80 FR 81601 - Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Regarding NASDAQ Last Sale Plus

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 250 (December 30, 2015)

Page Range		81601-81606
FR Document		2015-32902

Federal Register, Volume 80 Issue 250 (Wednesday, December 30, 2015)

[Federal Register Volume 80, Number 250 (Wednesday, December 30, 2015)]
[Notices]
[Pages 81601-81606]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2015-32902]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76771; File No. SR-BX-2015-082]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Regarding
NASDAQ Last Sale Plus

December 24, 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 14, 2015, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I and
II, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to amend BX Rule 7039 (BX Last Sale and
NASDAQ Last Sale Plus Data Feeds) with language regarding NASDAQ Last
Sale (``NLS'') Plus (``NLS Plus''), a comprehensive data feed offered
by NASDAQ OMX Information LLC \3\ that allows data distributors to
access the three last sale products offered by each of Nasdaq, Inc.'s
three U.S. equity

[[Page 81602]]

markets.\4\ Specifically, this proposal would allow NLS Plus to reflect
cumulative consolidated volume (``consolidated volume'') of real-time
trading activity for Tape A securities and Tape B securities.
Currently, consolidated volume on NLS Plus is real-time only for Tape C
securities and is 15 minute delayed for Tape A securities and Tape B
securities.\5\ The Exchange also proposes to remove two duplicative
terms in the rule.
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\3\ NASDAQ OMX Information LLC is a subsidiary of Nasdaq, Inc.
(formerly, The NASDAQ OMX Group, Inc.), separate and apart from The
NASDAQ Stock Market LLC. The primary purpose of NASDAQ OMX
Information LLC is to combine publicly available data from the three
filed last sale products of the exchange subsidiaries of Nasdaq,
Inc. and from the network processors for the ease and convenience of
market data users and vendors, and ultimately the investing public.
In that role, the function of NASDAQ OMX Information LLC is
analogous to that of other market data vendors, and it has no
competitive advantage over other market data vendors; NASDAQ OMX
Information LLC performs precisely the same functions as Bloomberg,
Thomson Reuters, and other market data vendors.
\4\ The Nasdaq, Inc. U.S. equity markets include the Exchange,
The NASDAQ Stock Market LLC (``NASDAQ''), and NASDAQ OMX PSX
(``PSX'') (together known as the ``Nasdaq, Inc. equity markets'').
PSX and NASDAQ are filing companion proposals similar to this one.
NASDAQ's last sale product, NASDAQ Last Sale, includes last sale
information from the FINRA/NASDAQ Trade Reporting Facility (``FINRA/
NASDAQ TRF''), which is jointly operated by NASDAQ and the Financial
Industry Regulatory Authority (``FINRA''). See Securities Exchange
Act Release No. 71350 (January 17, 2014), 79 FR 4218 (January 24,
2014) (SR-FINRA-2014-002). For proposed rule changes submitted with
respect to NASDAQ Last Sale, BX Last Sale, and PSX Last Sale, see,
e.g., Securities Exchange Act Release Nos. 57965 (June 16, 2008), 73
FR 35178, (June 20, 2008) (SR-NASDAQ-2006-060) (order approving
NASDAQ Last Sale data feeds pilot); 61112 (December 4, 2009), 74 FR
65569, (December 10, 2009) (SR-BX-2009-077) (notice of filing and
immediate effectiveness regarding BX Last Sale data feeds); and
62876 (September 9, 2010), 75 FR 56624, (September 16, 2010) (SR-
Phlx-2010-120) (notice of filing and immediate effectiveness
regarding PSX Last Sale data feeds).
\5\ Tape A and Tape B securities are disseminated pursuant to
the Security Industry Automation Corporation's (``SIAC'')
Consolidated Tape Association Plan/Consolidated Quotation System, or
CTA/CQS (``CTA''). Tape C securities are disseminated pursuant to
the NASDAQ Unlisted Trading Privileges (``UTP'') Plan.
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The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxbx.cchwallstreet.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
The purpose of this proposal is to amend Rule 7039(b).
Specifically, this proposal would allow NLS Plus to reflect
