Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Equity 7 Pricing Schedule, Section 139, 14183-14188 [2019-06931]
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Federal Register / Vol. 84, No. 68 / Tuesday, April 9, 2019 / Notices
risk tolerance and, potentially, more
protection over risk exposure. The
proposal is structured to offer the same
enhancement to all ATP Holders,
regardless of size, and would not
impose a competitive burden on any
participant. The proposal may foster
competition among Market Makers by
providing them with the ability to
enhance and customize their percentage
in order to compete for executions and
order flow.
The Exchange does not believe that
the proposed enhancement to the
existing risk limitation mechanism
would impose a burden on competing
options exchanges. Rather, it provides
ATP Holders with the opportunity to
avail themselves of risk settings for
quotes and orders that are consistent
with such tools currently available on
BZX, EDGX, MIAX and PHLX.19
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 20 and Rule 19b–
4(f)(6) thereunder.21
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 22 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 23
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has
requested that the Commission waive
the 30-day operative delay so that the
proposed rule change may become
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19 See
supra notes 15–18.
20 15 U.S.C. 78s(b)(3)(A).
21 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires a self-regulatory organization to
give the Commission written notice of its 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.
22 17 CFR 240.19b–4(f)(6).
23 17 CFR 240.19b–4(f)(6)(iii).
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operative upon filing. As noted above,
the proposed operational functionality
is substantially similar to those utilized
on other options exchanges,24 and the
differences noted herein do not raise
substantive or novel issues. Waiver of
the operative delay would allow the
Exchange to immediately implement the
proposed functionality in coordination
with the availability of the technology
supporting the proposal, permitting
ATP Holders to utilize the optional risk
settings without undue delay. Thus the
Commission believes that waiver of the
30-day operative delay is consistent
with the protection of investors and the
public interest and hereby waives the
operative delay and designates the
proposed rule change operative upon
filing.25
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 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
change 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–
NYSEAMER–2019–08 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–NYSEAMER–2019–08. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
24 See
supra notes 14–17.
purposes only of waiving the 30-day
operative delay, the Commission also has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
25 For
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14183
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
Number SR–NYSEAMER–2019–08 and
should be submitted on or before April
30, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–06926 Filed 4–8–19; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–85504; File No. SR–
NASDAQ–2019–024]
Self-Regulatory Organizations; The
Nasdaq Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend the
Equity 7 Pricing Schedule, Section 139
April 3, 2019.
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 March 28,
2019, The Nasdaq Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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
Equity 7 Pricing Schedule, Section 139,
to introduce, for no additional fee, an
enterprise license for the distribution of
Nasdaq Last Sale (‘‘NLS’’) data for
personal use. The Exchange expects the
proposed license to lower the cost of
distributing last sale data and expand its
availability to the general investing
public by: (i) Eliminating certain
counting requirements for NLS usage,
and (ii) expanding the available
mechanisms for the delivery of NLS
data. The proposed enterprise license
will not increase any fee because it will
replace the current maximum fee of
$41,500 for distribution of NLS data
with a monthly enterprise license for
the same amount.
The text of the proposed rule change
is available on the Exchange’s website 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 introduce, for no additional
fee, an enterprise license for the
distribution of NLS data for personal
use. The Exchange expects the proposed
license to lower the cost of distributing
last sale data and expand its availability
to the general investing public by: (i)
Eliminating certain counting
requirements for NLS usage, and (ii)
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expanding the available mechanisms for
the delivery of NLS data. The proposed
enterprise license will not increase any
fee because it will replace the current
maximum fee of $41,500 for distribution
of NLS data with a monthly enterprise
license for the same amount.3
Nasdaq Last Sale
NLS provides real-time last sale
information for executions occurring
within the Nasdaq Market Center and
trades reported to the jointly-operated
FINRA/Nasdaq Trade Reporting Facility
(‘‘TRF’’).4 The NLS data feed, which
provides price, volume and time of
execution data for last sale transactions,
includes transaction information for
Nasdaq-listed stocks (‘‘NLS for Nasdaq’’)
and for stocks listed on NYSE, NYSE
American, and other Tape B listing
venues (‘‘NLS for NYSE/NYSE
American’’).5 NLS is a ‘‘non-core’’
product that provides a subset of the
‘‘core’’ last sale data provided by
securities information processors
(‘‘SIPs’’) under the CTA Plan and the
Nasdaq UTP Plan.6
NLS was designed to enable marketdata distributors ‘‘to provide free access
to [ ] data to millions of individual
investors via the internet and
television’’ and was expected to
‘‘increase[ ] the availability of N[asdaq]
proprietary market data to individual
investors.’’ 7 As Nasdaq explained when
proposing to change NLS from a pilot to
a permanent program, ‘‘the program has
vastly increased the availability of
N[asdaq] proprietary market data to
individual investors. Based upon data
from NLS Distributors, N[asdaq]
believes that since its launch in July
2008, the NLS data has been viewed by
millions of investors on websites
operated by Google, Interactive Data,
and Dow Jones, among others.’’ 8
3 The Exchange initially filed the proposed rule
change on March 14, 2019 (SR–NASDAQ–2019–
018). On March 28, 2019, the Exchange withdrew
that filing and submitted this filing.
4 See Securities Exchange Act Release No. 57965
(June 16, 2008), 73 FR 35178 (June 20, 2008) (SR–
NASDAQ–2006–060) (proposing NLS); see also
Securities Exchange Act Release No. 57965 (June
16, 2008), 73 FR 35178 (June 20, 2008) (SR–
NASDAQ–2006–060) (approving SR–NASDAQ–
2006–060, as amended by Amendment Nos. 1 and
2, to implement NLS on a pilot basis).
5 See Securities Exchange Act Release No. 57965
(June 16, 2008), 73 FR 35178 (June 20, 2008) (SR–
NASDAQ–2006–060).
6 See Securities Exchange Act Release No. 34–
82723 (February 15, 2018), 83 FR 7812 (February
22, 2018) (SR–NASDAQ–2018–010).
7 See SR–NASDAQ–2006–060 (Amendment No.
2, June 10, 2008), at 3, available at https://nasdaq.
cchwallstreet.com/NASDAQ/pdf/nasdaq-filings/
2006/SR-NASDAQ-2006-060_Amendment_2.pdf.
8 See Securities Exchange Act Release No. 71351
(January 17, 2014), 79 FR 4200 (January 24, 2014)
(SR–NASDAQ–2014–006).
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NLS is offered through two fee
schedules: One for the general investing
public, and another for specialized
usage.9 Distribution to the general
investing public is available under three
stair-stepped 10 fee models: Per User,11
Per Query,12 and Per Device.13
The Per User model measures usage
through a username/password
entitlement system. To adopt the Per
User model, a Distributor 14 must
distribute NLS solely to Users 15 for
Display Usage; 16 all such Users must be
either Non-Professionals 17 or
Professionals 18 whom the Distributor
has no reason to believe are using NLS
in their professional capacity, and the
Distributor must restrict and track
access to NLS using a username/
password logon or comparable method
of regulating access approved by
Nasdaq. While many of the Recipients 19
of data under such a model would be
Non-Professionals, the model does not
require a Distributor to limit
distribution to Non-Professionals.
