80 FR 81387 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Modify the Level 2 Professional Subscriber Fee
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 80, Issue 249 (December 29, 2015)
Federal Register Volume 80, Issue 249 (December 29, 2015)
| Page Range | 81387-81390 | |
| FR Document | 2015-32652 |
[Federal Register Volume 80, Number 249 (Tuesday, December 29, 2015)] [Notices] [Pages 81387-81390] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-32652] [[Page 81387]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-76738; File No. SR-NASDAQ-2015-152] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Modify the Level 2 Professional Subscriber Fee December 22, 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 December 15, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission'' or ``SEC'') 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 modify the NASDAQ Level 2 Professional subscriber (``Subscriber'') fee. While the changes proposed herein are effective upon filing, the Exchange has designated that the amendments be operative on January 4, 2016. The text of the proposed rule change is below. Proposed new language is italicized; proposed deletions are bracketed. NASDAQ Market Rules Equity Rules * * * * * 7023. NASDAQ Depth-of-Book Data (a) No change. (b) Subscriber Fees. (1) NASDAQ Level 2 (A) Non-Professional Subscribers pay a monthly fee of $9 each; (B) Professional Subscribers pay a monthly fee of $6[5]0 each for Display Usage based upon Direct or Indirect Access, or for Non-Display Usage based upon Indirect Access only; (C)-(E) No Change. (2)-(4) No change. (c)-(f) No change. * * * * * 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 increase the NASDAQ Level 2 Professional Subscriber fee (``Level 2 fee''). Specifically, the Exchange proposes to increase the Level 2 fee by $10 from $50 to $60 for display usage based upon direct or indirect access, or for non- display usage based upon indirect access only. This proposed rule change will not affect the pricing of the NASDAQ OpenView Non- Professional and Professional Subscriber fees. The NASDAQ Level 2 product is optional. NASDAQ has enhanced this product through capacity upgrades and regulatory data sets over the life of the product. The network capacity for NASDAQ Level 2 has also increased from a 56 Kb feed to the current 33 Mb feed. Additionally, since NASDAQ Level 2 is also used for market making functions, NASDAQ has invested over the years to add regulatory data sets, such as Market Maker Mode, Trading Action status, Limit Up--Limit Down, Market Wide Circuit Breaker (MWCB) messaging and Short Sale Threshold Indicator. Moreover, NASDAQ also increased the infrastructure resiliency with the migration of the entire Exchange's Disaster Recovery facility to Chicago, Illinois, which further reduces proximity risk. The costs associated with this migration are being apportioned among data products across multiple asset classes and, as a result, some of this cost is being allocated to NASDAQ Level 2. 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's proposal to increase the Level 2 fee by $10 from $50 to $60 for display usage based upon direct or indirect access, or for non-display usage based upon indirect access only, is also consistent with the Act in that it reflects an equitable allocation of reasonable fees. The Commission has long recognized the fair and equitable and not unreasonably discriminatory nature of assessing different fees for Professional and Non-Professional Users of the same data. NASDAQ also believes it is equitable to assess a higher fee per Professional User than to an ordinary Non-Professional User due to the enhanced flexibility, lower overall costs and value that it offers Distributors. --------------------------------------------------------------------------- \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 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. The Exchange considers Level 2 to be the sort of market data product that the Commission envisioned when it adopted Regulation NMS. The decision of the United States Court of Appeals for the District of Columbia Circuit in NetCoaliton v. SEC \6\ (``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 [[Page 81388]] 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.' \7\ The court agreed with the Commission's conclusion that ``Congress intended that `competitive forces should dictate the services and practices that constitute the U.S. national market system for trading equity securities.' '' \8\ --------------------------------------------------------------------------- \6\ See NetCoaliton v. SEC 615 F.3d 525 (D.C. Cir. 2010). \7\ 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). \8\ Id. --------------------------------------------------------------------------- The Court in NetCoalition I, while upholding the Commission's conclusion that competitive forces may be relied upon to establish the fairness of prices, nevertheless concluded that the record in that case did not adequately support the Commission's conclusions as to the competitive nature of the market for NYSE Arca, Inc.'s (``NYSE Arca'') data product at issue in that case. As explained below in NASDAQ's Statement on Burden on Competition, however, NASDAQ believes that there is substantial evidence of competition in the marketplace for data that was not in the record in the NetCoalition I case, and that the Commission is entitled to rely upon such evidence in concluding fees are the product of competition, and therefore in accordance with the relevant statutory standards.