consolidated volume of real-time trading activity for Tape A securities
and Tape B securities. Now, consolidated volume on NLS Plus is real-
time only for Tape C securities. The Exchange also proposes to remove
two duplicative terms in the rule.
NLS Plus, which is reflected in Rule 7039(b),\6\ allows data
distributors to access last sale products offered by each of Nasdaq,
Inc.'s three equity exchanges. Thus, NLS Plus includes all transactions
from all of Nasdaq, Inc.'s equity markets, as well as FINRA/NASDAQ TRF
data that is included in the current NLS product. In addition, NLS Plus
features total cross-market volume information at the issue level,
thereby providing redistribution of consolidated volume information
from the securities information processors (``SIPs'') for Tape A, B,
and C securities, currently real-time for Tape C securities and 15-
minute delayed for Tape A and Tape B securities. Thus, NLS Plus covers
all securities listed on NASDAQ and New York Stock Exchange (``NYSE'')
(now under the Intercontinental Exchange (``ICE'') umbrella), as well
as US ``regional'' exchanges such as NYSE MKT, NYSE Arca, and BATS
(also known as BATS/Direct Edge).
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\6\ See Securities Exchange Act Release Nos. 75709 (August 14,
2015), 80 FR 50671 (August 20, 2015) (SR-BX-2015-047) (notice of
filing and immediate effectiveness regarding NLS Plus on BX); and
75830 (September 3, 2015), 80 FR 54640 (September 10, 2015) (SR-BX-
2015-054) (notice of filing and immediate effectiveness regarding
fees for NLS Plus on BX).
Other exchanges have data feeds that are similar to NLS Plus.
See Securities Exchange Act Release Nos. 73918 (December 23, 2014),
79 FR 78920 (December 31, 2014) (SR-BATS-2014-055; SR-BYX-2014-030;
SR-EDGA-2014-25; SR-EDGX-2014-25) (order approving market data
product called BATS One Feed being offered by four affiliated
exchanges); and 74726 (April 14, 2015), 80 FR 21776 (April 20, 2015)
(SR-BATS-2015-29) (notice of filing and immediate effectiveness to
include consolidated volume in BATS One). See also Securities
Exchange Act Release No. 73553 (November 6, 2014), 79 FR 67491
(November 13, 2014) (SR-NYSE-2014-40) (order granting approval to
establish the NYSE Best Quote & Trades (``BQT'') Data Feed).
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NLS Plus offers data for all U.S. equities via two separate data
channels: The first data channel reflects NASDAQ, BX, and PSX trades
with real-time consolidated volume for NASDAQ-listed securities; and
the second data channel reflects NASDAQ, BX, and PSX trades with
delayed consolidated volume for NYSE, NYSE MKT, NYSE Arca and BATS-
listed securities. The Exchange believes that market data distributors
may use the NLS Plus data feed to feed stock tickers, portfolio
trackers, trade alert programs, time and sale graphs, and other display
systems. The provision of multiple options for investors to receive
market data was a primary goal of the market data amendments adopted by
Regulation NMS. Finally, NLS Plus provides investors with options for
receiving market data that parallel products currently offered by BATS
and BATS Y, EDGA, and EDGX and NYSE equity exchanges.\7\
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\7\ Id.
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Consolidated volume reflects the consolidated volume at the time
that the NLS Plus trade message is generated, and includes the volume
for the issue symbol as reported on the consolidated market data feed.
The consolidated volume is based on the real-time trades reported via
the UTP Trade Data Feed (``UTDF'') and delayed trades reported via CTA.
NASDAQ calculates the real-time trading volume for its trading venues,
and then adds the real-time trading volume for the other (non-NASDAQ)
trading venues as reported via the UTDF data feed. For non-NASDAQ-
listed issues, the consolidated volume is based on trades reported via
SIAC's Consolidated Tape System (``CTS'') for the issue symbol. The
Exchange calculates the real-time trading volume for its trading
venues, and then adds the 15-minute delayed trading volume for the
other (non-NASDAQ) trading venues as reported via the CTS data feed.
NLS Plus is currently codified in BX Rule 7039(b) as follows:

