80 FR 22588 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish Distributor and Managed Data Solution Distributor Fees for an Optional Hardware-Based Version of NASDAQ ITCH to Trade Options
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 77 (April 22, 2015)
Federal Register Volume 80, Issue 77 (April 22, 2015)
| Page Range | 22588-22591 | |
| FR Document | 2015-09264 |
[Federal Register Volume 80, Number 77 (Wednesday, April 22, 2015)] [Notices] [Pages 22588-22591] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-09264] [[Page 22588]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-74745; File No. SR-NASDAQ-2015-035] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish Distributor and Managed Data Solution Distributor Fees for an Optional Hardware-Based Version of NASDAQ ITCH to Trade Options April 16, 2015. 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 April 7, 2015, The NASDAQ Stock Market LLC (``NASDAQ'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by NASDAQ. 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 the Substance of the Proposed Rule Change NASDAQ proposes to amend Chapter XV, entitled ``Options Pricing,'' at Section 4 governing pricing for NASDAQ members using the NASDAQ Options Market (``NOM''), NASDAQ's facility for executing and routing standardized equity and index options. Specifically, the Exchange proposes to establish Distributor and Managed Data Solution (``MDS'') Distributor fees for an optional hardware-based version of NASDAQ ITCH to Trade Options (``ITTO'') data and is not offering a new market data product. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NASDAQ 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. NASDAQ has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend Chapter XV, entitled ``Options Pricing,'' at Section 4 governing pricing for NASDAQ members using NOM. Specifically, the Exchange proposes to establish Distributor and MDS Distributor fees for an optional hardware-based version of ITTO. This is a data feed that provides quotation information for individual orders on the NOM book, last sale information for trades executed on NOM, and Order Imbalance Information as set forth in NOM Rules Chapter VI, Section 8. ITTO is the options equivalent of the NASDAQ TotalView/ITCH data feed that NASDAQ offers under NASDAQ Rule 7023 with respect to equities traded on NASDAQ. As with TotalView, Distributors use ITTO to ``build'' their view of the NOM book by adding individual orders that appear on the data feed, and subtracting individual orders that are executed, cancelled or removed. This hardware-delivery mechanism option of ITTO uses field- programmable gate array (``FPGA'') technology. In offering an FPGA hardware-delivery mechanism, NASDAQ is serving those customers requiring a predictable latency profile throughout the trading day. By taking advantage of hardware parallelism, FPGA technology is capable of processing more data packets during peak market conditions without the introduction of variable queuing latency. The proposed Distributor fee for utilizing the optional FPGA hardware-based delivery of NASDAQ ITTO data is $10,000 for internal only distribution, $1,000 for external only distribution and $11,000 for internal and external distribution. The FPGA fee is in addition to any other fees for NASDAQ ITTO. There will be no change in NASDAQ ITTO Subscriber fees as a result of the new product implementation. The proposed MDS Distributor fees for Distributors utilizing the optional FPGA hardware-based delivery of NASDAQ ITTO data are tiered based upon the number of MDS Subscribers, with fees starting at $1,000 for one MDS Subscriber, $1,250 for two MDS Subscribers, $1,500 for three MDS Subscribers, and $250 for each additional MDS Subscriber. The MDS Distributor fee is in addition to any other MDS fees. This new pricing option is available to all firms, regardless of how they choose to access the FPGA hardware-based version of NASDAQ ITTO, and is in response to industry demand, as well as due to changes in the technology to distribute and consume market data. Distributors opting to pay for the FPGA hardware-based delivery of NASDAQ ITTO data would still be fee liable for the applicable market data fees, as described in this rule. Competition for depth data is considerable and the Exchange believes that this proposal clearly evidences such competition. The Exchange is offering a new pricing model in order to keep pace with changes in the industry and evolving customer needs as new technologies emerge and products continue to develop and change. The FPGA hardware- based version of NASDAQ ITTO is entirely optional and is geared towards attracting new customers, as well as retaining existing customers. The proposed fees are based on pricing conventions and distinctions that exist in NOM's current fee schedule, and the fee schedules of other exchanges. These distinctions (e.g., internal versus external distribution, as well as for MDS) for the proposed optional Distributor and MDS Distributor fees for FPGA hardware-based delivery of NASDAQ ITTO are based on a careful analysis of empirical data and the application of time-tested pricing principles already accepted by the Commission and discussed in greater depth in the Statutory Basis section below. Also, the costs associated with the FPGA hardware-based delivery system for NASDAQ ITTO data are higher than a software-based solution since it involves the expense of creating and maintaining the product, as well as creating, shipping, installing and maintaining the new equipment and codebase. Because it uses a distinct technology, the overall costs of creation and maintenance of the hardware-based version of ITTO are higher than the software-based version. From a messaging perspective, the data content and sequencing will be identical on both the FPGA hardware- and