\9\ Accordingly, any findings of the court with respect to that product may not be relevant to the product at issue in this filing. --------------------------------------------------------------------------- \9\ It should also be noted that Section 916 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank Act'') has amended paragraph (A) of Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3), to make it clear that all exchange fees, including fees for market data, may be filed by exchanges on an immediately effective basis. See also NetCoalition v. SEC, 715 F.3d 342 (D.C. Cir. 2013) finding no jurisdiction to review Commission's non- suspension of immediately effective fee changes). --------------------------------------------------------------------------- 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 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. NASDAQ believes that periodically it must adjust the Subscriber fees to reflect market forces. NASDAQ believes it is an appropriate time to adjust this fee to more accurately reflect the investments made to enhance this product through capacity upgrades and regulatory data sets added. This also reflects that the market for this 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 I 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 byproduct 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 the revenues it receives from both products and 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'.'' \10\ 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 [[Page 81389]] 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. --------------------------------------------------------------------------- \10\ NetCoalition I, at 539. --------------------------------------------------------------------------- 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. 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. The level of competition and contestability \11\ in the market is evident in the numerous alternative venues that compete for order flow, including eleven self-regulatory organization (``SRO'') markets, as well as internalizing broker-dealers (``BDs'') and various forms of alternative trading systems (``ATSs''), including dark pools and electronic communication networks (``ECNs''). Each SRO market competes to produce transaction reports via trade executions, and two FINRA- regulated trade reporting facilities (``TRFs'') compete to attract internalized transaction reports. It is common for BDs 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. --------------------------------------------------------------------------- \11\ Contestability in this rule filing means that the market leader for a particular product can be easily challenged. --------------------------------------------------------------------------- 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 so or have announced plans to do so, including NASDAQ, New York Stock Exchange LLC, NYSE MKT LLC, NYSE Arca, and BATS Exchange (``BATS'')/Direct Edge. 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 BDs' production of proprietary data products. The potential sources of proprietary products are virtually limitless. Notably, the potential sources of data include the BDs that submit trade reports to TRFs and that have the ability to consolidate and distribute their data without the involvement of FINRA or an exchange-operated TRF. 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 NYSE Arca did before registering as exchanges by publishing proprietary book data on the internet. Second, because a single order or transaction report can appear in a core data product, an SRO proprietary product, and/or a non-SRO proprietary product, the data available in proprietary products is exponentially greater than the actual number of orders and transaction reports that exist in the marketplace. 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, based on Nasdaq's experience, 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, BATS Trading and BATS/Direct Edge. 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 competition of that market. While BDs have previously published their proprietary data individually, Regulation NMS encourages market data vendors and BDs to produce proprietary products cooperatively in a manner never before possible. Multiple market data vendors already have the capability to aggregate data and disseminate it on a profitable scale, including Bloomberg and Thomson Reuters. In Europe, Cinnober aggregates and disseminates data from over 40 brokers and multilateral trading facilities.\12\ --------------------------------------------------------------------------- \12\ See http://www.cinnober.com/boat-trade-reporting. --------------------------------------------------------------------------- In the case of TRFs, the rapid entry of several exchanges into this space in 2006-2007 following the development and Commission approval of the TRF structure demonstrates the contestability of this aspect of the market.