(b) NASDAQ Last Sale Plus (``NLS Plus''). NLS Plus is a
comprehensive data feed produced by NASDAQ OMX Information LLC. It
provides last sale data as well as consolidated volume of NASDAQ
U.S. equity markets (BX, The NASDAQ Stock Market (``NASDAQ''), and
NASDAQ OMX PSX (``PSX'')) and the NASDAQ/FINRA Trade Reporting
Facility (``TRF''). NLS Plus also reflects cumulative volume real-
time trading activity across all U.S. exchanges for Tape C
securities and 15-minute delayed information for Tape A and B
securities. NLS Plus also contains: Trade Price, Trade Size, Sale
Condition Modifiers, Cumulative Consolidated Market Volume, End of
Day Trade Summary, Adjusted Closing Price, IPO Information, and
Bloomberg ID. Additionally, pertinent regulatory information such as
Market Wide Circuit Breaker, Reg SHO Short Sale Price Test
Restricted Indicator, Trading Action, Symbol Directory, Adjusted
Closing Price, and End of Day Trade Summary are

[[Page 81603]]

included. NLS Plus may be received by itself or in combination with
NASDAQ Basic.

This proposal essentially reflects one change to NLS Plus as it
currently exists. Whereas now consolidated volume on NLS Plus is real-
time only for Tape C securities and is 15 minute delayed for Tape A and
Tape B securities, this proposal would allow NLS Plus to reflect
consolidated volume of real-time trading activity as reported to all of
the Tapes. As proposed to be amended, BX Rule 7039(b) would state:

(b) NASDAQ Last Sale Plus (``NLS Plus''). NLS Plus is a
comprehensive data feed produced by NASDAQ OMX Information LLC. It
provides last sale data as well as consolidated volume of NASDAQ
U.S. equity markets (BX, The NASDAQ Stock Market (``NASDAQ''), and
NASDAQ OMX PSX (``PSX'')) and the NASDAQ/FINRA Trade Reporting
Facility (``TRF''). NLS Plus also reflects cumulative volume real-
time trading activity across all U.S. exchanges for Tape C
securities. NLS Plus also contains: Trade Price, Trade Size, Sale
Condition Modifiers, Cumulative Consolidated Market Volume, End of
Day Trade Summary, Adjusted Closing Price, IPO Information, and
Bloomberg ID. Additionally, pertinent regulatory information such as
Market Wide Circuit Breaker, Reg SHO Short Sale Price Test
Restricted Indicator, Trading Action, and Symbol Directory are
included. NLS Plus may be received by itself or in combination with
NASDAQ Basic. Additionally, NLS Plus reflects cumulative volume
real-time trading activity across all U.S. exchanges for Tape A
securities and Tape B securities.