software-based versions of the ITTO product. The proposed FPGA hardware-based delivery of NASDAQ ITTO data is completely optional. NASDAQ is offering this FPGA hardware-based delivery mechanism for the NASDAQ ITTO product that is designed to deliver NASDAQ direct data content in a predictable manner throughout the trading day. [[Page 22589]] 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,\3\ in general, and with Section 6(b)(4) and 6(b)(5) of the Act,\4\ in particular, in that it provides an equitable allocation of reasonable fees among Subscribers and recipients of NASDAQ data and is not designed to permit unfair discrimination between them. NASDAQ believes that its proposal to establish Distributor and MDS Distributor fees for an optional FPGA hardware-based version of NASDAQ ITTO reflects an equitable allocation of reasonable fees. --------------------------------------------------------------------------- \3\ 15 U.S.C. 78f. \4\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- In adopting Regulation NMS, the Commission granted self-regulatory organizations (``SRO'') and broker-dealers increased authority and flexibility to offer new and unique market data to the public. 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.\5\ --------------------------------------------------------------------------- \5\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). By removing ``unnecessary regulatory restrictions'' on the ability of exchanges to sell their own data, Regulation NMS advanced 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. On July 21, 2010, President Barack Obama signed into law H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank Act''), which amended Section 19 of the Act. Among other things, Section 916 of the Dodd-Frank Act amended paragraph (A) of Section 19(b)(3) of the Act by inserting the phrase ``on any person, whether or not the person is a member of the self-regulatory organization'' after ``due, fee or other charge imposed by the self- regulatory organization.'' As a result, all SRO rule proposals establishing or changing dues, fees, or other charges are immediately effective upon filing regardless of whether such dues, fees, or other charges are imposed on members of the SRO, non-members, or both. Section 916 further amended paragraph (C) of Section 19(b)(3) of the Act to read, in pertinent part, ``At any time within the 60-day period beginning on the date of filing of such a proposed rule change in accordance with the provisions of paragraph (1) [of Section 19(b)], the Commission summarily may temporarily suspend the change in the rules of the self-regulatory organization made thereby, 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 this title. If the Commission takes such action, the Commission shall institute proceedings under paragraph (2)(B) [of Section 19(b)] to determine whether the proposed rule should be approved or disapproved.'' The decision of the United States Court of Appeals for the District of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010) (``NetCoalition I''), upheld the Commission's reliance upon competitive markets to set reasonable and equitably allocated fees for market data. ``In fact, the legislative history indicates that the Congress intended that the market system `evolve through the interplay of competitive forces as unnecessary regulatory restrictions are removed' and that the SEC wield its regulatory power `in those situations where competition may not be sufficient,' such as in the creation of a `consolidated transactional reporting system.' NetCoalition I, at 535 (quoting H.R. Rep. No. 94-229, at 92 (1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323). For the reasons stated above, NASDAQ believes that the allocation of the proposed fee is fair and equitable in accordance with Section 6(b)(4) of the Act, and not unreasonably discriminatory in accordance with Section 6(b)(5) of the Act. As described above, the proposed fee is based on pricing conventions and distinctions that exist in NASDAQ's current fee schedule. These distinctions are each based on principles of fairness and equity that have helped for many years to maintain fair, equitable, and not unreasonably discriminatory fees, and that apply with equal or greater force to the current proposal. As described in greater detail below, if NASDAQ has calculated improperly and the market deems the proposed fees to be unfair, inequitable, or unreasonably discriminatory, firms can discontinue the use of their data because the proposed product is entirely optional to all parties. Firms are not required to purchase data and NASDAQ is not required to make data available or to offer specific pricing alternatives for potential purchases. NASDAQ can discontinue offering a pricing alternative (as it has in the past) and firms can discontinue their use at any time and for any reason (as they often do), including due to their assessment of the reasonableness of fees charged. NASDAQ continues to establish and revise pricing policies aimed at increasing fairness and equitable allocation of fees among Subscribers. This also reflects that the market for this Depth-of-Book information is highly competitive and continually evolves as products develop and change. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. Notwithstanding its determination that the Commission may rely upon competition to establish fair and equitably allocated fees for market data, the NetCoalition court found that the Commission had not, in that case, compiled a record that adequately supported its conclusion that the market for the data at issue in the case was competitive. NASDAQ believes that a record may readily be established to demonstrate the competitive nature of the market in question. There is intense competition between trading platforms that provide transaction execution and routing services and proprietary data products. Transaction execution and proprietary data products are complementary in that market data is both an input and a by-product of the execution service. In fact, market data and trade execution are a paradigmatic example of joint products with joint costs. Data products are valuable to many end Subscribers only insofar as they provide information that end Subscribers 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 both the revenues it receives from products and [[Page 22590]] the joint costs it incurs. Moreover, an exchange's customers view the costs of transaction executions and of data as a unified cost of doing business with the exchange. A broker-dealer will direct orders to a particular exchange only if the expected revenues from executing trades on the exchange 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. Moreover, 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 orders 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 orders will become correspondingly more valuable. Thus, an increase in the fees charged for either transactions or data has the potential to impair revenues from both products. ``No one disputes that competition for order flow is `fierce'.'' NetCoalition at 24. However, the existence of fierce competition for order flow implies a high degree of price sensitivity on the part of broker-dealers with order flow, since they may readily reduce costs by directing orders toward the lowest-cost trading venues. A broker-dealer that shifted its order flow from one platform to another in response to order execution price differentials would both reduce the value of that platform's market data and reduce its own need to consume data from the disfavored platform. Similarly, if a platform increases its market data fees, the change will affect the overall cost of doing business with the platform, and affected broker-dealers will assess whether they can lower their trading costs by directing orders elsewhere and thereby lessening the need for the more expensive data. Analyzing the cost of market data distribution in isolation from the cost of all of the inputs supporting the creation of market data will inevitably underestimate the cost of the data. Thus, because it is impossible to create data without a fast, technologically robust, and well-regulated execution system, system costs and regulatory costs affect the price of market data. It would be equally misleading, however, to attribute all of the exchange's costs to the market data portion of an exchange's joint product. Rather, all of the exchange's costs are incurred for the unified purposes of attracting order flow, executing and/or routing orders, and generating and selling data about market activity. The total return that an exchange earns reflects the revenues it receives from the joint products and the total costs of the joint products. 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. For example, some platforms may choose to pay rebates to attract orders, charge relatively low prices for market information (or provide information free of charge) and charge relatively high prices for accessing posted liquidity. Other platforms may choose a strategy of paying lower rebates (or no rebates) to attract orders, setting relatively high prices for market information, and setting relatively low prices for accessing posted liquidity. 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. This would be akin to strictly regulating the price that an automobile manufacturer can charge for car sound systems despite the existence of a highly competitive market for cars and the availability of after-market alternatives to the manufacturer-supplied system. The market for market data products is 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. Broker-dealers currently have numerous alternative venues for their order flow, including thirteen 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. 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, BDs, 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 BD is currently permitted to produce proprietary data products, and many currently do or have announced plans to do so, including NASDAQ, New York Stock Exchange LLC (``NYSE''), NYSE MKT LLC, NYSE Arca LLC (``ARCA''), and BATS Exchange, Inc. (``BATS''). Any ATS or BD can combine with any other ATS, BD, or multiple ATSs or BDs to produce joint proprietary data products. Additionally, order routers and market data vendors can facilitate single or multiple broker-dealers' production of proprietary data products. The potential sources of proprietary products are virtually limitless. The fact that proprietary data from ATSs, BDs, and vendors can by- pass SROs is significant in two respects. First, non-SROs can compete directly with SROs for the production and sale of proprietary data products, as BATS and Arca did before registering as exchanges by publishing data on the Internet. Second, because a single order or transaction report can appear in an SRO proprietary product, a non-SRO proprietary product, or both, the data available in proprietary products is exponentially greater than the actual number of orders and transaction reports that exist in the marketplace. Market data vendors provide another form of price discipline for proprietary data products because they control the primary means of access to end Subscribers. Vendors impose price restraints based upon their business models. For example, vendors such as Bloomberg and Thomson Reuters that assess a surcharge on data they sell may refuse to offer proprietary products that end Subscribers will not purchase in sufficient numbers. Internet portals, such as Google, impose a discipline by providing only data that will enable them to attract ``eyeballs'' that contribute to their advertising