Occasional, incidental use by a
9 See Equity 7, Section 139(b) (General Investing
Public) and 139(c) (Specialized Usage).
10 Pricing is ‘‘stair-stepped’’ in that the tiered fees
are effective for the incremental Users in the new
tier. See Securities Exchange Act Release No. 57965
(June 16, 2008), 73 FR 35178 (June 20, 2008) (SR–
NASDAQ–2006–060).
11 See Equity 7, Section 139(b)(1).
12 See Equity 7, Section 139(b)(2).
13 See Equity 7, Section 139(b)(3).
14 A ‘‘Distributor’’ is ‘‘an entity, as identified in
the Nasdaq Global Data Agreement (or any
successor agreement), that executes such an
Agreement and has access to Exchange Information,
together with its affiliates having such access.’’ See
Equity 7, Section 139(f)(3).
15 A ‘‘User’’ is ‘‘a natural person who has access
to Exchange Information.’’ See Equity 7, Section
139(f)(10).
16 ‘‘Display Usage’’ refers to ‘‘any method of
accessing Exchange Information that involves the
display of such data on a screen or other
mechanism designed for access or use by a natural
person or persons.’’ See Equity 7, Section 139(f)(2).
17 ‘‘Non-Professional’’ means ‘‘a natural person
who is not: (A) registered or qualified in any
capacity with the Securities and Exchange
Commission, the Commodity Futures Trading
Commission, any state securities agency, any
securities exchange or association, or any
commodities or futures contract market or
association; (B) engaged as an ‘investment adviser’
as that term is defined in Section 202(a)(11) of the
Investment Advisers Act of 1940 (whether or not
registered or qualified under that Act); or (C)
employed by a bank or other organization exempt
from registration under federal or state securities
laws to perform functions that would require
registration or qualification if such functions were
performed for an organization not so exempt.’’ See
Equity 7, Section 139(f)(6).
18 ‘‘Professional’’ means ‘‘any natural person,
proprietorship, corporation, partnership, or other
entity whatever other than a Non-Professional.’’ See
Equity 7, Section 139(f)(7).
19 ‘‘Recipient’’ means ‘‘any natural person,
proprietorship, corporation, partnership, or other
entity whatever that has access to Exchange
Information.’’ See Equity 7, Section 139(f)(8).
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Professional in connection with
professional activities would not affect
the Distributor’s eligibility for the Per
User fee, as long as the Distributor, in
establishing the connection to the
Professional User, did not have reason
to believe that professional usage would
occur.20
The Per Query model determines
usage based on the number of queries
received. This model is available for
Distributors that disseminate NLS solely
to Users for Display Usage and track
queries using a method approved by
Nasdaq. In contrast to a Per User model,
which makes all data available in a
streaming or a montage format, the Per
Query model supplies only as much
data as the User requests on an ad hoc
basis. Because a Per Query model is
likely to be of less use to Professionals
acting in a professional capacity, the
model does not place limitations on the
persons to whom it is offered (as long
as they are natural persons viewing the
data through Display Usage). The model
also does not require the Distributor to
limit access through any sort of
entitlement system. As such, Per Query
data may be made available through a
publicly accessible website.
The Per Device model tracks usage
according to the number of Devices 21
that access NLS. The Per Device model
is available to Distributors that
distribute NLS for Display Usage in a
manner that does not restrict access and
which track the number of unique
Devices that access NLS during each
month using a tracking method
approved by Nasdaq.
The current fee schedule sets a
maximum fee for any Distributor using
the Per User, Per Query, or Per Device
models (or any combination thereof) of
$41,500 per month.22
A Distributor that is not able to use
any of the distribution models for the
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20 See
Securities Exchange Act Release No. 34–
82723 (February 15, 2018), 83 FR 7812 (February
22, 2018) (SR–NASDAQ–2018–010) (discussing
application of the Per User model).
21 ‘‘Device’’ has the same meaning as
‘‘Subscriber,’’ which is ‘‘a device, computer
terminal, automated service, or unique user
identification and password combination that is not
shared and prohibits simultaneous access, and
which is capable of accessing Exchange
Information; ‘Interrogation Device,’ ‘Device’ or
‘Access’ have the same meaning as Subscriber. For
any device, computer terminal, automated service,
or unique user identification and password
combination that is shared or allows simultaneous
access, Subscriber shall mean the number of such
simultaneous accesses.’’ See Equity 7, Section
139(f)(9).
22 A Distributor that wishes to distribute Nasdaq
Last Sale via television must pay the maximum fee
and may then distribute Nasdaq Last Sale either
solely via television or in combination with
unlimited use of the Per User, Per Query, and/or Per
Device model. See Equity 7, Section 139(b)(4).
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general investing public but
nevertheless wishes to distribute NLS
will be required to pay fees applicable
to a model for ‘‘specialized usage.’’ 23
Proposed Enterprise License
The Exchange proposes to replace the
current maximum fee of $41,500 per
month for a Distributor using the Per
User, Per Query, or Per Device models
for distribution to the General Investing
Public with a monthly enterprise license
for the same amount for any customer
that would otherwise be eligible for the
such fees, excluding any requirement to
count or track usage. The proposal will
not change any fee because any
Distributor currently paying the
maximum fee of $41,500 would
continue to pay the same fee for the
same data, albeit using an enterprise
license that is easier to administer and
allows for more methods of
distribution.24 To be eligible for the
enterprise license, NLS must be
distributed on platform(s) controlled by
the Distributor 25 and pre-approved by
the Exchange as providing the
Distributor with a reasonable basis to
conclude that all Users of such
Information are either Non-Professionals
or Professionals whom the Distributor
has no reason to believe are using NLS
in their professional capacity.
The Exchange expects the proposal to
lower administrative costs for
Distributors of NLS to the general
investing public by replacing the
counting of users, queries or devices
with a ‘‘systems’’ approach in which the
Distributor would set forth—and Nasdaq
would review and approve—a system of
distribution that provides the
Distributor and the Exchange with a
reasonable basis to conclude that all
Users of such Information 26 are either
Non-Professionals or Professionals
23 See
Equity 7, Section 139(c).
that do not elect to purchase the
enterprise license, but inadvertently exceed $41,500
in Per User, Per Query or Per Device fees, may
purchase the enterprise license for the month(s) in
which fees exceeded $41,500 without pre-approval.
25 Any Distributor able to meet the criteria set
forth under the Per User, Per Query or Per Device
models will be able to demonstrate control over the
platform because the applicable tracking
requirements and other limitations necessarily
require such control.
26 ‘‘Information’’ is defined as ‘‘any data or
information that has been collected, validated,
processed and/or recorded by the Exchange and
made available for transmission relating to: (i)
eligible securities or other financial instruments,
markets, products, vehicles, indicators or devices;
(ii) activities of the Exchange; or (iii) other
information or data from the Exchange. Information
includes, but is not limited to, any element of
information used or processed in such a way that
Exchange Information or a substitute for such
Information can be identified, recalculated or reengineered from the processed information.’’ See
Equity 7, Section 139(f)(5).