Thus, with this proposal consolidated volume would reflect real-time
trading for all Tape A, Tape B, and Tape C securities. Market
participants have requested that the Exchange provide NLS Plus
consolidated volume that in fact reflects real-time trading for all
Tape A, Tape B, and Tape C securities. The Exchange believes that this
proposal would be of great benefit to market participants, who could
now get similar, real-time data across all U.S. markets that are
reported to Tapes A, B, and C. The Exchange believes that its proposal
allowing real-time volume on the NLS Plus feed is similar to the BATS
One feed, which transmits real-time data.\8\
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\8\ See 73918 at 78921: ``[T]he BATS One Feed . . .
disseminates, on a real-time basis, the aggregate best bid and offer
. . . of all displayed orders for securities traded on the Exchanges
and for which the Exchanges report quotes under the Consolidated
Tape Association . . . Plan or the Nasdaq/UTP Plan.'' See also
http://cdn.batstrading.com/resources/release_notes/2015/SIP-Volume-in-BATS-One.pdf: ``The BATS One Feed provides affordable,
comprehensive and accurate real-time quote and trade data at a
fraction of the cost of competitive products. Retail brokers,
investment banks, media outlets and other firms will have an
opportunity to use the BATS One Feed to build displays that include
real-time SIP Consolidated Volume reflecting the total trading
volume occurring on all market centers for Tape A, B, and C listed
securities [footnote excluded].''
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The Exchange proposes one housekeeping change. This is a technical
change to remove two terms that are indicated twice in Rule 7039(b):
``Adjusted Closing Price'' and ``End of Day Trade Summary''.
With respect to latency, as discussed in previous NLS Plus
filings,\9\ the path for distribution of NLS Plus is not faster than
the path for distribution that would be used by a market data vendor to
distribute an independently created NLS Plus-like product. As such, the
NLS Plus data feed is a data product that a competing market data
vendor could create and sell without being in a disadvantaged position
relative to the Exchange. In recognition that the Exchange is the
source of its own market data and with NASDAQ and PSX being equity
markets owned by Nasdaq, Inc., the Exchange represents that the source
of the market data it would use to create proposed NLS Plus is
available to other vendors. In fact, the overwhelming majority of the
data elements and messages in NLS Plus are exactly the same as, and in
fact are sourced from, NLS, BX Last Sale, and PSX Last Sale, each of
which is available to other market data vendors. The Exchange, NASDAQ,
and PSX will continue to make available these individual underlying
data elements, and thus, the source of the market data that would be
used to create the proposed NLS Plus is the same as what is available
to other market data vendors.\10\
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\9\ See Securities Exchange Act Release No. 75763 (August 26,
2015), 80 FR 52817 (September 1, 2015) (SR-Phlx-2015-72) (notice of
filing and immediate effectiveness).
\10\ In order to create NLS Plus, the system creating and
supporting NLS Plus receives the individual data feeds from each of
the Nasdaq, Inc. equity markets and, in turn, aggregates and
summarizes that data to create NLS Plus and then distribute it to
end users. This is the same process that a competing market data
vendor would undergo should it want to create a market data product
similar to NLS Plus to distribute to its end users. A competing
market data vendor could receive the individual data feeds from each
of the Nasdaq, Inc. equity markets at the same time the system
creating and supporting NLS Plus would for it to create NLS Plus.
Therefore, a competing market data vendor could, as discussed,
obtain the underlying data elements from the Nasdaq, Inc. equity
markets on the same latency basis as the system that would be
performing the aggregation and consolidation of proposed NLS Plus,
and provide a similar product to its customers with the same latency
they could achieve by purchasing NLS Plus from the Exchange. As
such, the Exchange would not have any unfair advantage over
competing market data vendors with respect to NLS Plus. Moreover, in
terms of NLS itself, the Exchange would access the underlying feed
from the same point as would a market data vendor; as discussed, the
Exchange would not have a speed advantage.
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The Exchange believes that its proposal would greatly benefit the
public and investors, and is consistent with the Act.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\11\ in general, and with
Section 6(b)(5) of the Act,\12\ in particular, in that the proposal is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
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\11\ 15 U.S.C. 78f.
\12\ 15 U.S.C. 78f(b)(5).
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The purpose of the proposed rule change is to add language to
section (b) of Rule 7039 regarding real-time data across all U.S.
markets that are reported to Tapes A, B, and C and are offered on NLS
Plus; and to remove two duplicative terms from the rule. The Exchange
believes that the proposal facilitates transactions in securities,
removes impediments to and perfects the mechanism of a free and open
market and a national market system, and, in general, protects
investors and the public interest by making available additional means
by which investors may access real-time volume information about
securities transactions, thereby providing investors with additional
options for accessing information that may help to inform their trading
decisions.
The Exchange notes that the Commission has recently approved a data
product on several exchanges that is similar to NLS Plus and is real-
time, and specifically determined that the approved data product was
consistent with the Act.\13\ NLS Plus simply provides market
participants with an additional option for receiving real-time market
data that has already been the subject of a proposed rule change and
that is available from myriad market data vendors.
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\13\ See Securities Exchange Act Release Nos. 73918 (December
23, 2014), 79 FR 78920 (December 31, 2014) (SR-BATS-2014-055; SR-
BYX-2014-030; SR-EDGA-2014-25; SR-EDGX-2014-25); and 74726 (April
14, 2015), 80 FR 21776 (April 20, 2015) (SR-BATS-2015-29) (notice of
filing and immediate effectiveness to include consolidated volume in
BATS One).
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In adopting Regulation NMS, the Commission granted SROs and broker-

[[Page 81604]]

dealers (``BDs'') increased authority and flexibility to offer new and
unique market data to the public. It was believed that this authority
would expand the amount of data available to consumers, and also spur
innovation and competition for the provision of market data. The
Exchange believes that its NLS Plus market data product is precisely
the sort of market data product that the Commission envisioned when it
adopted Regulation NMS. The Commission concluded that Regulation NMS--
by deregulating the market in proprietary data--would itself further
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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.\14\
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\14\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).

