5 for BX
TotalView based upon Direct Access;
and (ii) increase the monthly enterprise
license fee for non-display usage of BX
TotalView based upon Direct Access
from $16,000 to $20,000.
sradovich on DSK3GMQ082PROD with NOTICES
BX TotalView
BX TotalView, like Nasdaq and PSX
TotalView, is a real-time market data
feed that provides access to every
displayed quote and order at every price
level in Nasdaq–, NYSE–, NYSE
American–, NYSE Arca–, CBOE–, and
IEX–listed securities. The product also
provides anonymous interest and
administrative messages relating to
trading halts and symbol directory
messages.6
BX TotalView is available for a
monthly per Subscriber fee of $20 for
either display or non-display usage of
Nasdaq issues, and an additional
monthly per Subscriber fee of $20 for
NYSE and regional issues. A
‘‘Subscriber’’ is ‘‘any access that a
distributor of the data entitlement
package(s) provides to: (1) Access the
3 See Securities Exchange Act Release No. 62001
(April 29, 2010), 75 FR 25014 (May 6, 2010) (SR–
BX–2010–027).
4 Non-Display usage is any method of accessing
Exchange information that does not involve the
display of such data on a screen or other
mechanism designed for access or use by a natural
person or persons. Non-Display usage applies to
automated order generation and program trading,
algorithmic trading and order routing, and back
office processes such as surveillance, order
verification, and risk management. See Id.
(establishing a Non-Display usage cap for internal
distributors of BX TotalView).
5 A ‘‘Subscriber’’ is any access that a distributor
of data entitlement package(s) provides to: (1)
Access the information in the data entitlement
package(s); or (2) communicate with the distributor
so as to cause the distributor to access the
information in the data entitlement package(s). See
BX Rule 7023(c).
6 Symbol directory messages include basic
security data such as the market tier and Financial
Status Indicator.
VerDate Sep<11>2014
18:19 Jan 26, 2018
Jkt 244001
information in the data entitlement
package(s); or (2) communicate with the
distributor so as to cause the distributor
to access the information in the data
entitlement package(s).’’ 7 The current
monthly charges are based on the
number of Subscribers, without regard
to whether a Subscriber is used for nondisplay or display usage.
For firms that utilize BX TotalView
internally for non-display purposes, the
product may also be purchased through
an enterprise license fee of $16,000 per
month for unlimited internal use of nondisplay data. This enterprise license,
which provides an alternative to
monthly per Subscriber fees, is designed
to relieve firms with a large number of
internal Subscribers from the
administrative burden of identifying,
tracking and reporting such Subscribers.
Proposed Changes
BX TotalView is one of a number of
market information services offered by
the Exchange. Such services are
inextricably connected to trade
execution: Market information services
require trade orders to provide useful
information, and investors utilize
market information to make trading
decisions. Over the seven years that
have elapsed since the current fee
schedule for non-display usage and
enterprise licenses for BX TotalView
were introduced,8 the Exchange has
invested in an array of upgrades to both
its trade execution and market
information services, which have
increased the value of these services
overall, and BX TotalView in
particular.9
The Exchange proposes to adjust its
fee schedule for BX TotalView to reflect
the value of the many investments
improving the product, which include:
• Glimpse Snapshot Facility. In 2013,
the Exchange substantially updated the
Glimpse snapshot facility, which allows
firms to obtain a snapshot of the order
book at any point during the trading
day. The service may be used to validate
order book displays or to recover from
data gaps during the trading day.10
• Enhanced Data Feed. In 2014, the
Exchange enhanced the BX TotalView
data feed by: (i) Converting to binary
codes to make more efficient use of
bandwidth and to provide greater
7 See
Note 5.
Securities Exchange Act Release No. 62001
(April 29, 2010), 75 FR 25014 (May 6, 2010) (SR–
BX–2010–027).
9 Many of these upgrades are common to several
Nasdaq-affiliated exchanges, as improvements to
the products and services of one exchange are
reproduced in other exchanges.
10 See https://www.nasdaqtrader.com/
TraderNews.aspx?id=dtn2013-33.
8 See
PO 00000
Frm 00071
Fmt 4703
Sfmt 4703
4093
timestamp granularity; (ii) adding a
symbol directory message to identify a
security and its key characteristics; and
(iii) adding the Market Wide Circuit
Breaker (‘‘MWCB’’) Decline Level
message to inform recipients of the
setting for MWCB breach points for the
trading day, and an MWCB Status Level
Message to inform data recipients when
an MWCB has breached an established
level.11
• Reg SHO Circuit breaker. In 2010,
the Exchange instituted a Regulation
SHO restricted indicator message. This
message is disseminated if the price of
the security declines by 10 percent or
more from the prior closing value
during normal market hours.12
• Geographic Diversity. In 2015, all of
the Nasdaq Exchanges moved their
Disaster Recovery (‘‘DR’’) center from
Ashburn, Virginia, to Chicago, Illinois.
As a result, customers can both receive
market data and send orders through the
Chicago facility, potentially reducing
overall networking costs. Adding such
geographic diversity helps protect the
market in the event of a catastrophic
event impacting the entire East Coast.13
• Chicago ‘‘B’’ Feeds. In 2017, all of
the Nasdaq exchanges added a multicast
IP address for proprietary equity and
options data feeds in Chicago, allowing
firms the choice of having additional
redundancy to ensure data continuity.14
• Extended Transmission Hours. In
2014, the Exchange began to transmit
data between 3:00 and 4:00 a.m. Eastern,
approximately three hours earlier than
previously, to provide customers with
an opportunity to test connectivity
before pre-market sessions open at 7:00
a.m. Eastern.15
This proposed fee change for BX
TotalView differs from the
corresponding fee change recently
proposed for PSX TotalView 16 in that:
(i) The monthly non-display usage fee
for Professional Subscribers is proposed
to be $50 for PSX TotalView, and $55
for BX TotalView, and (ii) the proposed
monthly enterprise license fee for nondisplay usage of PSX TotalView is
$17,000, while the corresponding fee
proposal for BX TotalView is $20,000.