\13\ Given the demand for trade reporting services that is itself a by-product of the fierce competition for transaction executions--characterized notably by a proliferation of ATSs and BDs offering internalization--any unjustified price increase in the fees associated with trade reporting or TRF data would shift trade report volumes from one of the existing TRFs to the other \14\ and create incentives for other [[Page 81390]] TRF operators to enter the space. Alternatively, because BDs reporting to TRFs are themselves free to consolidate the market data that they report, the market for over-the-counter data itself, separate and apart from the markets for execution and trade reporting services--is very competitive. --------------------------------------------------------------------------- \13\ The low cost exit of two TRFs from the market is also evidence of a contestable market because new entrants are reluctant to enter a market where exit may involve substantial shut-down costs. \14\ It should be noted that the FINRA/NYSE TRF during November 2016 [sic] received reports for 10.6% of non-exchange share volume in Regulation NMS stocks that represented 3.8% of overall volume. --------------------------------------------------------------------------- Moreover, consolidated data provides two additional measures of pricing discipline for proprietary data products that are a subset of the consolidated data stream. First, the consolidated data is widely available in real-time at $1 per month for non-professional users. Second, consolidated data is also available at no cost with a 15- or 20-minute delay. Because consolidated data contains marketwide information, it effectively places a cap on the fees assessed for proprietary data (such as last sale data) that is simply a subset of the consolidated data. The mere availability of low-cost or free consolidated data provides a powerful form of pricing discipline for proprietary data products that contain data elements that are a subset of the consolidated data, by highlighting the optional nature of proprietary products. In this environment, an unjustified price 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 I at 539. The existence of fierce competition for order flow implies a high degree of price sensitivity on the part of BDs with order flow, since they may readily reduce costs by directing orders toward the lowest-cost trading venues. A BD 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. If a platform increases its market data fees, the change will affect the overall cost of doing business with the platform, and affected BDs will assess whether they can lower their trading costs by directing orders elsewhere and thereby lessening the need for the more expensive data. 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.\15\ 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. --------------------------------------------------------------------------- \15\ 15 U.S.C. 78s(b)(3)(a)(ii). [sic] --------------------------------------------------------------------------- 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 CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR-NASDAQ-2015-152 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-2015-152. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASDAQ-2015-152, and should be submitted on or before January 19, 2016. --------------------------------------------------------------------------- \16\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\16\ Brent J. Fields, Secretary. [FR Doc. 2015-32652 Filed 12-28-15; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 80, No. 249 / Tuesday, December 29, 2015 / Notices 81387
SECURITIES AND EXCHANGE concerning the purpose of and basis for designed to permit unfair
COMMISSION the proposed rule change and discussed discrimination between them.
any comments it received on the NASDAQ’s proposal to increase the
[Release No. 34–76738; File No. SR–
proposed rule change. The text of these Level 2 fee by $10 from $50 to $60 for
NASDAQ–2015–152]
statements may be examined at the display usage based upon direct or
Self-Regulatory Organizations; The places specified in Item IV below. indirect access, or for non-display usage
NASDAQ Stock Market LLC; Notice of NASDAQ has prepared summaries, set based upon indirect access only, is also
Filing and Immediate Effectiveness of forth in Sections A, B, and C below, of consistent with the Act in that it reflects
Proposed Rule Change to Modify the the most significant aspects of such an equitable allocation of reasonable
Level 2 Professional Subscriber Fee statements. fees. The Commission has long
recognized the fair and equitable and
A. Self-Regulatory Organization’s
December 22, 2015. not unreasonably discriminatory nature
Statement of the Purpose of, and
Pursuant to Section 19(b)(1) of the of assessing different fees for
Statutory Basis for, the Proposed Rule
Securities Exchange Act of 1934 Professional and Non-Professional Users
Change
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 of the same data. NASDAQ also believes
notice is hereby given that on December 1. Purpose it is equitable to assess a higher fee per
15, 2015, The NASDAQ Stock Market The purpose of the proposed rule Professional User than to an ordinary
LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed change is to increase the NASDAQ Non-Professional User due to the
with the Securities and Exchange Level 2 Professional Subscriber fee enhanced flexibility, lower overall costs
Commission (‘‘Commission’’ or ‘‘SEC’’) (‘‘Level 2 fee’’). Specifically, the and value that it offers Distributors.
the proposed rule change as described Exchange proposes to increase the Level In adopting Regulation NMS, the
in Items I, II, and III below, which Items 2 fee by $10 from $50 to $60 for display Commission granted self-regulatory
have been prepared by NASDAQ. The usage based upon direct or indirect organizations and broker-dealers
Commission is publishing this notice to access, or for non-display usage based increased authority and flexibility to
solicit comments on the proposed rule upon indirect access only. This offer new and unique market data to the
change from interested persons. proposed rule change will not affect the public.
