81 FR 15600 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Include U.S. Non-Display Policies in the Nasdaq Rule Book

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 56 (March 23, 2016)

[Federal Register Volume 81, Number 56 (Wednesday, March 23, 2016)]
[Notices]
[Pages 15600-15602]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-06454]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77392; File No. SR-NASDAQ-2016-036]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Include U.S. Non-Display Policies in the Nasdaq Rule Book

March 17, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 4, 2016, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to

[[Page 15601]]

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 include U.S. non-display policies in the 
Nasdaq rule book under Nasdaq Rule 7023.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Nasdaq Rule 7023 (NASDAQ Depth-of-
Book Data) by adding IM-7023-1. Nasdaq Rule 7023(a)(2)(B) defines 
``Non-Display Usage'' as any method of accessing depth-of-book \3\ 
``data that involves access or use by a machine or automated device 
without access or use of a display by a natural person or persons.'' 
IM-7023-1 will incorporate guidance regarding U.S. non-display policies 
into the Nasdaq rule book to provide additional detail with regard to 
specific data usages and thereby ensure greater transparency. The 
inclusion of these policies into the Nasdaq rule book will lessen 
ambiguity in this area without necessitating any changes by market 
participants. The Exchange has been working with both the industry and 
customers to ensure that they understand these policies.
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    \3\ See Nasdaq Rule 7023(a)(1), which states that ``Depth-of-
Book'' refers to data feeds containing price quotations at more than 
one price level. These Nasdaq data feeds include Nasdaq Level 2, 
Nasdaq OpenView, and Nasdaq TotalView.
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    Specifically, IM-7023-1 will, in large part, include guidance 
regarding: (i) Devices (or servers) used in the transportation, 
dissemination or aggregation of data and ways to count such devices; 
(ii) examples and details of what constitutes fee-liable Non-Display 
Usage; (iii) examples and details of what Non-Display Usage does not 
include; and (iv) examples of how to report Non-Display Usage.
    IM-7023-1 will apply most specifically to distributors \4\ who 
access Nasdaq U.S information and use it in a non-display manner. IM-
7023-1 will also provide guidance in the form of examples of use cases 
and details on how the Nasdaq U.S. non-display policies should be 
applied and reported.
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    \4\ See Nasdaq Rule 7023(a)(4).
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    The Exchange believes that it will be beneficial to both 
distributors specifically and to market participants more generally to 
incorporate these policies into the Nasdaq rule book through the 
addition of IM-7023-1, as well as adding IM-7026-1, IM-7037-1, IM-7039-
1, IM-7047-1, and IM-7057-1 (collectively, the ``IMs'') that will be 
added following each of their respective rules and each refers back to 
IM-7023-1.
    The result will be to provide distributors additional clarity 
through increased transparency into U.S. non-display policies, 
including reporting requirements pertaining to non-display usage. The 
presentation of this guidance in a more transparent manner will, in 
turn, provide distributors with greater precision in making fee-liable 
Non-Display Usage determinations.
    These policies are a result of the Exchange working with the 
industry, as well as soliciting feedback from customers. Technology 
changes that create any new use cases will result in a separate Nasdaq 
filing. These U.S. non-display policies already are publicly available 
and can be found at https://www.nasdaqtrader.com/Trader.aspx?id=GDP_Ops, but their inclusion into the Exchange's rule 
book provides an additional way for market participants to easily find 
and review such policies.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \5\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act \6\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among members and issuers and other persons using any facility 
or system which the Exchange operates or controls, and is not designed 
to permit unfair discrimination between customers, issuers, brokers, or 
dealers, and is consistent with the Section 6(b)(5) \7\ requirements 
that the rules of an exchange be designed to promote just and equitable 
principles of trade, to prevent fraudulent and manipulative acts and 
practices, to foster cooperation and coordination with persons engaged 
in facilitating transactions in securities, to remove impediments to 
and to perfect the mechanism for a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \8\ Likewise, in 
NetCoalition v. Securities and Exchange Commission \9\ 
(``NetCoalition'') the DC Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\10\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \11\
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    \8\ Securities Exchange Act Release No. 51808 at 37499 (June 9, 
2005) (``Regulation NMS Adopting Release'').
    \9\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \10\ See NetCoalition, at 534.
    \11\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker

[[Page 15602]]

dealers'. . . .'' \12\ Although the court and the SEC were discussing 
the cash equities markets, the Exchange believes that these views apply 
with equal force to the options markets.
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    \12\ Id. at 539 (quoting ArcaBook Order, 73 FR at 74782-74783).
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    The proposed rule change to add IM-7023-1 and the other IMs to the 
rule book will, in large part, include guidance regarding: (i) Devices 
(or servers) used in the transportation, dissemination or aggregation 
of data and ways to count such devices; (ii) examples and details of 
what constitutes fee-liable Non-Display Usage; (iii) examples and 
details of what Non-Display Usage does not include; and (iv) examples 
of how to report Non-Display Usage.
    The Exchange believes that the proposed rule change is reasonable 
because it does not change any of the current practices or any dues, 
fees and other charges among members and issuers and other persons 
using any facility or system which the Exchange operates or controls. 
Rather, it adds transparency for market participants and provides for 
the equitable treatment for distributors through making all such U.S. 
non-display policies easily available and accessible to all 
distributors on an equal basis.
    In sum, the Exchange believes that the proposed rule change will 
provide transparency, clarity, and eliminate potential confusion that 
may exist for distributors and market participants regarding Non-
Display Usage and, thereby, will promote just and equitable principles 
of trade.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose a burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes that the 
proposed rule change will provide market participants guidance and 
greater clarity in making fee-liable Non-Display Usage determinations 
and, as a result, will serve to enhance competition.

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

    No written comments were either solicited or received.

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

    The foregoing change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\13\ 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.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 [email protected]. Please include 
File Number SR-NASDAQ-2016-036 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2016-036. 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-NASDAQ-2016-036, and should 
be submitted on or before April 13, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-06454 Filed 3-22-16; 8:45 am]
BILLING CODE 8011-01-P