11 See https://www.nasdaqtrader.com/
TraderNews.aspx?id=dtn2013-45 and https://
www.nasdaqtrader.com/TraderNews.aspx?id=
dtn2013-33.
12 See https://www.nasdaqtrader.com/
TraderNews.aspx?id=dtn2010-023.
13 See https://www.nasdaqtrader.com/
TraderNews.aspx?id=dtn2015-17.
14 See https://www.nasdaqtrader.com/
TraderNews.aspx?id=dtn2017-02.
15 The extended schedule for data transmission
did not extend pre-market trading hours. See https://
www.nasdaqtrader.com/TraderNews.aspx?id=
dtn2014-08.
16 See SR–PHLX–2018–10.
E:\FR\FM\29JAN1.SGM
29JAN1
4094
Federal Register / Vol. 83, No. 19 / Monday, January 29, 2018 / Notices
sradovich on DSK3GMQ082PROD with NOTICES
These differences are justified by
differences in the usage of the two
exchanges, as well as certain network
investments that are unique to BX.
BX has approximately 25 percent
more market participants than PSX, as
measured by Market Participant
Identifier (‘‘MPID’’). This greater
number of market participants results in
more trades: BX processed
approximately twice the number of
trading messages as PSX in 2017, and,
as of February 2017, BX had nearly 5
times more add/remove liquidity than
PSX. These differences in usage are
reflected in significantly different
growth rates: The peak one second
transaction rate for BX increased by 78
percent between 2012 and 2017, while
the same measure for PSX increased by
only 20 percent over the same period.
BX also has invested in two network
enhancements that are unique to that
Exchange:
• Price Improvement Indicator. In
2014, the Exchange introduced a Price
Improvement Indicator (‘‘PII’’) 17
message. The purpose of this indicator
is to denote when a Retail Price
Improvement order better than the best
displayed bid and/or offer price for a
given security is available.18
• Additional Data Feed at Carteret. In
2017, the Exchange added a new source
IP address for the BX data feeds at its
Carteret facility, providing additional
redundancy to ensure data continuity.19
The proposed price increases are also
justified by the fact that, while usage of
the BX exchange increased and the
Exchange invested in a number of
enhancements to its data feed, fees for
BX fell in real terms as a result of price
inflation.20 The proposed increase to the
monthly non-display usage fee amounts
to an annual increase of approximately
4.65 percent over the relevant period,
and the proposed enterprise license fee
increase translates to an annual increase
of approximately 3.24 percent over the
relevant period, both of which are
partially offset by inflation.
As a result of these substantial
upgrades, the Exchange proposes two
substantive changes to the BX
TotalView fee schedule: (i) Introduce a
monthly non-display usage fee of $55
per Subscriber based upon Direct
17 See Securities Exchange Act Release No. 73410
(October 23, 2014), 79 FR 64447 (October 29, 2014)
(SR–BX–2014–048).
18 See https://www.nasdaqtrader.com/
TraderNews.aspx?id=dtn2014-18.
19 See https://www.nasdaqtrader.com/
TraderNews.aspx?id=dtn2017-16.
20 The Consumer Price Index indicates a price
increase of approximately 13 percent between April
2010 and November 2017. See https://www.bls.gov/
data/inflation_calculator.htm.
VerDate Sep<11>2014
18:19 Jan 26, 2018
Jkt 244001
Access; and (ii) increase the monthly
enterprise license fee for non-display
usage based upon Direct Access from
$16,000 to $20,000.21
The current fee structure allows firms
to purchase BX TotalView for all issues
for display or non-display usage by
professionals for a per Subscriber
monthly charge of $40 ($20 for Nasdaq
issues and $20 for NYSE and regional
issues). The Exchange proposes to
remove non-display usage based upon
Direct Access from those fees, and
institute a separate fee for non-display
usage based upon Direct Access for all
Nasdaq, NYSE and regional issues.22
Fees for non-professionals will not
change. The effect of this proposal
would be to leave the total fees for
display usage and non-display usage not
based upon Direct Access by
professionals for all issues unchanged at
$40, but to increase the monthly fee to
$55 per month for non-display usage by
professionals based upon Direct
Access.23 With this change, the pricing
structure for BX TotalView will conform
to the pricing structure for Nasdaq
TotalView (which has differential fees
for display and non-display usage),24
the proposed pricing structure for PSX
TotalView (proposed in a separate filing
for the PSX Exchange),25 as well as the
non-display fee structure for NYSE and
other exchanges.26 As noted elsewhere,
differential pricing for display and non21 In addition to these two substantive changes,
the Exchange proposes four technical changes.
First, the Exchange proposes to add the phrase ‘‘for
display usage’’ to Rule 7023(a)(1) to distinguish
between display usage fees, which shall remain
unchanged, and non-display usage fees, which will
increase. Second, the Exchange proposes to change
the reference to per Subscriber fees in new Rule
7023(a)(3) from (a)(1) to (a)(2) because non-display
fees have been moved from section (a)(1) to (a)(2)
for Professionals that take the feed through Direct
Access. Third, the Exchange proposes to renumber
former Rules 7023(a)(2) and (a)(3) to Rules
7023(a)(3) and (a)(4), respectively, to reflect the
introduction of new Rule 7023(a)(2). Fourth, the
Exchange proposes to revise proposed Rule
7023(a)(4) (‘‘Free-Trial Offers’’) to reflect the new
fee set forth in proposed Rule 7023(a)(2).
22 Any Subscriber within a firm that obtains
Exchange data through a Subscriber from that same
firm with Direct Access has obtained such data
‘‘based upon Direct Access.’’
23 ‘‘Direct Access’’ means a telecommunications
interface with the Exchange for receiving Exchange
data, or receiving an Exchange data feed within the
Exchange co-location facility, or receiving Exchange
data via an Extranet access provider or other such
provider that is fee-liable under Rule 7025. See BX
Rule 7019(c).