Moreover, data products such as NLS Plus are a means by which
exchanges compete to attract order flow. To the extent that exchanges
are successful in such competition, they earn trading revenues and also
enhance the value of their data products by increasing the amount of
data they are able to provide. Conversely, to the extent that exchanges
are unsuccessful, the inputs needed to add value to data products are
diminished. Accordingly, the need to compete for order flow places
substantial pressure upon exchanges to keep their fees for both
executions and data reasonable.
The Exchange believes that, for the reasons given, the proposal is
consistent with the Act. The Exchange believes that the proposed rule
change is consistent with the provisions of Section 6 of the Act,\15\
in general, and with Section 6(b)(5) of the Act,\16\ in particular, in
that the proposal is designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest.
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\15\ 15 U.S.C. 78f.
\16\ 15 U.S.C. 78f(b)(5).
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The purpose of the proposed rule change is to add language to
section (b) of Rule 7039 regarding real-time data across all U.S.
markets that are reported to Tapes A, B, and C and are offered on NLS
Plus; and to remove two duplicative terms from the rule. The Exchange
believes that the proposal facilitates transactions in securities,
removes impediments to and perfects the mechanism of a free and open
market and a national market system, and, in general, protects
investors and the public interest by making available additional means
by which investors may access real-time information about securities
transactions, thereby providing investors with additional options for
accessing information that may help to inform their trading decisions.
The Exchange notes that the Commission has recently approved a data
product on several exchanges that is similar to NLS Plus and is real-
time, and specifically determined that the approved data product was
consistent with the Act.\17\ NLS Plus simply provides market
participants with an additional option for receiving real-time market
data that has already been the subject of a proposed rule change and
that is available from myriad market data vendors.
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\17\ See Securities Exchange Act Release Nos. 73918 (December
23, 2014), 79 FR 78920 (December 31, 2014) (SR-BATS-2014-055; SR-
BYX-2014-030; SR-EDGA-2014-25; SR-EDGX-2014-25); and 74726 (April
14, 2015), 80 FR 21776 (April 20, 2015) (SR-BATS-2015-29) (notice of
filing and immediate effectiveness to include consolidated volume in
BATS One).
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In adopting Regulation NMS, the Commission granted SROs and broker-
dealers (``BDs'') increased authority and flexibility to offer new and
unique market data to the public. It was believed that this authority
would expand the amount of data available to consumers, and also spur
innovation and competition for the provision of market data. The
Exchange believes that its NLS Plus market data product is precisely
the sort of market data product that the Commission envisioned when it
adopted Regulation NMS. 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.\18\
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\18\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
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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 BDs at
all, it follows that the price at which such data is sold should be set
by the market as well. Moreover, data products such as NLS Plus are a
means by which exchanges compete to attract order flow. To the extent
that exchanges are successful in such competition, they earn trading
revenues and also enhance the value of their data products by
increasing the amount of data they are able to provide. Conversely, to
the extent that exchanges are unsuccessful, the inputs needed to add
value to data products are diminished. Accordingly, the need to compete
for order flow places substantial pressure upon exchanges to keep their
fees for both executions and data reasonable.
The Exchange believes that, for the reasons given, the proposal is
consistent with the Act.

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. As
is true of all NASDAQ's non-core data products, NASDAQ's ability to
offer NLS Plus through NASDAQ OMX Information LLC and price NLS Plus is
constrained by: (1) Competition between exchanges and other trading
platforms that compete with each other in a variety of dimensions; (2)
the existence of inexpensive real-time consolidated data and market-
specific data and free delayed consolidated data; and (3) the inherent
contestability of the market for proprietary last sale data. The
Exchange believes that its proposal is pro-

[[Page 81605]]