The Commission concluded that
I. Self-Regulatory Organization’s pricing of the NASDAQ OpenView Non-
Regulation NMS—by deregulating the
Statement of the Terms of the Substance Professional and Professional Subscriber
market in proprietary data—would itself
of the Proposed Rule Change fees.
The NASDAQ Level 2 product is further the Act’s goals of facilitating
NASDAQ proposes to modify the optional. NASDAQ has enhanced this efficiency and competition:
NASDAQ Level 2 Professional product through capacity upgrades and [E]fficiency is promoted when broker-
subscriber (‘‘Subscriber’’) fee. While the regulatory data sets over the life of the dealers who do not need the data beyond the
changes proposed herein are effective product. The network capacity for prices, sizes, market center identifications of
upon filing, the Exchange has the NBBO and consolidated last sale
NASDAQ Level 2 has also increased
designated that the amendments be information are not required to receive (and
from a 56 Kb feed to the current 33 Mb pay for) such data. The Commission also
operative on January 4, 2016. feed. Additionally, since NASDAQ believes that efficiency is promoted when
The text of the proposed rule change Level 2 is also used for market making broker-dealers may choose to receive (and
is below. Proposed new language is functions, NASDAQ has invested over pay for) additional market data based on their
italicized; proposed deletions are the years to add regulatory data sets, own internal analysis of the need for such
bracketed. such as Market Maker Mode, Trading data.5
NASDAQ Market Rules Action status, Limit Up—Limit Down, By removing ‘‘unnecessary regulatory
Equity Rules Market Wide Circuit Breaker (MWCB) restrictions’’ on the ability of exchanges
* * * * * messaging and Short Sale Threshold to sell their own data, Regulation NMS
7023. NASDAQ Depth-of-Book Data Indicator. advanced the goals of the Act and the
(a) No change. Moreover, NASDAQ also increased principles reflected in its legislative
(b) Subscriber Fees. the infrastructure resiliency with the history. If the free market should
(1) NASDAQ Level 2 migration of the entire Exchange’s determine whether proprietary data is
(A) Non-Professional Subscribers pay Disaster Recovery facility to Chicago, sold to broker-dealers at all, it follows
a monthly fee of $9 each; Illinois, which further reduces that the price at which such data is sold
(B) Professional Subscribers pay a proximity risk. The costs associated should be set by the market as well. The
monthly fee of $6[5]0 each for Display with this migration are being Exchange considers Level 2 to be the
Usage based upon Direct or Indirect apportioned among data products across sort of market data product that the
Access, or for Non-Display Usage based multiple asset classes and, as a result, Commission envisioned when it
upon Indirect Access only; some of this cost is being allocated to adopted Regulation NMS.
(C)–(E) No Change. NASDAQ Level 2. The decision of the United States
(2)–(4) No change. Court of Appeals for the District of
(c)–(f) No change. 2. Statutory Basis
Columbia Circuit in NetCoaliton v.
* * * * * The Exchange believes that the SEC 6 (‘‘NetCoalition I’’), upheld the
proposed rule change is consistent with Commission’s reliance upon
II. Self-Regulatory Organization’s
asabaliauskas on DSK5VPTVN1PROD with NOTICES
the provisions of Section 6 of the Act,3 competitive markets to set reasonable
Statement of the Purpose of, and in general, and with Section 6(b)(4) and
Statutory Basis for, the Proposed Rule and equitably allocated fees for market
6(b)(5) of the Act,4 in particular, in that data. ‘‘In fact, the legislative history
Change it provides an equitable allocation of indicates that the Congress intended
In its filing with the Commission, reasonable fees among Subscribers and
NASDAQ included statements recipients of NASDAQ data and is not 5 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
1 15 U.S.C. 78s(b)(1). 3 15 U.S.C. 78f. 6 See NetCoaliton v. SEC 615 F.3d 525 (D.C. Cir.