24 See Nasdaq Rule 7023(b)(2).
25 See SR–PHLX–2018–10. BX fees are higher
than PSX fees because of differences in usage
between the two exchanges, as well as differences
in infrastructure investments, as described above.
26 See, e.g., NYSE PDP Market Data Pricing
(November 3, 2017), found at https://
www.nyse.com/publicdocs/nyse/data/NYSE_
Market_Data_Pricing.pdf.
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
display usage has become the industry
norm.
The second proposal will increase the
monthly enterprise license fee for
internal non-display usage based upon
Direct Access from $16,000 to $20,000.
BX TotalView is optional in that the
Exchange is not required to offer it and
broker-dealers are not required to
purchase it. Firms can discontinue use
at any time and for any reason,
including an assessment of the fees
charged.
The proposed change does not change
the cost of any other Exchange product.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,27 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,28 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.’’ 29
Likewise, in NetCoalition v. Securities
and Exchange Commission 30
(‘‘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.31 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.’’ 32
Further, ‘‘[n]o one disputes that
competition for order flow is ‘fierce.’
27 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
29 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005).
30 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010).
31 See NetCoalition, at 534–535.
32 Id. at 537.
28 15
E:\FR\FM\29JAN1.SGM
29JAN1
sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 83, No. 19 / Monday, January 29, 2018 / Notices
. . . 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’. . . .’’ 33
The Exchange believes that the
proposed fee changes are equitable
allocations of reasonable dues, fees and
other charges in accordance with
Section 6(b)(4) of the Act, and not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers in
accordance with Section 6(b)(5) of the
Act. Both the monthly non-display per
Subscriber usage fee and the monthly
enterprise license fee for non-display
usage are equitable allocations because,
as has been widely recognized, display
and non-display functions provide
different value to the consumer, and it
has become standard industry practice
to charge differing fees for these two
different modes of data consumption. In
addition, discounts based on high levels
of usage such as the enterprise license
for non-display usage have routinely
been adopted by exchanges and
approved as equitable allocations of
reasonable dues, fees and other
charges.34 As such, the proposed fees
vary solely based on reasonable and
well-established industry norms
regarding types of data usage, as
discussed above.
The proposed changes do not permit
unfair discrimination between
customers, issuers, brokers, or dealers
because the Exchange makes all services
and products subject to these fees
available on a non-discriminatory basis
to similarly-situated recipients. The
proposed fees are structured in a
manner comparable to the
corresponding fees of Nasdaq already in
effect, and compare favorably to fees
charged by Nasdaq for the same
product. The fees are uniform except
with respect to reasonable and wellestablished distinctions among classes
of data as discussed above.
The Exchange also distinguishes
between usage based on Direct Access
and other methods of connection: Nondisplay usage that is based upon Direct
33 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)).
34 For example, the Commission has approved
pricing discounts for market data under Nasdaq
Rule 7023.
VerDate Sep<11>2014
18:19 Jan 26, 2018
Jkt 244001
Access will be charged $55 per month,
while other non-display usage will be
charged a total of $40 per month for all
issues. This distinction is an equitable
allocation of reasonable dues, fees and
other charges because Direct Access
provides the customer with source
information in the original raw format,
which provides customers with
certainty that they are receiving data
without conflation or manipulation.
This distinction does not permit unfair
discrimination between customers,
issuers, brokers, or dealers because the
price differential is based on the
difference in value to the customer.
In addition, the Exchange proposes to
introduce clarifying language stating
that the enterprise license for nondisplay data will be available only to
firms with Direct Access. This is an
equitable allocation of reasonable dues,
fees and other charges because firms
with sufficient activity to purchase an
enterprise license have a Direct Access
connection. As such, the proposed
language simply clarifies how the
enterprise license will be used with
respect to Direct Access, in a similar
manner to the way that Direct Access is
addressed in proposed Rules 7023(a)(1)
and (a)(2), without affecting the service
of any specific customer. This proposed
change does not permit unfair
discrimination between customers,
issuers, brokers, or dealers for the same
reason: The proposed language is
simply a clarification that will not lead
to any actual difference in usage.
The Act does not prohibit all
distinctions among customers, but
rather discrimination that is unfair. As
the Commission has recognized, ‘‘[i]f
competitive forces are operative, the
self-interest of the exchanges themselves
will work powerfully to constrain
unreasonable or unfair behavior.’’ 35
Accordingly, ‘‘the existence of
significant competition provides a
substantial basis for finding that the
terms of an exchange’s fee proposal are
equitable, fair, reasonable, and not
unreasonably or unfairly
discriminatory.’’ 36 The proposed fees,
like all market data fees, are constrained
by the Exchange’s need to compete for
order flow as discussed below, and are
subject to competition from other
exchanges and among broker-dealers for
customers. If the Exchange is incorrect
in its assessment of price, it may lose
market share as a result.
35 Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770 (December 9,
2008) (SR–NYSEArca–2006–21).
36 Id.
PO 00000
Frm 00073
Fmt 4703
Sfmt 4703
4095
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. In terms of
inter-market competition, the Exchange
notes that it operates in a highly
competitive market in which market
participants can readily favor competing
venues if they deem fee levels at a
particular venue to be excessive, or
rebate opportunities available at other
venues to be more favorable. In such an
environment, the Exchange must
continually adjust its fees to remain
competitive with other exchanges and
with alternative trading systems that
have been exempted from compliance
with the statutory standards applicable
to exchanges. Because competitors are
free to modify their own fees in
response, and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which fee
changes in this market may impose any
burden on competition is extremely
limited.