revenue. Retail broker-dealers, such as Schwab and Fidelity, offer their customers proprietary data only if it promotes trading and generates sufficient commission revenue. Although the business models may differ, these [[Page 22591]] vendors' pricing discipline is the same: They can simply refuse to purchase any proprietary data product that fails to provide sufficient value. NASDAQ 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. In addition to the competition and price discipline described above, the market for proprietary data products is also highly contestable because market entry is rapid, inexpensive, and profitable. The history of electronic trading is replete with 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 and BATS Trading. A proliferation of dark pools and other ATSs operate profitably with fragmentary shares of consolidated market volume. Regulation NMS, by deregulating the market for proprietary data, has increased the contestability of that market. While broker-dealers have previously published their proprietary data individually, Regulation NMS encourages market data vendors and broker-dealers to produce proprietary products cooperatively in a manner never before possible. Multiple market data vendors already have the capability to aggregate data and disseminate it on a profitable scale, including Bloomberg, and Thomson Reuters. The vigor of competition for information is significant. NASDAQ has made a determination to adjust the fees associated with these products in order to reflect more accurately the value of its products and the investments made to enhance them, as well as to keep pace with changes in the industry and evolving customer needs. These products are entirely optional and are geared towards attracting new customers, as well as retaining existing customers. In all cases, firms make decisions on how much and what types of data to consume on the basis of the total cost of interacting with NASDAQ or other exchanges. Of course, the explicit data fees are but one factor in a total platform analysis. Some competitors have lower transactions fees and higher data fees, and others are vice versa. For example, NOM offers one distributor fee which allows firms to access both the BONO and ITTO data feeds. The market for this information is highly competitive and continually evolves as products develop and change. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor 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.\6\ 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 should be approved or disapproved. --------------------------------------------------------------------------- \6\ 15 U.S.C. 78s(b)(3)(A)(ii). --------------------------------------------------------------------------- IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-NASDAQ-2015-035 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NASDAQ-2015-035. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASDAQ-2015-035 and should be submitted on or before May 13, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\7\ --------------------------------------------------------------------------- \7\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2015-09264 Filed 4-21-15; 8:45 am] BILLING CODE 8011-01-P
![22588 Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Notices
SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s This new pricing option is available
COMMISSION Statement of the Purpose of, and to all firms, regardless of how they
Statutory Basis for, the Proposed Rule choose to access the FPGA hardware-
[Release No. 34–74745; File No. SR– Change based version of NASDAQ ITTO, and is
NASDAQ–2015–035] in response to industry demand, as well
1. Purpose
as due to changes in the technology to
Self-Regulatory Organizations; The The purpose of the proposed rule distribute and consume market data.
NASDAQ Stock Market LLC; Notice of change is to amend Chapter XV, entitled Distributors opting to pay for the FPGA
Filing and Immediate Effectiveness of ‘‘Options Pricing,’’ at Section 4 hardware-based delivery of NASDAQ
Proposed Rule Change To Establish governing pricing for NASDAQ ITTO data would still be fee liable for
Distributor and Managed Data Solution members using NOM. Specifically, the the applicable market data fees, as
Distributor Fees for an Optional Exchange proposes to establish described in this rule.
Hardware-Based Version of NASDAQ Distributor and MDS Distributor fees for Competition for depth data is
ITCH to Trade Options an optional hardware-based version of
considerable and the Exchange believes
ITTO. This is a data feed that provides
April 16, 2015. that this proposal clearly evidences
quotation information for individual
such competition. The Exchange is
Pursuant to Section 19(b)(1) of the orders on the NOM book, last sale
offering a new pricing model in order to
Securities Exchange Act of 1934 information for trades executed on
keep pace with changes in the industry
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 NOM, and Order Imbalance Information
and evolving customer needs as new
notice is hereby given that on April 7, as set forth in NOM Rules Chapter VI,
technologies emerge and products
2015, The NASDAQ Stock Market LLC Section 8. ITTO is the options
continue to develop and change. The
(‘‘NASDAQ’’) filed with the Securities equivalent of the NASDAQ TotalView/
FPGA hardware-based version of
and Exchange Commission ITCH data feed that NASDAQ offers
(‘‘Commission’’) the proposed rule NASDAQ ITTO is entirely optional and
under NASDAQ Rule 7023 with respect
change as described in Items I, II, and to equities traded on NASDAQ. As with is geared towards attracting new
III below, which Items have been TotalView, Distributors use ITTO to customers, as well as retaining existing
prepared by NASDAQ. The Commission ‘‘build’’ their view of the NOM book by customers.