2 17 CFR 240.19b–4. 4 15 U.S.C. 78f(b)(4) and (5). 2010).
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change will affect the overall cost of in the price of data will ultimately have book data on the internet. Second,
doing business with the platform, and to be accompanied by a decrease in the because a single order or transaction
affected broker-dealers will assess cost of executions, or the volume of both report can appear in a core data product,
whether they can lower their trading data and executions will fall. an SRO proprietary product, and/or a
costs by directing orders elsewhere and The level of competition and non-SRO proprietary product, the data
thereby lessening the need for the more contestability 11 in the market is evident available in proprietary products is
expensive data. in the numerous alternative venues that exponentially greater than the actual
Analyzing the cost of market data compete for order flow, including number of orders and transaction
distribution in isolation from the cost of eleven self-regulatory organization reports that exist in the marketplace.
all of the inputs supporting the creation (‘‘SRO’’) markets, as well as In addition to the competition and
of market data will inevitably internalizing broker-dealers (‘‘BDs’’) and price discipline described above, the
underestimate the cost of the data. Thus, various forms of alternative trading market for proprietary data products is
because it is impossible to create data systems (‘‘ATSs’’), including dark pools also highly contestable because market
without a fast, technologically robust, and electronic communication networks entry is rapid, inexpensive and, based
and well-regulated execution system, (‘‘ECNs’’). Each SRO market competes to on Nasdaq’s experience, profitable. The
system costs and regulatory costs affect produce transaction reports via trade history of electronic trading is replete
the price of market data. It would be executions, and two FINRA-regulated with examples of entrants that swiftly
equally misleading, however, to trade reporting facilities (‘‘TRFs’’) grew into some of the largest electronic
attribute all of the exchange’s costs to compete to attract internalized trading platforms and proprietary data
the market data portion of an exchange’s transaction reports. It is common for producers: Archipelago, Bloomberg
joint product. Rather, all of the BDs to further and exploit this Tradebook, Island, RediBook, Attain,
exchange’s costs are incurred for the competition by sending their order flow TracECN, BATS Trading and BATS/
unified purposes of attracting order and transaction reports to multiple Direct Edge. A proliferation of dark
flow, executing and/or routing orders, markets, rather than providing them all pools and other ATSs operate profitably
and generating and selling data about to a single market. Competitive markets with fragmentary shares of consolidated
market activity. The total return that an for order flow, executions, and market volume.
exchange earns reflects the revenues it transaction reports provide pricing Regulation NMS, by deregulating the
receives from the joint products and the discipline for the inputs of proprietary market for proprietary data, has
total costs of the joint products. data products. increased the competition of that
Competition among trading platforms The large number of SROs, TRFs, BDs, market. While BDs have previously
can be expected to constrain the and ATSs that currently produce published their proprietary data
aggregate return each platform earns proprietary data or are currently capable individually, Regulation NMS
from the sale of its joint products, but of producing it provides further pricing encourages market data vendors and
different platforms may choose from a discipline for proprietary data products. BDs to produce proprietary products
range of possible, and equally Each SRO, TRF, ATS, and BD is cooperatively in a manner never before
reasonable, pricing strategies as the currently permitted to produce possible. Multiple market data vendors
means of recovering total costs. proprietary data products, and many already have the capability to aggregate
NASDAQ pays rebates to attract orders, currently do so or have announced data and disseminate it on a profitable
charges relatively low prices for market plans to do so, including NASDAQ, scale, including Bloomberg and
information and charges relatively high New York Stock Exchange LLC, NYSE Thomson Reuters. In Europe, Cinnober
prices for accessing posted liquidity. MKT LLC, NYSE Arca, and BATS aggregates and disseminates data from
Other platforms may choose a strategy Exchange (‘‘BATS’’)/Direct Edge. over 40 brokers and multilateral trading
of paying lower liquidity rebates to Any ATS or BD can combine with any facilities.12
attract orders, setting relatively low other ATS, BD, or multiple ATSs or BDs In the case of TRFs, the rapid entry of