BX TotalView is a type of depth-ofbook product, which consists of
‘‘outstanding limit orders to buy stock at
prices lower than, or to sell stocks at
prices higher than, the best prices on
each exchange.’’ 37 The question of
whether the prices of depth-of-book
products are constrained by competitive
forces was examined in 2016 by an
Administrative Law Judge in an
application for review by the Securities
Industry and Financial Markets
Association of actions taken by SelfRegulatory Organizations.38 After a fourday hearing and presentation of
substantial evidence, the administrative
law judge stated that ‘‘competition plays
a significant role in restraining exchange
pricing of depth-of-book products’’ 39
because ‘‘depth-of-book products from
different exchanges function as
substitutes for each other,’’ 40 and, as
such, ‘‘the threat of substitution from
depth-of-book customers constrains
their depth-of-book prices.’’ 41 As a
result, ‘‘[s]hifts in order flow and threats
of shifting order flow provide a
significant competitive force in the
37 Securities Industry and Financial Markets
Association, Initial Decision Release No. 1015, 2016
SEC LEXIS 2278 at 4 (A.L.J. June 1, 2016) (quoting
NetCoalition v. SEC, 615F3d 525, 529–30 (D.C. Cir.
2010)).
38 Id.
39 Id. at 92.
40 Id.
41 Id. at 93.
E:\FR\FM\29JAN1.SGM
29JAN1
sradovich on DSK3GMQ082PROD with NOTICES
4096
Federal Register / Vol. 83, No. 19 / Monday, January 29, 2018 / Notices
pricing of . . . depth-of-book data.’’ 42
The judge concluded that ‘‘[u]nder the
standards articulated by the
Commission and D.C. Circuit, the
Exchanges have shown that they are
subject to significant competitive forces
in setting fees for depth-of-book data:
The availability of alternatives to the
Exchanges’ depth-of-book products, and
the Exchanges’ need to attract order
flow from market participants
constrains prices.’’ 43
The proposed changes will: (i)
Introduce a monthly non-display usage
fee of $55 per Subscriber for BX
TotalView based upon Direct Access;
and (ii) increase the monthly enterprise
license fee for non-display usage of BX
TotalView based upon Direct Access
from $16,000 to $20,000. These
proposed price changes will not impose
any burden on competition because
market data fees are but one aspect of
the overall competition among
exchanges to solicit order flow; if the
overall price of interacting with the
Exchange rises above competitive levels
because of market data fees, market
forces would cause the Exchange to lose
market share.
Market forces constrain fees for BX
TotalView, as well as other market data
fees, in the competition among
exchanges and other entities to attract
order flow and in the competition
among Distributors for customers. 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/
42 Id.
43 Id.
at 104.
at 86.
VerDate Sep<11>2014
18:19 Jan 26, 2018
Jkt 244001
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
American, NYSE Arca, CBOE, 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 BX 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.
Competition among Distributors
provides another form of price
discipline for proprietary data products.
If the price of BX TotalView were set
above competitive levels, Distributors
purchasing BX TotalView would be at a
disadvantage relative to their
competitors, and would therefore either
curtail their purchase or forego the
product altogether.
Market forces constrain the price of
depth-of-book data such as BX
TotalView through the competition for
order flow and in the competition
among vendors for customers. If the
changes proposed herein are
unattractive to market participants, it is
likely that the Exchange will lose
PO 00000
Frm 00074
Fmt 4703
Sfmt 4703
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.
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.44
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2018–005 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BX–2018–005. 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 website (https://www.sec.gov/
rules/sro.shtml). Copies of the
44 15
E:\FR\FM\29JAN1.SGM
U.S.C. 78s(b)(3)(A)(ii).
29JAN1
Federal Register / Vol. 83, No. 19 / Monday, January 29, 2018 / Notices
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 website 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–BX–2018–005 and should
be submitted on or before February 20,
2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.45
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–01534 Filed 1–26–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
32974; 812–14847]
Salt Financial, LLC, et al.
January 23, 2018.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
sradovich on DSK3GMQ082PROD with NOTICES
AGENCY:
Notice of an application for an order
under section 6(c) of the Investment
Company Act of 1940 (the ‘‘Act’’) for an
exemption from sections 2(a)(32),
5(a)(1), 22(d), and 22(e) of the Act and
rule 22c–1 under the Act, under
sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and
17(a)(2) of the Act, and under section
12(d)(1)(J) for an exemption from
sections 12(d)(1)(A) and 12(d)(1)(B) of
the Act. The requested order would
permit (a) index-based series of certain
open-end management investment
companies (‘‘Funds’’) to issue shares
45 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
18:19 Jan 26, 2018
Jkt 244001
redeemable in large aggregations only
(‘‘Creation Units’’); (b) secondary market
transactions in Fund shares to occur at
negotiated market prices rather than at
net asset value (‘‘NAV’’); (c) certain
Funds to pay redemption proceeds,
under certain circumstances, more than
seven days after the tender of shares for
redemption; (d) certain affiliated
persons of a Fund to deposit securities
into, and receive securities from, the
Fund in connection with the purchase
and redemption of Creation Units; and
(e) certain registered management
investment companies and unit
investment trusts outside of the same
group of investment companies as the
Funds (‘‘Funds of Funds’’) to acquire
shares of the Funds.
APPLICANTS: Salt Financial, LLC (the
‘‘Initial Adviser’’), a Delaware limited
liability company that is to be registered
as an investment adviser under the
Investment Advisers Act of 1940, ETF
Series Solutions (the ‘‘Trust’’), a
Delaware statutory trust registered
under the Act as an open-end
management investment company with
multiple series, and Quasar Distributors,
LLC (the ‘‘Distributor’’), a Delaware
limited liability company and brokerdealer registered under the Securities
Exchange Act of 1934 (‘‘Exchange Act’’).
FILING DATE: The application was filed
on November 29, 2017.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by writing to the
Commission’s Secretary and serving
applicants with a copy of the request,
personally or by mail. Hearing requests
should be received by the Commission
by 5:30 p.m. on February 20, 2018 and
should be accompanied by proof of
service on applicants, in the form of an
affidavit, or for lawyers, a certificate of
service. Pursuant to rule 0–5 under the
Act, hearing requests should state the
nature of the writer’s interest, any facts
bearing upon the desirability of a
hearing on the matter, the reason for the
request, and the issues contested.
Persons who wish to be notified of a
hearing may request notification by
writing to the Commission’s Secretary.