is publishing this notice to solicit adding individual orders that appear on The proposed fees are based on
comments on the proposed rule change the data feed, and subtracting individual pricing conventions and distinctions
from interested persons. orders that are executed, cancelled or that exist in NOM’s current fee
removed. schedule, and the fee schedules of other
I. Self-Regulatory Organization’s exchanges. These distinctions (e.g.,
Statement of the Terms of the Substance This hardware-delivery mechanism
option of ITTO uses field-programmable internal versus external distribution, as
of the Proposed Rule Change well as for MDS) for the proposed
gate array (‘‘FPGA’’) technology. In
NASDAQ proposes to amend Chapter offering an FPGA hardware-delivery optional Distributor and MDS
XV, entitled ‘‘Options Pricing,’’ at mechanism, NASDAQ is serving those Distributor fees for FPGA hardware-
Section 4 governing pricing for customers requiring a predictable based delivery of NASDAQ ITTO are
NASDAQ members using the NASDAQ latency profile throughout the trading based on a careful analysis of empirical
Options Market (‘‘NOM’’), NASDAQ’s day. By taking advantage of hardware data and the application of time-tested
facility for executing and routing parallelism, FPGA technology is capable pricing principles already accepted by
standardized equity and index options. of processing more data packets during the Commission and discussed in
Specifically, the Exchange proposes to peak market conditions without the greater depth in the Statutory Basis
establish Distributor and Managed Data introduction of variable queuing section below. Also, the costs associated
Solution (‘‘MDS’’) Distributor fees for an latency. with the FPGA hardware-based delivery
optional hardware-based version of The proposed Distributor fee for system for NASDAQ ITTO data are
NASDAQ ITCH to Trade Options utilizing the optional FPGA hardware- higher than a software-based solution
(‘‘ITTO’’) data and is not offering a new based delivery of NASDAQ ITTO data is since it involves the expense of creating
market data product. $10,000 for internal only distribution, and maintaining the product, as well as
$1,000 for external only distribution and creating, shipping, installing and
II. Self-Regulatory Organization’s maintaining the new equipment and
$11,000 for internal and external
Statement of the Purpose of, and codebase. Because it uses a distinct
distribution. The FPGA fee is in
Statutory Basis for, the Proposed Rule technology, the overall costs of creation
addition to any other fees for NASDAQ
Change and maintenance of the hardware-based
ITTO. There will be no change in
In its filing with the Commission, NASDAQ ITTO Subscriber fees as a version of ITTO are higher than the
NASDAQ included statements result of the new product software-based version. From a
concerning the purpose of and basis for implementation. messaging perspective, the data content
the proposed rule change and discussed The proposed MDS Distributor fees and sequencing will be identical on
any comments it received on the for Distributors utilizing the optional both the FPGA hardware- and software-
proposed rule change. The text of these FPGA hardware-based delivery of based versions of the ITTO product.
statements may be examined at the NASDAQ ITTO data are tiered based The proposed FPGA hardware-based
asabaliauskas on DSK5VPTVN1PROD with NOTICES
places specified in Item IV below. upon the number of MDS Subscribers, delivery of NASDAQ ITTO data is
NASDAQ has prepared summaries, set with fees starting at $1,000 for one MDS completely optional. NASDAQ is
forth in Sections A, B, and C below, of Subscriber, $1,250 for two MDS offering this FPGA hardware-based
the most significant aspects of such Subscribers, $1,500 for three MDS delivery mechanism for the NASDAQ
statements. Subscribers, and $250 for each ITTO product that is designed to deliver
additional MDS Subscriber. The MDS NASDAQ direct data content in a
1 15 U.S.C. 78s(b)(1). Distributor fee is in addition to any predictable manner throughout the
2 17 CFR 240.19b–4. other MDS fees. trading day.