prices for accessing posted liquidity, to produce joint proprietary data several exchanges into this space in
and setting relatively high prices for products. Additionally, order routers 2006–2007 following the development
market information. Still others may and market data vendors can facilitate and Commission approval of the TRF
provide most data free of charge and single or multiple BDs’ production of structure demonstrates the
rely exclusively on transaction fees to proprietary data products. The potential contestability of this aspect of the
recover their costs. Finally, some sources of proprietary products are market.13 Given the demand for trade
platforms may incentivize use by virtually limitless. Notably, the reporting services that is itself a by-
providing opportunities for equity potential sources of data include the product of the fierce competition for
ownership, which may allow them to BDs that submit trade reports to TRFs transaction executions—characterized
charge lower direct fees for executions and that have the ability to consolidate notably by a proliferation of ATSs and
and data. and distribute their data without the BDs offering internalization—any
In this environment, there is no
involvement of FINRA or an exchange- unjustified price increase in the fees
economic basis for regulating maximum
operated TRF. associated with trade reporting or TRF
prices for one of the joint products in an The fact that proprietary data from data would shift trade report volumes
industry in which suppliers face ATSs, BDs, and vendors can by-pass from one of the existing TRFs to the
competitive constraints with regard to SROs is significant in two respects. other 14 and create incentives for other
the joint offering. Such regulation is
asabaliauskas on DSK5VPTVN1PROD with NOTICES
First, non-SROs can compete directly
unnecessary because an ‘‘excessive’’ with SROs for the production and sale 12 See http://www.cinnober.com/boat-trade-
price for one of the joint products will of proprietary data products, as BATS reporting.
ultimately have to be reflected in lower and NYSE Arca did before registering as
13 The low cost exit of two TRFs from the market
prices for other products sold by the exchanges by publishing proprietary
is also evidence of a contestable market because
firm, or otherwise the firm will new entrants are reluctant to enter a market where
exit may involve substantial shut-down costs.
experience a loss in the volume of its 11 Contestability in this rule filing means that the 14 It should be noted that the FINRA/NYSE TRF
sales that will be adverse to its overall market leader for a particular product can be easily during November 2016 [sic] received reports for
profitability. In other words, an increase challenged. Continued
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![81390 Federal Register / Vol. 80, No. 249 / Tuesday, December 29, 2015 / Notices
TRF operators to enter the space. III. Date of Effectiveness of the Washington, DC 20549 on official
Alternatively, because BDs reporting to Proposed Rule Change and Timing for business days between the hours of
TRFs are themselves free to consolidate Commission Action 10:00 a.m. and 3:00 p.m. Copies of such
the market data that they report, the The foregoing rule change has become filing also will be available for
market for over-the-counter data itself, effective pursuant to Section inspection and copying at the principal
separate and apart from the markets for 19(b)(3)(A)(ii) of the Act.15 At any time office of the Exchange. All comments
execution and trade reporting services— received will be posted without change;
within 60 days of the filing of the
is very competitive. the Commission does not edit personal
proposed rule change, the Commission
Moreover, consolidated data provides identifying information from
summarily may temporarily suspend
two additional measures of pricing submissions. You should submit only
such rule change if it appears to the
discipline for proprietary data products information that you wish to make
Commission that such action is
that are a subset of the consolidated data available publicly. All submissions
necessary or appropriate in the public
stream. First, the consolidated data is should refer to File Number SR–
interest, for the protection of investors,
widely available in real-time at $1 per NASDAQ–2015–152, and should be
or otherwise in furtherance of the
month for non-professional users. submitted on or before January 19,2016.
purposes of the Act. If the Commission
Second, consolidated data is also takes such action, the Commission shall For the Commission, by the Division of
available at no cost with a 15- or 20- institute proceedings to determine Trading and Markets, pursuant to delegated
minute delay. Because consolidated authority.16
whether the proposed rule should be
data contains marketwide information, Brent J. Fields,
approved or disapproved.
it effectively places a cap on the fees Secretary.