ADDRESSES: Secretary, Securities and
Exchange Commission, 100 F Street NE,
Washington, DC 20549–1090;
Applicants: Salt Financial, LLC, 79
Madison Avenue, 8th Floor, New York,
New York 10016; ETF Series Solutions,
615 East Michigan Street, Milwaukee,
Wisconsin 53202; Quasar Distributors,
LLC, 777 East Wisconsin Avenue, 6th
Floor, Milwaukee, Wisconsin 53202.
PO 00000
Frm 00075
Fmt 4703
Sfmt 4703
4097
FOR FURTHER INFORMATION CONTACT:
Barbara T. Heussler, Senior Counsel, at
(202) 551–6990, or Robert H. Shapiro,
Branch Chief, at (202) 551–6821
(Division of Investment Management,
Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
website by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Summary of the Application
1. Applicants request an order that
would allow Funds to operate as index
exchange traded funds (‘‘ETFs’’).1 Fund
shares will be purchased and redeemed
at their NAV in Creation Units only. All
orders to purchase Creation Units and
all redemption requests will be placed
by or through an ‘‘Authorized
Participant’’, which will have signed a
participant agreement with the
Distributor. Shares will be listed and
traded individually on a national
securities exchange, where share prices
will be based on the current bid/offer
market. Any order granting the
requested relief would be subject to the
terms and conditions stated in the
application.
2. Each Fund will hold investment
positions selected to correspond
generally to the performance of an
Underlying Index. In the case of SelfIndexing Funds, an affiliated person, as
defined in section 2(a)(3) of the Act
(‘‘Affiliated Person’’), or an affiliated
person of an Affiliated Person (‘‘SecondTier Affiliate’’), of the Trust or a Fund,
of the Adviser, of any sub-adviser to or
promoter of a Fund, or of the Distributor
will compile, create, sponsor or
maintain the Underlying Index.2
1 Applicants request that the order apply to Salt
Financial US Large Cap Magnified Exposure ETF,
a new series of the Trust, and any additional series
of the Trust and any other open-end management
investment company or series thereof (each,
included in the term ‘‘Fund’’), each of which will
operate as an ETF and will track a specified index
comprised of domestic or foreign equity and/or
fixed income securities (each, an ‘‘Underlying
Index’’). Each Fund will (a) be advised by the Initial
Adviser or an entity controlling, controlled by, or
under common control with the Initial Adviser or
its successor (each, an ‘‘Adviser’’) and (b) comply
with the terms and conditions of the application.
For purposes of the requested Order, ‘‘successor’’ is
limited to an entity that results from a
reorganization into another jurisdiction or a change
in the type of business organization.
2 Each Self-Indexing Fund will post on its website
the identities and quantities of the investment
positions that will form the basis for the Fund’s
calculation of its NAV at the end of the day.
Applicants believe that requiring Self-Indexing
E:\FR\FM\29JAN1.SGM
Continued
29JAN1
]]>Agencies
[Federal Register Volume 83, Number 19 (Monday, January 29, 2018)]
[Notices]
[Pages 4092-4097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01534]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82567; File No. SR-BX-2018-005]
Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Its Fees
at Rule 7023
January 23, 2018.
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 18, 2018, Nasdaq BX, Inc. (``BX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III below,
which Items have been 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 its fees at Rule 7023 to modify the
fee schedule for BX TotalView to reflect substantial enhancements to
this product since the current BX TotalView fees were set in 2010.
The text of the proposed rule change is available on the Exchange's
website at https://nasdaqbx.cchwallstreet.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these
[[Page 4093]]
statements may be examined at the places specified in Item IV below.
The Exchange has prepared summaries, set forth in sections A, B, and C
below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to adjust the fee schedule for BX TotalView
to reflect substantial enhancements to this product since the current
non-display usage fees and enterprise license fees were set in 2010.\3\
Specifically, the Exchange proposes to: (i) Introduce a monthly non-
display usage \4\ fee of $55 per Professional Subscriber \5\ for BX
TotalView based upon Direct Access; and (ii) increase the monthly
enterprise license fee for non-display usage of BX TotalView based upon
Direct Access from $16,000 to $20,000.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 62001 (April 29,
2010), 75 FR 25014 (May 6, 2010) (SR-BX-2010-027).
\4\ Non-Display usage is any method of accessing Exchange
information that does not involve the display of such data on a
screen or other mechanism designed for access or use by a natural
person or persons. Non-Display usage applies to automated order
generation and program trading, algorithmic trading and order
routing, and back office processes such as surveillance, order
verification, and risk management. See Id. (establishing a Non-
Display usage cap for internal distributors of BX TotalView).
\5\ A ``Subscriber'' is any access that a distributor of data
entitlement package(s) provides to: (1) Access the information in
the data entitlement package(s); or (2) communicate with the
distributor so as to cause the distributor to access the information
in the data entitlement package(s). See BX Rule 7023(c).
---------------------------------------------------------------------------
BX TotalView
BX TotalView, like Nasdaq and PSX TotalView, is a real-time market
data feed that provides access to every displayed quote and order at
every price level in Nasdaq-, NYSE-, NYSE American-, NYSE Arca-, CBOE-,
and IEX-listed securities. The product also provides anonymous interest
and administrative messages relating to trading halts and symbol
directory messages.\6\
---------------------------------------------------------------------------
\6\ Symbol directory messages include basic security data such
as the market tier and Financial Status Indicator.
---------------------------------------------------------------------------
BX TotalView is available for a monthly per Subscriber fee of $20
for either display or non-display usage of Nasdaq issues, and an
additional monthly per Subscriber fee of $20 for NYSE and regional
issues. A ``Subscriber'' is ``any access that a distributor of the data
entitlement package(s) provides to: (1) Access the information in the
data entitlement package(s); or (2) communicate with the distributor so
as to cause the distributor to access the information in the data
entitlement package(s).'' \7\ The current monthly charges are based on
the number of Subscribers, without regard to whether a Subscriber is
used for non-display or display usage.