VerDate Sep<11>2014 18:00 Apr 21, 2015 Jkt 235001 PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 E:\FR\FM\22APN1.SGM 22APN1](https://thefederalregister.org/doc/80_FR_22665/page/1.svg)
![Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Notices 22589
2. Statutory Basis immediately effective upon filing discontinue the use of their data
The Exchange believes that the regardless of whether such dues, fees, or because the proposed product is entirely
proposed rule change is consistent with other charges are imposed on members optional to all parties. Firms are not
the provisions of Section 6 of the Act,3 of the SRO, non-members, or both. required to purchase data and NASDAQ
in general, and with Section 6(b)(4) and Section 916 further amended paragraph is not required to make data available or
6(b)(5) of the Act,4 in particular, in that (C) of Section 19(b)(3) of the Act to read, to offer specific pricing alternatives for
it provides an equitable allocation of in pertinent part, ‘‘At any time within potential purchases. NASDAQ can
reasonable fees among Subscribers and the 60-day period beginning on the date discontinue offering a pricing
recipients of NASDAQ data and is not of filing of such a proposed rule change alternative (as it has in the past) and
designed to permit unfair in accordance with the provisions of firms can discontinue their use at any
discrimination between them. NASDAQ paragraph (1) [of Section 19(b)], the time and for any reason (as they often
believes that its proposal to establish Commission summarily may do), including due to their assessment of
Distributor and MDS Distributor fees for temporarily suspend the change in the the reasonableness of fees charged.
rules of the self-regulatory organization NASDAQ continues to establish and
an optional FPGA hardware-based
made thereby, if it appears to the revise pricing policies aimed at
version of NASDAQ ITTO reflects an
Commission that such action is increasing fairness and equitable
equitable allocation of reasonable fees.
In adopting Regulation NMS, the necessary or appropriate in the public allocation of fees among Subscribers.
Commission granted self-regulatory interest, for the protection of investors, This also reflects that the market for this
organizations (‘‘SRO’’) and broker- or otherwise in furtherance of the Depth-of-Book information is highly
dealers increased authority and purposes of this title. If the Commission competitive and continually evolves as
flexibility to offer new and unique takes such action, the Commission shall products develop and change.
institute proceedings under paragraph
market data to the public. B. Self-Regulatory Organization’s
The Commission concluded that (2)(B) [of Section 19(b)] to determine
Statement on Burden on Competition
Regulation NMS—by deregulating the whether the proposed rule should be
approved or disapproved.’’ The Exchange does not believe that
market in proprietary data—would itself the proposed rule change will result in
The decision of the United States
further the Act’s goals of facilitating any burden on competition that is not
Court of Appeals for the District of
efficiency and competition: necessary or appropriate in furtherance
Columbia Circuit in NetCoalition v.
[E]fficiency is promoted when broker- SEC, 615 F.3d 525 (D.C. Cir. 2010) of the purposes of the Act, as amended.
dealers who do not need the data beyond the (‘‘NetCoalition I’’), upheld the Notwithstanding its determination that
prices, sizes, market center identifications of Commission’s reliance upon the Commission may rely upon
the NBBO and consolidated last sale competition to establish fair and
information are not required to receive (and competitive markets to set reasonable
pay for) such data. The Commission also and equitably allocated fees for market equitably allocated fees for market data,
believes that efficiency is promoted when data. ‘‘In fact, the legislative history the NetCoalition court found that the
broker-dealers may choose to receive (and indicates that the Congress intended Commission had not, in that case,
pay for) additional market data based on their that the market system ‘evolve through compiled a record that adequately
own internal analysis of the need for such the interplay of competitive forces as supported its conclusion that the market
data.5 unnecessary regulatory restrictions are for the data at issue in the case was
By removing ‘‘unnecessary regulatory removed’ and that the SEC wield its competitive. NASDAQ believes that a
restrictions’’ on the ability of exchanges regulatory power ‘in those situations record may readily be established to
to sell their own data, Regulation NMS where competition may not be demonstrate the competitive nature of
advanced the goals of the Act and the sufficient,’ such as in the creation of a the market in question.