competitive in that it will allow the Exchange to distribute
consolidated volume for Tapes A, B, and C on a real-time basis,
similarly to a data product on several exchanges that is similar to NLS
Plus. The Exchange believes that this would be of great benefit to
market participants, who could now get similar, real-time data across
all U.S. markets that are reported to Tapes A, B, and C.
In addition, as discussed, NLS Plus competes directly with a myriad
of similar products and potential products of market data vendors. This
proposal allows offering on NLS Plus, on a real-time basis, U.S. market
data that is reported to Tapes A, B, and C. NLS Plus joins the existing
market for proprietary last sale data products that is currently
competitive and inherently contestable because there is fierce
competition for the inputs necessary to the creation of proprietary
data and strict pricing discipline for the proprietary products
themselves. Numerous exchanges compete with each other for listings,
trades, and market data itself, providing virtually limitless
opportunities for entrepreneurs who wish to produce and distribute
their own market data. This proprietary data is produced by each
individual exchange, as well as other entities, in a vigorously
competitive market. Similarly, with respect to the FINRA/NASDAQ TRF
data that is a component of NLS and NLS Plus, allowing exchanges to
operate TRFs has permitted them to earn revenues by providing
technology and data in support of the non-exchange segment of the
market. This revenue opportunity has also resulted in fierce
competition between the two current TRF operators, with both TRFs
charging extremely low trade reporting fees and rebating the majority
of the revenues they receive from core market data to the parties
reporting trades.
The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's transaction execution
platform and the cost of regulating the exchange to ensure its fair
operation and maintain investor confidence. The total return that a
trading platform earns reflects the revenues it receives from both
products and the joint costs it incurs. Moreover, the operation of the
exchange is characterized by high fixed costs and low marginal costs.
This cost structure is common in content and content distribution
industries such as software, where developing new software typically
requires a large initial investment (and continuing large investments
to upgrade the software), but once the software is developed, the
incremental cost of providing that software to an additional user is
typically small, or even zero (e.g., if the software can be downloaded
over the internet after being purchased).\19\ In NASDAQ's case, it is
costly to build and maintain a trading platform, but the incremental
cost of trading each additional share on an existing platform, or
distributing an additional instance of data, is very low. Market
information and executions are each produced jointly (in the sense that
the activities of trading and placing orders are the source of the
information that is distributed) and are each subject to significant
scale economies. In such cases, marginal cost pricing is not feasible
because if all sales were priced at the margin, NASDAQ would be unable
to defray its platform costs of providing the joint products.
Similarly, data products cannot make use of TRF trade reports without
the raw material of the trade reports themselves, and therefore
necessitate the costs of operating, regulating,\20\ and maintaining a
trade reporting system, costs that must be covered through the fees
charged for use of the facility and sales of associated data.
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\19\ See William J. Baumol and Daniel G. Swanson, ``The New
Economy and Ubiquitous Competitive Price Discrimination: Identifying
Defensible Criteria of Market Power,'' Antitrust Law Journal, Vol.
70, No. 3 (2003).
\20\ It should be noted that the costs of operating the FINRA/
NASDAQ TRF borne by NASDAQ include regulatory charges paid by NASDAQ
to FINRA.
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Competition among trading platforms can be expected to constrain
the aggregate return each platform earns from the sale of its joint
products, but different platforms may choose from a range of possible,
and equally reasonable, pricing strategies as the means of recovering
total costs. The Exchange pays rebates to attract orders [sic], charges
relatively low prices for market information and charges relatively
high prices for accessing posted liquidity [sic]. 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 competitive nature of the market for products such as NLS Plus
is borne out by the performance of the market. In May 2008, the
internet portal Yahoo! began offering its Web site viewers real-time
last sale data (as well as best quote data) provided by BATS. In
response, in June 2008, NASDAQ launched NLS, which was initially
subject to an ``enterprise cap'' of $100,000 for customers receiving
only one of the NLS products, and $150,000 for customers receiving both
products. The majority of NASDAQ's sales were at the capped level. In
early 2009, BATS expanded its offering of free data to include depth-
of-book data. Also in early 2009, NYSE Arca announced the launch of a
competitive last sale product with an enterprise price of $30,000 per
month. In response, NASDAQ combined the enterprise cap for the NLS
products and reduced the cap to $50,000 (i.e., a reduction of $100,000
per month). Although each of these products offers only a specific
subset of data available from the SIPs, NASDAQ believes that the
products are viewed as substitutes for each other and for core last-
sale data, rather than as products that must be obtained in tandem. For
example, while Yahoo! and Google now both disseminate NASDAQ's product,
several other major content providers, including MSN and Morningstar,
use the BATS product. Moreover, further evidence of competition can be
observed in the recently-developed BATS One Feed and BQT feed.\21\
---------------------------------------------------------------------------

\21\ See supra note 6.
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In this environment, a super-competitive 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 v. SEC, 615 F.3d 525 (D.C. Cir.
2010) (``NetCoalition I''). 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

[[Page 81606]]