---------------------------------------------------------------------------
\7\ See Note 5.
---------------------------------------------------------------------------
For firms that utilize BX TotalView internally for non-display
purposes, the product may also be purchased through an enterprise
license fee of $16,000 per month for unlimited internal use of non-
display data. This enterprise license, which provides an alternative to
monthly per Subscriber fees, is designed to relieve firms with a large
number of internal Subscribers from the administrative burden of
identifying, tracking and reporting such Subscribers.
Proposed Changes
BX TotalView is one of a number of market information services
offered by the Exchange. Such services are inextricably connected to
trade execution: Market information services require trade orders to
provide useful information, and investors utilize market information to
make trading decisions. Over the seven years that have elapsed since
the current fee schedule for non-display usage and enterprise licenses
for BX TotalView were introduced,\8\ the Exchange has invested in an
array of upgrades to both its trade execution and market information
services, which have increased the value of these services overall, and
BX TotalView in particular.\9\
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 62001 (April 29,
2010), 75 FR 25014 (May 6, 2010) (SR-BX-2010-027).
\9\ Many of these upgrades are common to several Nasdaq-
affiliated exchanges, as improvements to the products and services
of one exchange are reproduced in other exchanges.
---------------------------------------------------------------------------
The Exchange proposes to adjust its fee schedule for BX TotalView
to reflect the value of the many investments improving the product,
which include:
Glimpse Snapshot Facility. In 2013, the Exchange
substantially updated the Glimpse snapshot facility, which allows firms
to obtain a snapshot of the order book at any point during the trading
day. The service may be used to validate order book displays or to
recover from data gaps during the trading day.\10\
---------------------------------------------------------------------------
\10\ See https://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-33.
---------------------------------------------------------------------------
Enhanced Data Feed. In 2014, the Exchange enhanced the BX
TotalView data feed by: (i) Converting to binary codes to make more
efficient use of bandwidth and to provide greater timestamp
granularity; (ii) adding a symbol directory message to identify a
security and its key characteristics; and (iii) adding the Market Wide
Circuit Breaker (``MWCB'') Decline Level message to inform recipients
of the setting for MWCB breach points for the trading day, and an MWCB
Status Level Message to inform data recipients when an MWCB has
breached an established level.\11\
---------------------------------------------------------------------------
\11\ See https://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-45 and https://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-33.
---------------------------------------------------------------------------
Reg SHO Circuit breaker. In 2010, the Exchange instituted
a Regulation SHO restricted indicator message. This message is
disseminated if the price of the security declines by 10 percent or
more from the prior closing value during normal market hours.\12\
---------------------------------------------------------------------------
\12\ See https://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2010-023.
---------------------------------------------------------------------------
Geographic Diversity. In 2015, all of the Nasdaq Exchanges
moved their Disaster Recovery (``DR'') center from Ashburn, Virginia,
to Chicago, Illinois. As a result, customers can both receive market
data and send orders through the Chicago facility, potentially reducing
overall networking costs. Adding such geographic diversity helps
protect the market in the event of a catastrophic event impacting the
entire East Coast.\13\
---------------------------------------------------------------------------
\13\ See https://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2015-17.
---------------------------------------------------------------------------
Chicago ``B'' Feeds. In 2017, all of the Nasdaq exchanges
added a multicast IP address for proprietary equity and options data
feeds in Chicago, allowing firms the choice of having additional
redundancy to ensure data continuity.\14\
---------------------------------------------------------------------------
\14\ See https://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2017-02.
---------------------------------------------------------------------------
Extended Transmission Hours. In 2014, the Exchange began
to transmit data between 3:00 and 4:00 a.m. Eastern, approximately
three hours earlier than previously, to provide customers with an
opportunity to test connectivity before pre-market sessions open at
7:00 a.m. Eastern.\15\
---------------------------------------------------------------------------
\15\ The extended schedule for data transmission did not extend
pre-market trading hours. See https://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2014-08.
---------------------------------------------------------------------------
This proposed fee change for BX TotalView differs from the
corresponding fee change recently proposed for PSX TotalView \16\ in
that: (i) The monthly non-display usage fee for Professional
Subscribers is proposed to be $50 for PSX TotalView, and $55 for BX
TotalView, and (ii) the proposed monthly enterprise license fee for
non-display usage of PSX TotalView is $17,000, while the corresponding
fee proposal for BX TotalView is $20,000.
[[Page 4094]]
These differences are justified by differences in the usage of the two
exchanges, as well as certain network investments that are unique to
BX.
---------------------------------------------------------------------------
\16\ See SR-PHLX-2018-10.
---------------------------------------------------------------------------
BX has approximately 25 percent more market participants than PSX,
as measured by Market Participant Identifier (``MPID''). This greater
number of market participants results in more trades: BX processed
approximately twice the number of trading messages as PSX in 2017, and,
as of February 2017, BX had nearly 5 times more add/remove liquidity
than PSX. These differences in usage are reflected in significantly
different growth rates: The peak one second transaction rate for BX
increased by 78 percent between 2012 and 2017, while the same measure
for PSX increased by only 20 percent over the same period.
BX also has invested in two network enhancements that are unique to
that Exchange:
Price Improvement Indicator. In 2014, the Exchange
introduced a Price Improvement Indicator (``PII'') \17\ message. The
purpose of this indicator is to denote when a Retail Price Improvement
order better than the best displayed bid and/or offer price for a given
security is available.\18\
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release No. 73410 (October 23,
2014), 79 FR 64447 (October 29, 2014) (SR-BX-2014-048).
\18\ See https://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2014-18.
---------------------------------------------------------------------------
Additional Data Feed at Carteret. In 2017, the Exchange
added a new source IP address for the BX data feeds at its Carteret
facility, providing additional redundancy to ensure data
continuity.\19\
---------------------------------------------------------------------------
\19\ See https://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2017-16.