principles reflected in its legislative ‘consolidated transactional reporting There is intense competition between
history. If the free market should system.’ NetCoalition I, at 535 (quoting trading platforms that provide
determine whether proprietary data is H.R. Rep. No. 94–229, at 92 (1975), as transaction execution and routing
sold to broker-dealers at all, it follows reprinted in 1975 U.S.C.C.A.N. 321, services and proprietary data products.
that the price at which such data is sold 323). Transaction execution and proprietary
should be set by the market as well. For the reasons stated above, data products are complementary in that
On July 21, 2010, President Barack NASDAQ believes that the allocation of market data is both an input and a by-
Obama signed into law H.R. 4173, the the proposed fee is fair and equitable in product of the execution service. In fact,
Dodd-Frank Wall Street Reform and accordance with Section 6(b)(4) of the market data and trade execution are a
Consumer Protection Act of 2010 Act, and not unreasonably paradigmatic example of joint products
(‘‘Dodd-Frank Act’’), which amended discriminatory in accordance with with joint costs. Data products are
Section 19 of the Act. Among other Section 6(b)(5) of the Act. As described valuable to many end Subscribers only
things, Section 916 of the Dodd-Frank above, the proposed fee is based on insofar as they provide information that
Act amended paragraph (A) of Section pricing conventions and distinctions end Subscribers expect will assist them
19(b)(3) of the Act by inserting the that exist in NASDAQ’s current fee or their customers in making trading
phrase ‘‘on any person, whether or not schedule. These distinctions are each decisions.
based on principles of fairness and The costs of producing market data
the person is a member of the self-
equity that have helped for many years include not only the costs of the data
regulatory organization’’ after ‘‘due, fee
to maintain fair, equitable, and not distribution infrastructure, but also the
asabaliauskas on DSK5VPTVN1PROD with NOTICES
or other charge imposed by the self-
unreasonably discriminatory fees, and costs of designing, maintaining, and
regulatory organization.’’ As a result, all
that apply with equal or greater force to operating the exchange’s transaction
SRO rule proposals establishing or
the current proposal. execution platform and the cost of
changing dues, fees, or other charges are
As described in greater detail below, regulating the exchange to ensure its fair
3 15 U.S.C. 78f.
if NASDAQ has calculated improperly operation and maintain investor
4 15 U.S.C. 78f(b)(4) and (5). and the market deems the proposed fees confidence. The total return that a
5 Securities Exchange Act Release No. 51808 to be unfair, inequitable, or trading platform earns reflects both the
(June 9, 2005), 70 FR 37496 (June 29, 2005). unreasonably discriminatory, firms can revenues it receives from products and
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![Federal Register / Vol. 80, No. 77 / Wednesday, April 22, 2015 / Notices 22591
vendors’ pricing discipline is the same: C. Self-Regulatory Organization’s those that may be withheld from the
They can simply refuse to purchase any Statement on Comments on the public in accordance with the
proprietary data product that fails to Proposed Rule Change Received From provisions of 5 U.S.C. 552, will be
provide sufficient value. NASDAQ and Members, Participants, or Others available for Web site viewing and
other producers of proprietary data Written comments were neither printing in the Commission’s Public
products must understand and respond solicited nor received. Reference Room, 100 F Street NE.,
to these varying business models and Washington, DC 20549, on official
pricing disciplines in order to market III. Date of Effectiveness of the business days between the hours of
proprietary data products successfully. Proposed Rule Change and Timing for 10:00 a.m. and 3:00 p.m. Copies of such
Commission Action filing will also be available for
In addition to the competition and
price discipline described above, the The foregoing rule change has become inspection and copying at the principal
market for proprietary data products is effective pursuant to Section office of the Exchange. All comments
also highly contestable because market 19(b)(3)(A)(ii) of the Act.6 At any time received will be posted without change;
entry is rapid, inexpensive, and within 60 days of the filing of the the Commission does not edit personal
profitable. The history of electronic proposed rule change, the Commission identifying information from
trading is replete with examples of summarily may temporarily suspend submissions. You should submit only
entrants that swiftly grew into some of such rule change if it appears to the information that you wish to make
the largest electronic trading platforms Commission that such action is available publicly.
and proprietary data producers: necessary or appropriate in the public
All submissions should refer to File
Archipelago, Bloomberg Tradebook, interest, for the protection of investors,
Number SR–NASDAQ–2015–035 and
Island, RediBook, Attain, TracECN and or otherwise in furtherance of the
purposes of the Act. If the Commission should be submitted on or before May
BATS Trading. A proliferation of dark 13, 2015.
pools and other ATSs operate profitably takes such action, the Commission shall
with fragmentary shares of consolidated institute proceedings to determine For the Commission, by the Division of
market volume. whether the proposed rule should be Trading and Markets, pursuant to delegated
approved or disapproved. authority.7
Regulation NMS, by deregulating the Brent J. Fields,
market for proprietary data, has IV. Solicitation of Comments
increased the contestability of that Secretary.