24 Distributors
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whom the Distributor has no reason to
believe are using NLS in their
professional capacity. Distributors
would not be required to track access to
NLS using a username/password logon
for the Per User model, queries as
required by the Per Query model, or the
number of unique Devices that access
NLS as required by the Per Device
model.
The Exchange would evaluate each
system using the same approach used
today to evaluate distribution through
the Per User model, which currently
requires that Distributors disseminate
data to Users who are ‘‘either NonProfessionals or Professionals whom the
Distributor has no reason to believe are
using Nasdaq Last Sale in their
professional capacity.’’ 27 A Distributor
has ‘‘no reason to believe’’ that NLS is
being used in a professional capacity
when, for example, the data is made
available to the general investing public
in a format that would be ‘‘unlikely to
be of significant use to Professionals
acting in a professional capacity,’’ as in
the Per Query model,28 or when the
Information is ‘‘made freely available to
internet users,’’ as in the Per Device
model.29 Any Distributor currently
eligible to disseminate NLS under the
Per User, Per Query, or Per Device
models will be able to demonstrate that
it is disseminating Information to NonProfessionals or Professionals whom the
Distributor has no reason to believe are
using Nasdaq Last Sale in their
professional capacity because that test is
already inherent (or explicit) within the
eligibility criteria for each model.30
The proposed license will allow
Distributors to disseminate NLS data to
the general investing public in a manner
that is not readily tracked using the Per
User, Per Query, or Per Device models.
An example of the type of distribution
model intended to benefit from the
proposed license is a spreadsheet
program that allows the User to refresh
27 See
Section 139(b)(1).
Securities Exchange Act Release No. 34–
82723 (February 15, 2018), 83 FR 7812 (February
22, 2018) (SR–NASDAQ–2018–010).
29 See Securities Exchange Act Release No. 34–
82723 (February 15, 2018), 83 FR 7812 (February
22, 2018) (SR–NASDAQ–2018–010).
30 The ‘‘no reason to believe’’ test is explicitly
part of the criteria for the Per User model. See
Section 139(b)(1). It is inherent in the Per Query
model because, as noted above and in the filing
instituting that fee, this model ‘‘is unlikely to be of
significant use to Professionals acting in a
professional capacity . . .’’ See Securities Exchange
Act Release No. 34–82723 (February 15, 2018), 83
FR 7812 (February 22, 2018) (SR–NASDAQ–2018–
010). It is also inherent in the Per Device model
because that model is designed to make information
‘‘freely available to internet users,’’ and therefore is
unlikely to be of significant use to Professionals
acting in a professional capacity. See Id.
28 See
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a stock price using an in-program
command without copying data. Such
usage is analogous to the Per Query
model, which supplies only as much
data as the User requests on an ad hoc
basis, but is less susceptible to counting
because the request is done using a
command embedded within another
program.
Since the launch of NLS in July 2008,
the Exchange has strived to make last
sale data available to individual
investors using the latest available
technology, such as television and the
internet. The proposed enterprise
license continues in that tradition,
making NLS data available to the
general investing public using
mechanisms in which the traditional
methods of counting usage—Per Query,
Per User and Per Device—are
unavailable or impractical, while at the
same time lowering administrative costs
for distributors by eliminating the need
to count users, queries and devices.
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2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,31 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,32 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 fees established under Equity 7,
Section 139, reflect Nasdaq’s
expectation, in creating NLS, that it
would be used by market data
Distributors to allow widespread
dissemination of last sale information to
individual investors by various means,
including websites and television. The
statutory basis for Nasdaq’s current fees
for NLS has already been described in
prior filings,33 and Nasdaq is not
modifying these long-established fees
except to add an enterprise license, for
no additional fee, that would lower the
cost of distributing last sale data and
expand its availability to the general
investing public by: (i) Eliminating
certain counting requirements for
distributors and (ii) expanding the
available mechanisms for the delivery of
last sale data to the public. The
proposed change is an equitable
allocation of reasonable dues, fees and
other charges because it expands the
31 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
33 See, e.g., Securities Exchange Act Release No.
34–82723 (February 15, 2018), 83 FR 7812
(February 22, 2018) (SR–NASDAQ–2018–010).
32 15
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availability of last sale data while also
lowering the cost of distribution for an
already established fee. The proposed
enterprise license is furthermore
consistent with an equitable allocation
of reasonable dues, fees and other
charges because it alleviates the
administrative costs and burdens
associated with tracking usage of the
product by allowing the Distributor to
purchase a license without counting
actual usage. The change is reasonable
and not unfairly discriminatory because
it will allow for the distribution of NLS
data to all Distributors and Users that
currently have access to such data using
a wider variety of delivery formats such
as, for example, distributing NLS data
through a spreadsheet program that
includes a command for in-program
updates of NLS data.
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.’’ 34
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.’’ 35
In adopting Regulation NMS, the
Commission granted self-regulatory
organizations (‘‘SROs’’) and brokerdealers increased authority and
flexibility to offer new and unique
market data to the public. It was
believed that this authority would
expand the amount of data available to
consumers, and also spur innovation
and competition for the provision of
market data. The Commission
concluded that Regulation NMS—by
deregulating the market in proprietary
data—would itself further the Act’s
goals of facilitating efficiency and
competition:
[E]fficiency is promoted when broker-dealers
who do not need the data beyond the prices,
sizes, market center identifications of the
NBBO and consolidated last sale information
are not required to receive (and pay for) such
data. The Commission also believes that
efficiency is promoted when broker-dealers
may choose to receive (and pay for)
additional market data based on their own
internal analysis of the need for such data.36
34 See Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770 (December 9,
2008) (SR–NYSEArca–2006–21).
35 Id.
36 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
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The Commission was speaking to the
question of whether broker-dealers
should be subject to a regulatory
requirement to purchase data, such as
depth-of-book data, that is in excess of
the data provided through the
consolidated tape feeds, and the
Commission concluded that the choice
should be left to them. Accordingly,
Regulation NMS removed unnecessary
regulatory restrictions on the ability of
exchanges to sell their own data,
thereby advancing the goals of the Act
and the principles reflected in its
legislative history. If the free market
should determine whether proprietary
data is sold to broker-dealers at all, it
follows that the price at which such
data is sold should be set by the market
as well.
Products such as NLS provide
additional choices to broker-dealers and
other data consumers, in that they
provide less than the quantum of data
provided through the consolidated tape
feeds but at a lower price. Thus, they
provide broker-dealers and others with
an option to use a lesser amount of data
in circumstances where SEC Rule 603(c)
does not require a broker-dealer to
provide a consolidated display.37 They
are all, however, voluntary products for
which market participants can readily
substitute the consolidated data feeds.
Accordingly, Nasdaq is constrained
from pricing the product in a manner
that would be inequitable or unfairly
discriminatory. Moreover, the fees for
these products, like all proprietary data
fees, are constrained by the Exchange’s
need to compete for order flow.38
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
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
37 17
CFR 242.603(c).
NetCoalition v. SEC, 615 F.3d 525, 539 (DC
Cir. 2010) (quoting Securities Exchange Act Release
No. 59039 (December 2, 2008), 73 FR 74770, 74782–
83 (December 9, 2008) (SR–NYSEArca–2006–21)).