---------------------------------------------------------------------------
The proposed price increases are also justified by the fact that,
while usage of the BX exchange increased and the Exchange invested in a
number of enhancements to its data feed, fees for BX fell in real terms
as a result of price inflation.\20\ The proposed increase to the
monthly non-display usage fee amounts to an annual increase of
approximately 4.65 percent over the relevant period, and the proposed
enterprise license fee increase translates to an annual increase of
approximately 3.24 percent over the relevant period, both of which are
partially offset by inflation.
---------------------------------------------------------------------------
\20\ The Consumer Price Index indicates a price increase of
approximately 13 percent between April 2010 and November 2017. See
https://www.bls.gov/data/inflation_calculator.htm.
---------------------------------------------------------------------------
As a result of these substantial upgrades, the Exchange proposes
two substantive changes to the BX TotalView fee schedule: (i) Introduce
a monthly non-display usage fee of $55 per Subscriber based upon Direct
Access; and (ii) increase the monthly enterprise license fee for non-
display usage based upon Direct Access from $16,000 to $20,000.\21\
---------------------------------------------------------------------------
\21\ In addition to these two substantive changes, the Exchange
proposes four technical changes. First, the Exchange proposes to add
the phrase ``for display usage'' to Rule 7023(a)(1) to distinguish
between display usage fees, which shall remain unchanged, and non-
display usage fees, which will increase. Second, the Exchange
proposes to change the reference to per Subscriber fees in new Rule
7023(a)(3) from (a)(1) to (a)(2) because non-display fees have been
moved from section (a)(1) to (a)(2) for Professionals that take the
feed through Direct Access. Third, the Exchange proposes to renumber
former Rules 7023(a)(2) and (a)(3) to Rules 7023(a)(3) and (a)(4),
respectively, to reflect the introduction of new Rule 7023(a)(2).
Fourth, the Exchange proposes to revise proposed Rule 7023(a)(4)
(``Free-Trial Offers'') to reflect the new fee set forth in proposed
Rule 7023(a)(2).
---------------------------------------------------------------------------
The current fee structure allows firms to purchase BX TotalView for
all issues for display or non-display usage by professionals for a per
Subscriber monthly charge of $40 ($20 for Nasdaq issues and $20 for
NYSE and regional issues). The Exchange proposes to remove non-display
usage based upon Direct Access from those fees, and institute a
separate fee for non-display usage based upon Direct Access for all
Nasdaq, NYSE and regional issues.\22\ Fees for non-professionals will
not change. The effect of this proposal would be to leave the total
fees for display usage and non-display usage not based upon Direct
Access by professionals for all issues unchanged at $40, but to
increase the monthly fee to $55 per month for non-display usage by
professionals based upon Direct Access.\23\ With this change, the
pricing structure for BX TotalView will conform to the pricing
structure for Nasdaq TotalView (which has differential fees for display
and non-display usage),\24\ the proposed pricing structure for PSX
TotalView (proposed in a separate filing for the PSX Exchange),\25\ as
well as the non-display fee structure for NYSE and other exchanges.\26\
As noted elsewhere, differential pricing for display and non-display
usage has become the industry norm.
---------------------------------------------------------------------------
\22\ Any Subscriber within a firm that obtains Exchange data
through a Subscriber from that same firm with Direct Access has
obtained such data ``based upon Direct Access.''
\23\ ``Direct Access'' means a telecommunications interface with
the Exchange for receiving Exchange data, or receiving an Exchange
data feed within the Exchange co-location facility, or receiving
Exchange data via an Extranet access provider or other such provider
that is fee-liable under Rule 7025. See BX Rule 7019(c).
\24\ See Nasdaq Rule 7023(b)(2).
\25\ See SR-PHLX-2018-10. BX fees are higher than PSX fees
because of differences in usage between the two exchanges, as well
as differences in infrastructure investments, as described above.
\26\ See, e.g., NYSE PDP Market Data Pricing (November 3, 2017),
found at https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf.
---------------------------------------------------------------------------
The second proposal will increase the monthly enterprise license
fee for internal non-display usage based upon Direct Access from
$16,000 to $20,000.
BX TotalView is optional in that the Exchange is not required to
offer it and broker-dealers are not required to purchase it. Firms can
discontinue use at any time and for any reason, including an assessment
of the fees charged.
The proposed change does not change the cost of any other Exchange
product.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\27\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\28\ 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.
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78f(b).
\28\ 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.'' \29\
---------------------------------------------------------------------------
\29\ Securities Exchange Act Release No. 51808 (June 9, 2005),
70 FR 37496, 37499 (June 29, 2005).
---------------------------------------------------------------------------
Likewise, in NetCoalition v. Securities and Exchange Commission
\30\ (``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.\31\ 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.'' \32\
---------------------------------------------------------------------------
\30\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\31\ See NetCoalition, at 534-535.
\32\ Id. at 537.
---------------------------------------------------------------------------
Further, ``[n]o one disputes that competition for order flow is
`fierce.'
[[Page 4095]]
. . . 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'. . . .'' \33\
---------------------------------------------------------------------------
\33\ 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 proposed fee changes are equitable
allocations of reasonable dues, fees and other charges in accordance
with Section 6(b)(4) of the Act, and not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers in
accordance with Section 6(b)(5) of the Act. Both the monthly non-
display per Subscriber usage fee and the monthly enterprise license fee
for non-display usage are equitable allocations because, as has been
widely recognized, display and non-display functions provide different
value to the consumer, and it has become standard industry practice to
charge differing fees for these two different modes of data
consumption. In addition, discounts based on high levels of usage such
as the enterprise license for non-display usage have routinely been
adopted by exchanges and approved as equitable allocations of
reasonable dues, fees and other charges.\34\ As such, the proposed fees
vary solely based on reasonable and well-established industry norms
regarding types of data usage, as discussed above.
---------------------------------------------------------------------------
\34\ For example, the Commission has approved pricing discounts
for market data under Nasdaq Rule 7023.