Interested persons are invited to
market. While broker-dealers have [FR Doc. 2015–09264 Filed 4–21–15; 8:45 am]
submit written data, views, and
previously published their proprietary arguments concerning the foregoing, BILLING CODE 8011–01–P
data individually, Regulation NMS including whether the proposed rule
encourages market data vendors and change, as amended, is consistent with
broker-dealers to produce proprietary the Act. Comments may be submitted by SECURITIES AND EXCHANGE
products cooperatively in a manner any of the following methods: COMMISSION
never before possible. Multiple market
Electronic Comments
data vendors already have the capability [Release No. 34–74747; File No. SR–OCC–
to aggregate data and disseminate it on • Use the Commission’s Internet 2015–03]
a profitable scale, including Bloomberg, comment form (http://www.sec.gov/
and Thomson Reuters. rules/sro.shtml); or Self-Regulatory Organizations; The
• Send an email to rule-comments@ Options Clearing Corporation; Order
The vigor of competition for sec.gov. Please include File Number SR–
information is significant. NASDAQ has Approving Proposed Rule Change
NASDAQ–2015–035 on the subject line. Concerning the Execution of an
made a determination to adjust the fees
associated with these products in order Paper Comments Agreement for Clearing and Settlement
Services Between OCC and NASDAQ
to reflect more accurately the value of • Send paper comments in triplicate Futures, Inc.
its products and the investments made to Brent J. Fields, Secretary, Securities
to enhance them, as well as to keep pace and Exchange Commission, 100 F Street April 16, 2015.
with changes in the industry and NE., Washington, DC 20549–1090.
evolving customer needs. These On February 20, 2015, The Options
All submissions should refer to File Clearing Corporation (‘‘OCC’’) filed with
products are entirely optional and are Number SR–NASDAQ–2015–035. This
geared towards attracting new the Securities and Exchange
file number should be included on the
customers, as well as retaining existing Commission (‘‘Commission’’) the
subject line if email is used. To help the
customers. proposed rule change OCC–2015–03
Commission process and review your
pursuant to Section 19(b)(1) of the
In all cases, firms make decisions on comments more efficiently, please use
Securities Exchange Act of 1934
how much and what types of data to only one method. The Commission will
consume on the basis of the total cost of (‘‘Act’’) 1 and Rule 19b–4 thereunder.2
post all comments on the Commission’s
interacting with NASDAQ or other The proposed rule change was
Internet Web site (http://www.sec.gov/
exchanges. Of course, the explicit data published for comment in the Federal
rules/sro.shtml). Copies of the
fees are but one factor in a total platform Register on March 10, 2015.3 The
submission, all subsequent
analysis. Some competitors have lower Commission received no comments on
amendments, all written statements
asabaliauskas on DSK5VPTVN1PROD with NOTICES
transactions fees and higher data fees, with respect to the proposed rule the proposed rule change. This order
and others are vice versa. For example, change that are filed with the approves the proposed rule change.
NOM offers one distributor fee which Commission, and all written
7 17 CFR 200.30–3(a)(12).
allows firms to access both the BONO communications relating to the 1 15 U.S.C. 78s(b)(1).
and ITTO data feeds. The market for this proposed rule change between the 2 17 CFR 240.19b–4.
information is highly competitive and Commission and any person, other than 3 Securities Exchange Act Release No. 74432
continually evolves as products develop (March 4, 2015), 80 FR 12652 (March 10, 2015) (SR–
and change. 6 15 U.S.C. 78s(b)(3)(A)(ii). OCC–2015–03).
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Document Created: 2015-12-16 08:27:17
Document Modified: 2015-12-16 08:27:17
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 80 FR 22588 |
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