(‘‘No 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’. . . .).
38 See
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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.
In this instance, the proposed change
lowers the administrative costs for
Distributors disseminating NLS data to
the general investing public while
expanding the types of delivery
mechanisms available for such data. The
proposal will advance competition by
promoting widespread distribution of
data to investors without increasing any
current fee.
The market for data products is
extremely competitive and firms may
freely choose alternative venues and
data vendors based on the aggregate fees
assessed, the data offered, and the value
provided. This rule proposal does not
burden competition, since other SROs
and data vendors continue to offer
alternative data products and, like the
Exchange, set fees, but rather reflects the
competition between data feed vendors
and will further enhance such
competition.
NLS is part of the existing market for
proprietary last sale data products that
is currently competitive and inherently
contestable because there is fierce
competition for the inputs necessary to
the creation of proprietary data and
strict pricing discipline for the
proprietary products themselves.
Numerous exchanges compete with
each other for listings, trades, and
market data itself, providing virtually
limitless opportunities for entrepreneurs
who wish to produce and distribute
their own market data. This proprietary
data is produced by each individual
exchange, as well as other entities, in a
vigorously competitive market.
Transaction execution and proprietary
data products are complementary in that
market data is both an input and a
byproduct of the execution service. In
fact, market data and trade execution are
a paradigmatic example of joint
products with joint costs. The decision
whether and on which platform to post
an order will depend on the attributes
of the platform where the order can be
posted, including the execution fees,
data quality and price, and distribution
of its data products. Without trade
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executions, exchange data products
cannot exist. Moreover, data products
are valuable to many end users only
insofar as they provide information that
end users expect will assist them or
their customers in making trading
decisions. The costs of producing
market data include not only the costs
of the data distribution infrastructure,
but also the costs of designing,
maintaining, and operating the
exchange’s transaction execution
platform and the cost of regulating the
exchange to ensure its fair operation and
maintain investor confidence. The total
return that a trading platform earns
reflects the revenues it receives from
both products and the joint costs it
incurs.
Moreover, the operation of the
exchange is characterized by high fixed
costs and low marginal costs. This cost
structure is common in content and
content distribution industries such as
software, where developing new
software typically requires a large initial
investment (and continuing large
investments to upgrade the software),
but once the software is developed, the
incremental cost of providing that
software to an additional user is
typically small, or even zero (e.g., if the
software can be downloaded over the
internet after being purchased).39
In Nasdaq’s case, it is costly to build
and maintain a trading platform, but the
incremental cost of trading each
additional share on an existing platform,
or distributing an additional instance of
data, is very low. Market information
and executions are each produced
jointly (in the sense that the activities of
trading and placing orders are the
source of the information that is
distributed) and are each subject to
significant scale economies. In such
cases, marginal cost pricing is not
feasible because, if all sales were priced
at the margin, Nasdaq would be unable
to defray its platform costs of providing
joint products. Similarly, data products
cannot make use of TRF trade reports
without the raw material of the trade
reports themselves, and therefore
necessitate the costs of operating,
regulating, and maintaining a trade
reporting system—costs that must be
covered through the fees charged for use
of the facility and sales of associated
data. As such, Nasdaq’s overall fee
structure is designed to ensure a fair and
reasonable use of Exchange resources by
allowing the Exchange to recoup costs
39 See William J. Baumol and Daniel G. Swanson,
‘‘The New Economy and Ubiquitous Competitive
Price Discrimination: Identifying Defensible Criteria
of Market Power,’’ Antitrust Law Journal, Vol. 70,
No. 3 (2003).
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14187
while continuing to offer its data
products at competitive rates to firms.
An exchange’s broker-dealer
customers view the costs of transaction
executions and of data as a unified cost
of doing business with the exchange. A
broker-dealer will disfavor a particular
exchange if the expected revenues from
executing trades on the exchange do not
exceed net transaction execution costs
and the cost of data that the brokerdealer chooses to buy to support its
trading decisions (or those of its
customers). The choice of data products
is, in turn, a product of the value of the
products in making profitable trading
decisions. If the cost of the product
exceeds its expected value, the brokerdealer will choose not to buy it.
As a broker-dealer chooses to direct
fewer orders to a particular exchange,
the value of the product to that brokerdealer decreases, for two reasons. First,
the product will contain less
information, because executions of the
broker-dealer’s trading activity will not
be reflected in it. Second, and perhaps
more important, the product will be less
valuable to that broker-dealer because it
does not provide information about the
venue to which it is directing its orders.
Data from the competing venue to
which the broker-dealer is directing
more orders will become
correspondingly more valuable.
Products such as NLS can enhance
order flow to Nasdaq by providing more
widespread distribution of information
about transactions in real time, thereby
encouraging wider participation in the
market by investors with access to the
internet or television. Conversely, the
value of such products to Distributors
and investors decreases if order flow
falls, because the products contain less
content.
Similarly, in the case of products such
as NLS that may be distributed through
market data vendors, the vendors
provide price discipline for proprietary
data products because they control the
primary means of access to end users.
Vendors impose price restraints based
upon their business models. For
example, vendors that assess a
surcharge on data they sell may refuse
to offer proprietary products that end
users will not purchase in sufficient
numbers. Internet portals impose a
discipline by providing only data that
will enable them to attract ‘‘eyeballs’’
that contribute to their advertising
revenue.40 Retail broker-dealers offer
their retail customers proprietary data
only if it promotes trading and generates
40 Indeed, the proposed enterprise license itself
provides evidence of such competition as it was
designed, in part, to lower vendor costs.
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sufficient commission revenue.
Although the business models may
differ, these vendors’ pricing discipline
is the same: they can simply refuse to
purchase any proprietary data product
that fails to provide sufficient value.
Exchanges, TRFs, and other producers
of proprietary data products must
understand and respond to these
varying business models and pricing
disciplines in order to market
proprietary data products successfully.
Competition among trading platforms
can be expected to constrain the
aggregate return each platform earns
from the sale of its joint products, but
different platforms may choose from a
range of possible, and equally
reasonable, pricing strategies as the
means of recovering total costs. Nasdaq
pays rebates to attract orders, charges
relatively low prices for market
information and charges relatively high
prices for accessing posted liquidity.
Other platforms may choose a strategy
of paying lower liquidity rebates to
attract orders, setting relatively low
prices for accessing posted liquidity,
and setting relatively high prices for
market information. Still others may
provide most data free of charge and
rely exclusively on transaction fees to
recover their costs. Finally, some
platforms may incentivize use by
providing opportunities for equity
ownership, which may allow them to
charge lower direct fees for executions
and data.
In this environment, there is no
economic basis for regulating maximum
prices for one of the joint products in an
industry in which suppliers face
competitive constraints with regard to
the joint offering. Such regulation is
unnecessary because an ‘‘excessive’’
price for one of the joint products will
ultimately have to be reflected in lower
prices for other products sold by the
firm, or otherwise the firm will
experience a loss in the volume of its
sales that will be adverse to its overall
profitability. In other words, an increase
in the price of data will ultimately have
to be accompanied by a decrease in the
cost of executions, or the volume of both
data and executions will fall.41
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.