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. Similarly, increases in the cost of
NLS Plus would impair the willingness of distributors to take a product
for which there are numerous alternatives, impacting NLS Plus data
revenues, the value of NLS Plus as a tool for attracting order flow,
and ultimately, the volume of orders routed to NASDAQ and the value of
its other data products.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) thereunder.\23\
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\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written
notice of its intent to file the proposed rule change, along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission.
---------------------------------------------------------------------------

A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \24\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \25\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay so that
the NLS Plus may as soon as possible offer real-time data across all
U.S. markets that are reported to Tapes A, B, and C, in a manner
similar to other markets.\26\ The Commission believes that waiving the
30-day operative delay is consistent with the protection of investors
and the public interest. Therefore, the Commission hereby waives the
operative delay and designates the proposed rule change operative upon
filing.\27\
---------------------------------------------------------------------------

\24\ 17 CFR 240.19b-4(f)(6).
\25\ 17 CFR 240.19b-4(f)(6)(iii).
\26\ See Securities Exchange Act Release Nos. 73918 (December
23, 2014), 79 FR 78920 (December 31, 2014) (SR-BATS-2014-055; SR-
BYX-2014-030; SR-EDGA-2014-25; SR-EDGX-2014-25); and 74726 (April
14, 2015), 80 FR 21776 (April 20, 2015) (SR-BATS-2015-29).
\27\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------

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.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-BX-2015-082 on the subject line.

Paper Comments

Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BX-2015-082. 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 the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BX-2015-082 and should be
submitted on or before January 20, 2016.
---------------------------------------------------------------------------

\28\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Brent J. Fields,
Secretary.
[FR Doc. 2015-32902 Filed 12-29-15; 8:45 am]
BILLING CODE 8011-01-P