assessed for proprietary data (such as IV. Solicitation of Comments [FR Doc. 2015–32652 Filed 12–28–15; 8:45 am]
last sale data) that is simply a subset of Interested persons are invited to BILLING CODE 8011–01–P
the consolidated data. The mere submit written data, views, and
availability of low-cost or free arguments concerning the foregoing,
consolidated data provides a powerful including whether the proposed rule SECURITIES AND EXCHANGE
form of pricing discipline for change is consistent with the Act. COMMISSION
proprietary data products that contain Comments may be submitted by any of [Release No. 34–76732; File No. SR–BOX–
data elements that are a subset of the the following methods: 2015–38]
consolidated data, by highlighting the
optional nature of proprietary products. Electronic Comments Self-Regulatory Organizations; BOX
In this environment, an unjustified • Use the Commission’s Internet Options Exchange LLC; Notice of
price increase in the fees charged for comment form (http://www.sec.gov/ Filing and Immediate Effectiveness of
either transactions or data has the rules/sro.shtml); or a Proposed Rule Change To Amend
potential to impair revenues from both • Send an email to rule-comments@ BOX Rule 2020 (Participant Eligibility
products. ‘‘No one disputes that sec.gov. Please include File Number SR– and Registration) To Replace the
competition for order flow is ‘fierce’.’’ NASDAQ–2015–152 on the subject line. Limited Representative—Proprietary
NetCoalition I at 539. The existence of Trader and Limited Principal—
Paper Comments Proprietary Trader Registration
fierce competition for order flow
implies a high degree of price sensitivity • Send paper comments in triplicate Categories and Establish the
on the part of BDs with order flow, since to Secretary, Securities and Exchange Securities Trader and Securities Trader
they may readily reduce costs by Commission, 100 F Street NE., Principal Registration Categories
directing orders toward the lowest-cost Washington, DC 20549–1090.
December 22, 2015.
trading venues. A BD that shifted its All submissions should refer to File Pursuant to Section 19(b)(1) of the
order flow from one platform to another Number SR–NASDAQ–2015–152. This Securities Exchange Act of 1934
in response to order execution price file number should be included on the (‘‘Act’’),1 and Rule 19b–4 thereunder,2
differentials would both reduce the subject line if email is used. To help the notice is hereby given that on December
value of that platform’s market data and Commission process and review your 14, 2015, BOX Options Exchange LLC
reduce its own need to consume data comments more efficiently, please use (the ‘‘Exchange’’) filed with the
from the disfavored platform. If a only one method. The Commission will Securities and Exchange Commission
platform increases its market data fees, post all comments on the Commission’s (‘‘Commission’’) the proposed rule
the change will affect the overall cost of Internet Web site (http://www.sec.gov/ change as described in Items I, II, and
doing business with the platform, and rules/sro.shtml). Copies of the III below, of which Items I and II have
affected BDs will assess whether they submission, all subsequent been prepared by the self-regulatory
can lower their trading costs by amendments, all written statements organization. The Commission is
directing orders elsewhere and thereby with respect to the proposed rule publishing this notice to solicit
lessening the need for the more change that are filed with the comments on the proposed rule from
expensive data. Commission, and all written interested persons.
communications relating to the
C. Self-Regulatory Organization’s proposed rule change between the I. Self-Regulatory Organization’s
Statement on Comments on the Statement of the Terms of Substance of
asabaliauskas on DSK5VPTVN1PROD with NOTICES
Commission and any person, other than
Proposed Rule Change Received From those that may be withheld from the the Proposed Rule Change
Members, Participants, or Others public in accordance with the The Exchange proposes to amend
Written comments were neither provisions of 5 U.S.C. 552, will be BOX Rule 2020 (Participant Eligibility
solicited nor received. available for Web site viewing and and Registration) to replace the Limited
printing in the Commission’s Public
10.6% of non-exchange share volume in Regulation Reference Room, 100 F Street NE., 16 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
NMS stocks that represented 3.8% of overall
volume. 15 15 U.S.C. 78s(b)(3)(a)(ii). [sic] 2 17 CFR 240.19b–4.
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Document Created: 2015-12-29 10:14:59
Document Modified: 2015-12-29 10:14:59
| 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 81387 |
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