41 Moreover, the level of competition and
contestability in the market is evident in the
numerous alternative venues that compete for order
flow, including SRO markets, internalizing brokerdealers 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 FINRAregulated TRFs compete to attract internalized
transaction reports. It is common for broker-dealers
to further and exploit this competition by sending
their order flow and transaction reports to multiple
markets, rather than providing them all to a single
market. Competitive markets for order flow,
executions, and transaction reports provide pricing
discipline for the inputs of proprietary data
products. The large number of SROs, TRFs, brokerdealers, and ATSs that currently produce
proprietary data or are currently capable of
producing it provides further pricing discipline for
proprietary data products. Each SRO, TRF, ATS,
and broker-dealer is currently permitted to produce
proprietary data products, and many currently do
or have announced plans to do so, including
Nasdaq, NYSE, NYSE American, NYSE Arca, IEX,
and CBOE.
42 15 U.S.C. 78s(b)(3)(A)(ii).
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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.42
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NASDAQ–2019–024 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–2019–024. 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
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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
Number SR–NASDAQ–2019–024 and
should be submitted on or before April
30, 2019.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.43
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019–06931 Filed 4–8–19; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Delegation of Authority No. 465]
Delegation of Functions and
Authorities To Provide a Waiver of
Certain United States Passport
Application and File Search Fees
By virtue of the authority vested in
the Secretary of State, including by
Section 1 of the Department of State
Basic Authorities Act, as amended (22
U.S.C. 2651a), and by the Presidential
Memorandum on the Delegation of
Functions and Authorities Under
Section 1238 of the FAA
Reauthorization Act of 2018, dated
December 21, 2018, I hereby delegate to
the Assistant Secretary of State for
Consular Affairs the following functions
and authorities of the President set forth
in sections 1238(a)(1)(A)–(B) of the FAA
43 17
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CFR 200.30–3(a)(12).
09APN1
]]>Agencies
[Federal Register Volume 84, Number 68 (Tuesday, April 9, 2019)]
[Notices]
[Pages 14183-14188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06931]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85504; File No. SR-NASDAQ-2019-024]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Equity 7 Pricing Schedule, Section 139
April 3, 2019.
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 March 28, 2019, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed
[[Page 14184]]
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 Equity 7 Pricing Schedule,
Section 139, to introduce, for no additional fee, an enterprise license
for the distribution of Nasdaq Last Sale (``NLS'') data for personal
use. The Exchange expects the proposed license to lower the cost of
distributing last sale data and expand its availability to the general
investing public by: (i) Eliminating certain counting requirements for
NLS usage, and (ii) expanding the available mechanisms for the delivery
of NLS data. The proposed enterprise license will not increase any fee
because it will replace the current maximum fee of $41,500 for
distribution of NLS data with a monthly enterprise license for the same
amount.
The text of the proposed rule change is available on the Exchange's
website 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 introduce, for no
additional fee, an enterprise license for the distribution of NLS data
for personal use. The Exchange expects the proposed license to lower
the cost of distributing last sale data and expand its availability to
the general investing public by: (i) Eliminating certain counting
requirements for NLS usage, and (ii) expanding the available mechanisms
for the delivery of NLS data. The proposed enterprise license will not
increase any fee because it will replace the current maximum fee of
$41,500 for distribution of NLS data with a monthly enterprise license
for the same amount.\3\
---------------------------------------------------------------------------
\3\ The Exchange initially filed the proposed rule change on
March 14, 2019 (SR-NASDAQ-2019-018). On March 28, 2019, the Exchange
withdrew that filing and submitted this filing.
---------------------------------------------------------------------------
Nasdaq Last Sale
NLS provides real-time last sale information for executions
occurring within the Nasdaq Market Center and trades reported to the
jointly-operated FINRA/Nasdaq Trade Reporting Facility (``TRF'').\4\
The NLS data feed, which provides price, volume and time of execution
data for last sale transactions, includes transaction information for
Nasdaq-listed stocks (``NLS for Nasdaq'') and for stocks listed on
NYSE, NYSE American, and other Tape B listing venues (``NLS for NYSE/
NYSE American'').\5\ NLS is a ``non-core'' product that provides a
subset of the ``core'' last sale data provided by securities
information processors (``SIPs'') under the CTA Plan and the Nasdaq UTP
Plan.\6\
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\4\ See Securities Exchange Act Release No. 57965 (June 16,
2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-060) (proposing
NLS); see also Securities Exchange Act Release No. 57965 (June 16,
2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-060) (approving
SR-NASDAQ-2006-060, as amended by Amendment Nos. 1 and 2, to
implement NLS on a pilot basis).
\5\ See Securities Exchange Act Release No. 57965 (June 16,
2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-060).
\6\ See Securities Exchange Act Release No. 34-82723 (February
15, 2018), 83 FR 7812 (February 22, 2018) (SR-NASDAQ-2018-010).
---------------------------------------------------------------------------
NLS was designed to enable market-data distributors ``to provide
free access to [ ] data to millions of individual investors via the
internet and television'' and was expected to ``increase[ ] the
availability of N[asdaq] proprietary market data to individual
investors.'' \7\ As Nasdaq explained when proposing to change NLS from
a pilot to a permanent program, ``the program has vastly increased the
availability of N[asdaq] proprietary market data to individual
investors. Based upon data from NLS Distributors, N[asdaq] believes
that since its launch in July 2008, the NLS data has been viewed by
millions of investors on websites operated by Google, Interactive Data,
and Dow Jones, among others.'' \8\
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\7\ See SR-NASDAQ-2006-060 (Amendment No. 2, June 10, 2008), at
3, available at https://nasdaq.cchwallstreet.com/NASDAQ/pdf/nasdaq-filings/2006/SR-NASDAQ-2006-060_Amendment_2.pdf.
\8\ See Securities Exchange Act Release No. 71351 (January 17,
2014), 79 FR 4200 (January 24, 2014) (SR-NASDAQ-2014-006).
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NLS is offered through two fee schedules: One for the general
investing public, and another for specialized usage.\9\ Distribution to
the general investing public is available under three stair-stepped
\10\ fee models: Per User,\11\ Per Query,\12\ and Per Device.\13\
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\9\ See Equity 7, Section 139(b) (General Investing Public) and
139(c) (Specialized Usage).
\10\ Pricing is ``stair-stepped'' in that the tiered fees are
effective for the incremental Users in the new tier. See Securities
Exchange Act Release No. 57965 (June 16, 2008), 73 FR 35178 (June
20, 2008) (SR-NASDAQ-2006-060).
\11\ See Equity 7, Section 139(b)(1).
\12\ See Equity 7, Section 139(b)(2).
\13\ See Equity 7, Section 139(b)(3).
---------------------------------------------------------------------------
The Per User model measures usage through a username/password
entitlement system. To adopt the Per User model, a Distributor \14\
must distribute NLS solely to Users \15\ for Display Usage; \16\ all
such Users must be either Non-Professionals \17\ or Professionals \18\
whom the Distributor has no reason to believe are using NLS in their
professional capacity, and the Distributor must restrict and track
access to NLS using a username/password logon or comparable method of
regulating access approved by Nasdaq. While many of the Recipients \19\
of data under such a model would be Non-Professionals, the model does
not require a Distributor to limit distribution to Non-Professionals.