---------------------------------------------------------------------------
The proposed changes do not permit unfair discrimination between
customers, issuers, brokers, or dealers because the Exchange makes all
services and products subject to these fees available on a non-
discriminatory basis to similarly-situated recipients. The proposed
fees are structured in a manner comparable to the corresponding fees of
Nasdaq already in effect, and compare favorably to fees charged by
Nasdaq for the same product. The fees are uniform except with respect
to reasonable and well-established distinctions among classes of data
as discussed above.
The Exchange also distinguishes between usage based on Direct
Access and other methods of connection: Non-display usage that is based
upon Direct Access will be charged $55 per month, while other non-
display usage will be charged a total of $40 per month for all issues.
This distinction is an equitable allocation of reasonable dues, fees
and other charges because Direct Access provides the customer with
source information in the original raw format, which provides customers
with certainty that they are receiving data without conflation or
manipulation. This distinction does not permit unfair discrimination
between customers, issuers, brokers, or dealers because the price
differential is based on the difference in value to the customer.
In addition, the Exchange proposes to introduce clarifying language
stating that the enterprise license for non-display data will be
available only to firms with Direct Access. This is an equitable
allocation of reasonable dues, fees and other charges because firms
with sufficient activity to purchase an enterprise license have a
Direct Access connection. As such, the proposed language simply
clarifies how the enterprise license will be used with respect to
Direct Access, in a similar manner to the way that Direct Access is
addressed in proposed Rules 7023(a)(1) and (a)(2), without affecting
the service of any specific customer. This proposed change does not
permit unfair discrimination between customers, issuers, brokers, or
dealers for the same reason: The proposed language is simply a
clarification that will not lead to any actual difference in usage.
The Act does not prohibit all distinctions among customers, but
rather discrimination that is unfair. As the Commission has recognized,
``[i]f competitive forces are operative, the self-interest of the
exchanges themselves will work powerfully to constrain unreasonable or
unfair behavior.'' \35\ Accordingly, ``the existence of significant
competition provides a substantial basis for finding that the terms of
an exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.'' \36\ The proposed fees, like
all market data fees, are constrained by the Exchange's need to compete
for order flow as discussed below, and are subject to competition from
other exchanges and among broker-dealers for customers. If the Exchange
is incorrect in its assessment of price, it may lose market share as a
result.
---------------------------------------------------------------------------
\35\ Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\36\ Id.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In terms of inter-market
competition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive, or rebate opportunities available at other venues to be more
favorable. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges and with
alternative trading systems that have been exempted from compliance
with the statutory standards applicable to exchanges. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
BX TotalView is a type of depth-of-book product, which consists of
``outstanding limit orders to buy stock at prices lower than, or to
sell stocks at prices higher than, the best prices on each exchange.''
\37\ The question of whether the prices of depth-of-book products are
constrained by competitive forces was examined in 2016 by an
Administrative Law Judge in an application for review by the Securities
Industry and Financial Markets Association of actions taken by Self-
Regulatory Organizations.\38\ After a four-day hearing and presentation
of substantial evidence, the administrative law judge stated that
``competition plays a significant role in restraining exchange pricing
of depth-of-book products'' \39\ because ``depth-of-book products from
different exchanges function as substitutes for each other,'' \40\ and,
as such, ``the threat of substitution from depth-of-book customers
constrains their depth-of-book prices.'' \41\ As a result, ``[s]hifts
in order flow and threats of shifting order flow provide a significant
competitive force in the
[[Page 4096]]
pricing of . . . depth-of-book data.'' \42\ The judge concluded that
``[u]nder the standards articulated by the Commission and D.C. Circuit,
the Exchanges have shown that they are subject to significant
competitive forces in setting fees for depth-of-book data: The
availability of alternatives to the Exchanges' depth-of-book products,
and the Exchanges' need to attract order flow from market participants
constrains prices.'' \43\
---------------------------------------------------------------------------
\37\ Securities Industry and Financial Markets Association,
Initial Decision Release No. 1015, 2016 SEC LEXIS 2278 at 4 (A.L.J.
June 1, 2016) (quoting NetCoalition v. SEC, 615F3d 525, 529-30 (D.C.
Cir. 2010)).
\38\ Id.
\39\ Id. at 92.
\40\ Id.
\41\ Id. at 93.
\42\ Id. at 104.
\43\ Id. at 86.
---------------------------------------------------------------------------
The proposed changes will: (i) Introduce a monthly non-display
usage fee of $55 per Subscriber for BX TotalView based upon Direct
Access; and (ii) increase the monthly enterprise license fee for non-
display usage of BX TotalView based upon Direct Access from $16,000 to
$20,000. These proposed price changes will not impose any burden on
competition because market data fees are but one aspect of the overall
competition among exchanges to solicit order flow; if the overall price
of interacting with the Exchange rises above competitive levels because
of market data fees, market forces would cause the Exchange to lose
market share.
Market forces constrain fees for BX TotalView, as well as other
market data fees, in the competition among exchanges and other entities
to attract order flow and in the competition among Distributors for
customers. 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 American, NYSE
Arca, CBOE, 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 BX 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.
Competition among Distributors provides another form of price
discipline for proprietary data products. If the price of BX TotalView
were set above competitive levels, Distributors purchasing BX TotalView
would be at a disadvantage relative to their competitors, and would
therefore either curtail their purchase or forego the product
altogether.
Market forces constrain the price of depth-of-book data such as BX
TotalView through the competition for order flow and in the competition
among vendors for customers. If the changes proposed herein are
unattractive to market participants, it is likely that the Exchange
will lose market share as a result. Accordingly, the Exchange does not
believe that the proposed changes will impair the ability of members or
competing order execution venues to maintain their competitive standing
in the financial markets.
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.\44\
---------------------------------------------------------------------------
\44\ 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
Send an email to [email protected]. Please include
File Number SR-BX-2018-005 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2018-005. 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 website (https://www.sec.gov/rules/sro.shtml).
Copies of the
[[Page 4097]]
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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-BX-2018-005 and should be submitted on
or before February 20, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\45\
---------------------------------------------------------------------------
\45\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01534 Filed 1-26-18; 8:45 am]
BILLING CODE 8011-01-P