81606 Federal Register / Vol. 80, No. 250 / Wednesday, December 30, 2015 / Notices

costs by directing orders toward the data across all U.S. markets that are change that are filed with the
lowest-cost trading venues. A BD that reported to Tapes A, B, and C, in a Commission, and all written
shifted its order flow from one platform manner similar to other markets.26 The communications relating to the
to another in response to order Commission believes that waiving the proposed rule change between the
execution price differentials would both 30-day operative delay is consistent Commission and any person, other than
reduce the value of that platform’s with the protection of investors and the those that may be withheld from the
market data and reduce its own need to public interest. Therefore, the public in accordance with the
consume data from the disfavored Commission hereby waives the provisions of 5 U.S.C. 552, will be
platform. If a platform increases its operative delay and designates the available for Web site viewing and
market data fees, the change will affect proposed rule change operative upon printing in the Commission’s Public
the overall cost of doing business with filing.27 Reference Room, 100 F Street NE.,
the platform, and affected BDs will At any time within 60 days of the Washington, DC 20549, on official
assess whether they can lower their filing of the proposed rule change, the business days between the hours of
trading costs by directing orders Commission summarily may 10:00 a.m. and 3:00 p.m. Copies of the
elsewhere and thereby lessening the temporarily suspend such rule change if filing also will be available for
need for the more expensive data. it appears to the Commission that such inspection and copying at the principal
Similarly, increases in the cost of NLS action is necessary or appropriate in the office of the Exchange. All comments
Plus would impair the willingness of public interest, for the protection of received will be posted without change;
distributors to take a product for which investors, or otherwise in furtherance of the Commission does not edit personal
there are numerous alternatives, the purposes of the Act. If the identifying information from
impacting NLS Plus data revenues, the Commission takes such action, the submissions. You should submit only
value of NLS Plus as a tool for attracting Commission shall institute proceedings information that you wish to make
order flow, and ultimately, the volume to determine whether the proposed rule available publicly. All submissions
of orders routed to NASDAQ and the should be approved or disapproved. should refer to File Number SR–BX–
value of its other data products. IV. Solicitation of Comments 2015–082 and should be submitted on
or before January 20, 2016.
C. Self-Regulatory Organization’s Interested persons are invited to
Statement on Comments on the For the Commission, by the Division of
submit written data, views, and Trading and Markets, pursuant to delegated
Proposed Rule Change Received From arguments concerning the foregoing, authority.28
Members, Participants, or Others including whether the proposed rule Brent J. Fields,
No written comments were either change is consistent with the Act.
Secretary.
solicited or received. Comments may be submitted by any of
[FR Doc. 2015–32902 Filed 12–29–15; 8:45 am]
the following methods:
III. Date of Effectiveness of the BILLING CODE 8011–01–P
Proposed Rule Change and Timing for Electronic Comments
Commission Action • Use the Commission’s Internet
Because the foregoing proposed rule comment form (http://www.sec.gov/ SECURITIES AND EXCHANGE
change does not: (i) Significantly affect rules/sro.shtml); or COMMISSION
the protection of investors or the public • Send an email to rule-comments@ [Release No. 34–76755; File No. SR–BYX–
interest; (ii) impose any significant sec.gov. Please include File Number SR– 2015–52]
burden on competition; and (iii) become BX–2015–082 on the subject line.
operative for 30 days from the date on Self-Regulatory Organizations; BATS
Paper Comments Y-Exchange, Inc.; Notice of Filing and
which it was filed, or such shorter time
as the Commission may designate, it has • Send paper comments in triplicate Immediate Effectiveness of Proposed
become effective pursuant to Section to Secretary, Securities and Exchange Rule Change Relating to Proprietary
19(b)(3)(A) of the Act 22 and Rule 19b– Commission, 100 F Street NE., Trader and Proprietary Trader Principal
4(f)(6) thereunder.23 Washington, DC 20549–1090. Registration Categories, Securities
A proposed rule change filed All submissions should refer to File Trader and Securities Trader Principal
pursuant to Rule 19b–4(f)(6) under the Number SR–BX–2015–082. This file Registration Categories, and
Act 24 normally does not become number should be included on the Establishing the Series 57 Examination
operative for 30 days after the date of its subject line if email is used. To help the
December 23, 2015.
filing. However, Rule 19b–4(f)(6)(iii) 25 Commission process and review your
comments more efficiently, please use Pursuant to Section 19(b)(1) of the
permits the Commission to designate a
only one method. The Commission will Securities Exchange Act of 1934 (the
shorter time if such action is consistent
post all comments on the Commission’s ‘‘Act’’),1 and Rule 19b–4 thereunder,2
with the protection of investors and the
Internet Web site (http://www.sec.gov/ notice is hereby given that on December
public interest. The Exchange has asked
rules/sro.shtml). Copies of the 22, 2015, BATS Y-Exchange, Inc. (the
the Commission to waive the 30-day
submission, all subsequent ‘‘Exchange’’ or ‘‘BYX’’) filed with the
operative delay so that the NLS Plus
Securities and Exchange Commission
may as soon as possible offer real-time amendments, all written statements
(‘‘Commission’’) the proposed rule
with respect to the proposed rule
22 15
change as described in Items I and II
U.S.C. 78s(b)(3)(A).
23 17 CFR 240.19b–4(f)(6). As required under Rule 26 See Securities Exchange Act Release Nos.
below, which Items have been prepared
mstockstill on DSK4VPTVN1PROD with NOTICES

19b–4(f)(6)(iii), the Exchange provided the 73918 (December 23, 2014), 79 FR 78920 (December by the Exchange. The Exchange has
Commission with written notice of its intent to file 31, 2014) (SR–BATS–2014–055; SR–BYX–2014– designated this proposal as a ‘‘non-
the proposed rule change, along with a brief 030; SR–EDGA–2014–25; SR–EDGX–2014–25); and controversial’’ proposed rule change
description and the text of the proposed rule 74726 (April 14, 2015), 80 FR 21776 (April 20,
change, at least five business days prior to the date 2015) (SR–BATS–2015–29).
pursuant to Section 19(b)(3)(A) of the
of filing of the proposed rule change, or such 27 For purposes only of waiving the 30-day
shorter time as designated by the Commission. 28 17 CFR 200.30–3(a)(12).
operative delay, the Commission has considered the
24 17 CFR 240.19b–4(f)(6). 1 15 U.S.C. 78s(b)(1).
proposed rule’s impact on efficiency, competition,
25 17 CFR 240.19b–4(f)(6)(iii). and capital formation. See 15 U.S.C. 78c(f). 2 17 CFR 240.19b–4.

VerDate Sep<11>2014 17:59 Dec 29, 2015 Jkt 238001 PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 E:\FR\FM\30DEN1.SGM 30DEN1

Document Created: 2015-12-30 03:16:26
Document Modified: 2015-12-30 03:16:26

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 81601