Occasional, incidental use by a
[[Page 14185]]
Professional in connection with professional activities would not
affect the Distributor's eligibility for the Per User fee, as long as
the Distributor, in establishing the connection to the Professional
User, did not have reason to believe that professional usage would
occur.\20\
---------------------------------------------------------------------------
\14\ A ``Distributor'' is ``an entity, as identified in the
Nasdaq Global Data Agreement (or any successor agreement), that
executes such an Agreement and has access to Exchange Information,
together with its affiliates having such access.'' See Equity 7,
Section 139(f)(3).
\15\ A ``User'' is ``a natural person who has access to Exchange
Information.'' See Equity 7, Section 139(f)(10).
\16\ ``Display Usage'' refers to ``any method of accessing
Exchange Information that involves the display of such data on a
screen or other mechanism designed for access or use by a natural
person or persons.'' See Equity 7, Section 139(f)(2).
\17\ ``Non-Professional'' means ``a natural person who is not:
(A) registered or qualified in any capacity with the Securities and
Exchange Commission, the Commodity Futures Trading Commission, any
state securities agency, any securities exchange or association, or
any commodities or futures contract market or association; (B)
engaged as an `investment adviser' as that term is defined in
Section 202(a)(11) of the Investment Advisers Act of 1940 (whether
or not registered or qualified under that Act); or (C) employed by a
bank or other organization exempt from registration under federal or
state securities laws to perform functions that would require
registration or qualification if such functions were performed for
an organization not so exempt.'' See Equity 7, Section 139(f)(6).
\18\ ``Professional'' means ``any natural person,
proprietorship, corporation, partnership, or other entity whatever
other than a Non-Professional.'' See Equity 7, Section 139(f)(7).
\19\ ``Recipient'' means ``any natural person, proprietorship,
corporation, partnership, or other entity whatever that has access
to Exchange Information.'' See Equity 7, Section 139(f)(8).
\20\ See Securities Exchange Act Release No. 34-82723 (February
15, 2018), 83 FR 7812 (February 22, 2018) (SR-NASDAQ-2018-010)
(discussing application of the Per User model).
---------------------------------------------------------------------------
The Per Query model determines usage based on the number of queries
received. This model is available for Distributors that disseminate NLS
solely to Users for Display Usage and track queries using a method
approved by Nasdaq. In contrast to a Per User model, which makes all
data available in a streaming or a montage format, the Per Query model
supplies only as much data as the User requests on an ad hoc basis.
Because a Per Query model is likely to be of less use to Professionals
acting in a professional capacity, the model does not place limitations
on the persons to whom it is offered (as long as they are natural
persons viewing the data through Display Usage). The model also does
not require the Distributor to limit access through any sort of
entitlement system. As such, Per Query data may be made available
through a publicly accessible website.
The Per Device model tracks usage according to the number of
Devices \21\ that access NLS. The Per Device model is available to
Distributors that distribute NLS for Display Usage in a manner that
does not restrict access and which track the number of unique Devices
that access NLS during each month using a tracking method approved by
Nasdaq.
---------------------------------------------------------------------------
\21\ ``Device'' has the same meaning as ``Subscriber,'' which is
``a device, computer terminal, automated service, or unique user
identification and password combination that is not shared and
prohibits simultaneous access, and which is capable of accessing
Exchange Information; `Interrogation Device,' `Device' or `Access'
have the same meaning as Subscriber. For any device, computer
terminal, automated service, or unique user identification and
password combination that is shared or allows simultaneous access,
Subscriber shall mean the number of such simultaneous accesses.''
See Equity 7, Section 139(f)(9).
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The current fee schedule sets a maximum fee for any Distributor
using the Per User, Per Query, or Per Device models (or any combination
thereof) of $41,500 per month.\22\
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\22\ A Distributor that wishes to distribute Nasdaq Last Sale
via television must pay the maximum fee and may then distribute
Nasdaq Last Sale either solely via television or in combination with
unlimited use of the Per User, Per Query, and/or Per Device model.
See Equity 7, Section 139(b)(4).
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A Distributor that is not able to use any of the distribution
models for the general investing public but nevertheless wishes to
distribute NLS will be required to pay fees applicable to a model for
``specialized usage.'' \23\
---------------------------------------------------------------------------
\23\ See Equity 7, Section 139(c).
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Proposed Enterprise License
The Exchange proposes to replace the current maximum fee of $41,500
per month for a Distributor using the Per User, Per Query, or Per
Device models for distribution to the General Investing Public with a
monthly enterprise license for the same amount for any customer that
would otherwise be eligible for the such fees, excluding any
requirement to count or track usage. The proposal will not change any
fee because any Distributor currently paying the maximum fee of $41,500
would continue to pay the same fee for the same data, albeit using an
enterprise license that is easier to administer and allows for more
methods of distribution.\24\ To be eligible for the enterprise license,
NLS must be distributed on platform(s) controlled by the Distributor
\25\ and pre-approved by the Exchange as providing the Distributor with
a reasonable basis to conclude that all Users of such Information are
either Non-Professionals or Professionals whom the Distributor has no
reason to believe are using NLS in their professional capacity.
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\24\ Distributors that do not elect to purchase the enterprise
license, but inadvertently exceed $41,500 in Per User, Per Query or
Per Device fees, may purchase the enterprise license for the
month(s) in which fees exceeded $41,500 without pre-approval.
\25\ Any Distributor able to meet the criteria set forth under
the Per User, Per Query or Per Device models will be able to
demonstrate control over the platform because the applicable
tracking requirements and other limitations necessarily require such
control.
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The Exchange expects the proposal to lower administrative costs for
Distributors of NLS to the general investing public by replacing the
counting of users, queries or devices with a ``systems'' approach in
which the Distributor would set forth--and Nasdaq would review and
approve--a system of distribution that provides the Distributor and the
Exchange with a reasonable basis to conclude that all Users of such
Information \26\ are either Non-Professionals or Professionals whom the
Distributor has no reason to believe are using NLS in their
professional capacity. Distributors would not be required to track
access to NLS using a username/password logon for the Per User model,
queries as required by the Per Query model, or the number of unique
Devices that access NLS as required by the Per Device model.
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\26\ ``Information'' is defined as ``any data or information
that has been collected, validated, processed and/or recorded by the
Exchange and made available for transmission relating to: (i)
eligible securities or other financial instruments, markets,
products, vehicles, indicators or devices; (ii) activities of the
Exchange; or (iii) other information or data from the Exchange.
Information includes, but is not limited to, any element of
information used or processed in such a way that Exchange
Information or a substitute for such Information can be identified,
recalculated or re-engineered from the processed information.'' See
Equity 7, Section 139(f)(5).
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The Exchange would evaluate each system using the same approach
used today to evaluate distribution through the Per User model, which
currently requires that Distributors disseminate data to Users who are
``either Non-Professionals or Professionals whom the Distributor has no
reason to believe are using Nasdaq Last Sale in their professional
capacity.'' \27\ A Distributor has ``no reason to believe'' that NLS is
being used in a professional capacity when, for example, the data is
made available to the general investing public in a format that would
be ``unlikely to be of significant use to Professionals acting in a
professional capacity,'' as in the Per Query model,\28\ or when the
Information is ``made freely available to internet users,'' as in the
Per Device model.\29\ Any Distributor currently eligible to disseminate
NLS under the Per User, Per Query, or Per Device models will be able to
demonstrate that it is disseminating Information to Non-Professionals
or Professionals whom the Distributor has no reason to believe are
using Nasdaq Last Sale in their professional capacity because that test
is already inherent (or explicit) within the eligibility criteria for
each model.\30\
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\27\ See Section 139(b)(1).
\28\ See Securities Exchange Act Release No. 34-82723 (February
15, 2018), 83 FR 7812 (February 22, 2018) (SR-NASDAQ-2018-010).
\29\ See Securities Exchange Act Release No. 34-82723 (February
15, 2018), 83 FR 7812 (February 22, 2018) (SR-NASDAQ-2018-010).
\30\ The ``no reason to believe'' test is explicitly part of the
criteria for the Per User model. See Section 139(b)(1). It is
inherent in the Per Query model because, as noted above and in the
filing instituting that fee, this model ``is unlikely to be of
significant use to Professionals acting in a professional capacity .
. .'' See Securities Exchange Act Release No. 34-82723 (February 15,
2018), 83 FR 7812 (February 22, 2018) (SR-NASDAQ-2018-010). It is
also inherent in the Per Device model because that model is designed
to make information ``freely available to internet users,'' and
therefore is unlikely to be of significant use to Professionals
acting in a professional capacity. See Id.
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The proposed license will allow Distributors to disseminate NLS
data to the general investing public in a manner that is not readily
tracked using the Per User, Per Query, or Per Device models. An example
of the type of distribution model intended to benefit from the proposed
license is a spreadsheet program that allows the User to refresh
[[Page 14186]]
a stock price using an in-program command without copying data. Such
usage is analogous to the Per Query model, which supplies only as much
data as the User requests on an ad hoc basis, but is less susceptible
to counting because the request is done using a command embedded within
another program.
Since the launch of NLS in July 2008, the Exchange has strived to
make last sale data available to individual investors using the latest
available technology, such as television and the internet. The proposed
enterprise license continues in that tradition, making NLS data
available to the general investing public using mechanisms in which the
traditional methods of counting usage--Per Query, Per User and Per
Device--are unavailable or impractical, while at the same time lowering
administrative costs for distributors by eliminating the need to count
users, queries and devices.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\31\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\32\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and issuers and other persons using any
facility, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\31\ 15 U.S.C. 78f(b).
\32\ 15 U.S.C. 78f(b)(4) and (5).
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The fees established under Equity 7, Section 139, reflect Nasdaq's
expectation, in creating NLS, that it would be used by market data
Distributors to allow widespread dissemination of last sale information
to individual investors by various means, including websites and
television. The statutory basis for Nasdaq's current fees for NLS has
already been described in prior filings,\33\ and Nasdaq is not
modifying these long-established fees except to add an enterprise
license, for no additional fee, that would lower the cost of
distributing last sale data and expand its availability to the general
investing public by: (i) Eliminating certain counting requirements for
distributors and (ii) expanding the available mechanisms for the
delivery of last sale data to the public. The proposed change is an
equitable allocation of reasonable dues, fees and other charges because
it expands the availability of last sale data while also lowering the
cost of distribution for an already established fee. The proposed
enterprise license is furthermore consistent with an equitable
allocation of reasonable dues, fees and other charges because it
alleviates the administrative costs and burdens associated with
tracking usage of the product by allowing the Distributor to purchase a
license without counting actual usage. The change is reasonable and not
unfairly discriminatory because it will allow for the distribution of
NLS data to all Distributors and Users that currently have access to
such data using a wider variety of delivery formats such as, for
example, distributing NLS data through a spreadsheet program that
includes a command for in-program updates of NLS data.
---------------------------------------------------------------------------
\33\ See, e.g., Securities Exchange Act Release No. 34-82723
(February 15, 2018), 83 FR 7812 (February 22, 2018) (SR-NASDAQ-2018-
010).
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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.'' \34\ 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.'' \35\
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\34\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\35\ Id.
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In adopting Regulation NMS, the Commission granted self-regulatory
organizations (``SROs'') and broker-dealers increased authority and
flexibility to offer new and unique market data to the public. It was
believed that this authority would expand the amount of data available
to consumers, and also spur innovation and competition for the
provision of market data. The Commission concluded that Regulation
NMS--by deregulating the market in proprietary data--would itself
further the Act's goals of facilitating efficiency and competition:
[E]fficiency is promoted when broker-dealers who do not need the
data beyond the prices, sizes, market center identifications of the
NBBO and consolidated last sale information are not required to
receive (and pay for) such data. The Commission also believes that
efficiency is promoted when broker-dealers may choose to receive
(and pay for) additional market data based on their own internal
analysis of the need for such data.\36\
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\36\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting
Release'').
The Commission was speaking to the question of whether broker-
dealers should be subject to a regulatory requirement to purchase data,
such as depth-of-book data, that is in excess of the data provided
through the consolidated tape feeds, and the Commission concluded that
the choice should be left to them. Accordingly, Regulation NMS removed
unnecessary regulatory restrictions on the ability of exchanges to sell
their own data, thereby advancing the goals of the Act and the
principles reflected in its legislative history. If the free market
should determine whether proprietary data is sold to broker-dealers at
all, it follows that the price at which such data is sold should be set
by the market as well.
Products such as NLS provide additional choices to broker-dealers
and other data consumers, in that they provide less than the quantum of
data provided through the consolidated tape feeds but at a lower price.
Thus, they provide broker-dealers and others with an option to use a
lesser amount of data in circumstances where SEC Rule 603(c) does not
require a broker-dealer to provide a consolidated display.\37\ They are
all, however, voluntary products for which market participants can
readily substitute the consolidated data feeds. Accordingly, Nasdaq is
constrained from pricing the product in a manner that would be
inequitable or unfairly discriminatory. Moreover, the fees for these
products, like all proprietary data fees, are constrained by the
Exchange's need to compete for order flow.\38\
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\37\ 17 CFR 242.603(c).
\38\ See NetCoalition v. SEC, 615 F.3d 525, 539 (DC Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)). (``No 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'. . . .).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In terms of inter-market
competition, the Exchange 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
[[Page 14187]]
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.
In this instance, the proposed change lowers the administrative
costs for Distributors disseminating NLS data to the general investing
public while expanding the types of delivery mechanisms available for
such data. The proposal will advance competition by promoting
widespread distribution of data to investors without increasing any
current fee.
The market for data products is extremely competitive and firms may
freely choose alternative venues and data vendors based on the
aggregate fees assessed, the data offered, and the value provided. This
rule proposal does not burden competition, since other SROs and data
vendors continue to offer alternative data products and, like the
Exchange, set fees, but rather reflects the competition between data
feed vendors and will further enhance such competition.
NLS is part of the existing market for proprietary last sale data
products that is currently competitive and inherently contestable
because there is fierce competition for the inputs necessary to the
creation of proprietary data and strict pricing discipline for the
proprietary products themselves. Numerous exchanges compete with each
other for listings, trades, and market data itself, providing virtually
limitless opportunities for entrepreneurs who wish to produce and
distribute their own market data. This proprietary data is produced by
each individual exchange, as well as other entities, in a vigorously
competitive market.
Transaction execution and proprietary data products are
complementary in that market data is both an input and a byproduct of
the execution service. In fact, market data and trade execution are a
paradigmatic example of joint products with joint costs. The decision
whether and on which platform to post an order will depend on the
attributes of the platform where the order can be posted, including the
execution fees, data quality and price, and distribution of its data
products. Without trade executions, exchange data products cannot
exist. Moreover, data products are valuable to many end users only
insofar as they provide information that end users expect will assist
them or their customers in making trading decisions. The costs of
producing market data include not only the costs of the data
distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's transaction execution
platform and the cost of regulating the exchange to ensure its fair
operation and maintain investor confidence. The total return that a
trading platform earns reflects the revenues it receives from both
products and the joint costs it incurs.
Moreover, the operation of the exchange is characterized by high
fixed costs and low marginal costs. This cost structure is common in
content and content distribution industries such as software, where
developing new software typically requires a large initial investment
(and continuing large investments to upgrade the software), but once
the software is developed, the incremental cost of providing that
software to an additional user is typically small, or even zero (e.g.,
if the software can be downloaded over the internet after being
purchased).\39\
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\39\ See William J. Baumol and Daniel G. Swanson, ``The New
Economy and Ubiquitous Competitive Price Discrimination: Identifying
Defensible Criteria of Market Power,'' Antitrust Law Journal, Vol.
70, No. 3 (2003).
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In Nasdaq's case, it is costly to build and maintain a trading
platform, but the incremental cost of trading each additional share on
an existing platform, or distributing an additional instance of data,
is very low. Market information and executions are each produced
jointly (in the sense that the activities of trading and placing orders
are the source of the information that is distributed) and are each
subject to significant scale economies. In such cases, marginal cost
pricing is not feasible because, if all sales were priced at the
margin, Nasdaq would be unable to defray its platform costs of
providing joint products. Similarly, data products cannot make use of
TRF trade reports without the raw material of the trade reports
themselves, and therefore necessitate the costs of operating,
regulating, and maintaining a trade reporting system--costs that must
be covered through the fees charged for use of the facility and sales
of associated data. As such, Nasdaq's overall fee structure is designed
to ensure a fair and reasonable use of Exchange resources by allowing
the Exchange to recoup costs while continuing to offer its data
products at competitive rates to firms.
An exchange's broker-dealer customers view the costs of transaction
executions and of data as a unified cost of doing business with the
exchange. A broker-dealer will disfavor a particular exchange if the
expected revenues from executing trades on the exchange do not exceed
net transaction execution costs and the cost of data that the broker-
dealer chooses to buy to support its trading decisions (or those of its
customers). The choice of data products is, in turn, a product of the
value of the products in making profitable trading decisions. If the
cost of the product exceeds its expected value, the broker-dealer will
choose not to buy it.
As a broker-dealer chooses to direct fewer orders to a particular
exchange, the value of the product to that broker-dealer decreases, for
two reasons. First, the product will contain less information, because
executions of the broker-dealer's trading activity will not be
reflected in it. Second, and perhaps more important, the product will
be less valuable to that broker-dealer because it does not provide
information about the venue to which it is directing its orders. Data
from the competing venue to which the broker-dealer is directing more
orders will become correspondingly more valuable.
Products such as NLS can enhance order flow to Nasdaq by providing
more widespread distribution of information about transactions in real
time, thereby encouraging wider participation in the market by
investors with access to the internet or television. Conversely, the
value of such products to Distributors and investors decreases if order
flow falls, because the products contain less content.
Similarly, in the case of products such as NLS that may be
distributed through market data vendors, the vendors provide price
discipline for proprietary data products because they control the
primary means of access to end users. Vendors impose price restraints
based upon their business models. For example, vendors that assess a
surcharge on data they sell may refuse to offer proprietary products
that end users will not purchase in sufficient numbers. Internet
portals impose a discipline by providing only data that will enable
them to attract ``eyeballs'' that contribute to their advertising
revenue.\40\ Retail broker-dealers offer their retail customers
proprietary data only if it promotes trading and generates
[[Page 14188]]
sufficient commission revenue. Although the business models may differ,
these vendors' pricing discipline is the same: they can simply refuse
to purchase any proprietary data product that fails to provide
sufficient value. Exchanges, TRFs, and other producers of proprietary
data products must understand and respond to these varying business
models and pricing disciplines in order to market proprietary data
products successfully.
---------------------------------------------------------------------------
\40\ Indeed, the proposed enterprise license itself provides
evidence of such competition as it was designed, in part, to lower
vendor costs.
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Competition among trading platforms can be expected to constrain
the aggregate return each platform earns from the sale of its joint
products, but different platforms may choose from a range of possible,
and equally reasonable, pricing strategies as the means of recovering
total costs. Nasdaq pays rebates to attract orders, charges relatively
low prices for market information and charges relatively high prices
for accessing posted liquidity. Other platforms may choose a strategy
of paying lower liquidity rebates to attract orders, setting relatively
low prices for accessing posted liquidity, and setting relatively high
prices for market information. Still others may provide most data free
of charge and rely exclusively on transaction fees to recover their
costs. Finally, some platforms may incentivize use by providing
opportunities for equity ownership, which may allow them to charge
lower direct fees for executions and data.
In this environment, there is no economic basis for regulating
maximum prices for one of the joint products in an industry in which
suppliers face competitive constraints with regard to the joint
offering. Such regulation is unnecessary because an ``excessive'' price
for one of the joint products will ultimately have to be reflected in
lower prices for other products sold by the firm, or otherwise the firm
will experience a loss in the volume of its sales that will be adverse
to its overall profitability. In other words, an increase in the price
of data will ultimately have to be accompanied by a decrease in the
cost of executions, or the volume of both data and executions will
fall.\41\
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\41\ Moreover, the level of competition and contestability in
the market is evident in the numerous alternative venues that
compete for order flow, including SRO markets, internalizing broker-
dealers 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 TRFs compete to
attract internalized transaction reports. It is common for broker-
dealers to further and exploit this competition by sending their
order flow and transaction reports to multiple markets, rather than
providing them all to a single market. Competitive markets for order
flow, executions, and transaction reports provide pricing discipline
for the inputs of proprietary data products. The large number of
SROs, TRFs, broker-dealers, and ATSs that currently produce
proprietary data or are currently capable of producing it provides
further pricing discipline for proprietary data products. Each SRO,
TRF, ATS, and broker-dealer is currently permitted to produce
proprietary data products, and many currently do or have announced
plans to do so, including Nasdaq, NYSE, NYSE American, NYSE Arca,
IEX, and CBOE.
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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.\42\
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\42\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2019-024 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-2019-024. 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 Number SR-NASDAQ-2019-024 and should be submitted
on or before April 30, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06931 Filed 4-8-19; 8:45 am]
BILLING CODE 8011-01-P
