81 FR 72844 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Specialized Quote Feed Port Fees

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 204 (October 21, 2016)

[Federal Register Volume 81, Number 204 (Friday, October 21, 2016)]
[Notices]
[Pages 72844-72847]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-25467]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79105; File No. SR-NASDAQ-2016-133]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Specialized Quote Feed Port Fees

October 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 October 3, 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 solicit comments 
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Chapter XV, entitled ``Options 
Pricing,'' at Section 3, entitled ``NASDAQ Options Market--Access 
Services.'' Chapter XV governs pricing for Exchange members using the 
NASDAQ Options Market LLC (``NOM''), the Exchange's facility for 
executing and routing standardized equity and index options. The 
Exchange proposes to amend Specialized Quote Feed (``SQF'') Port \3\ 
Fees.
---------------------------------------------------------------------------

    \3\ SQF ports are ports that receive inbound quotes at any time 
within that month. The SQF Port allows a NOM Market Maker to access 
information such as execution reports and other relevant data 
through a single feed. For example, this data would show which 
symbols are trading on NOM and the current state of an options 
symbol (i.e., open for trading, trading, halted or closed). Auction 
notifications and execution reports are also available. NOM Market 
Makers rely on data available through the SQF Port to provide them 
the necessary information to perform market making activities.
---------------------------------------------------------------------------

    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 the SQF Port Fees in Chapter XV, 
Section 3 of the NOM Rules, while the Exchange transitions to state-of-
the-art hardware and software architecture to achieve a more efficient 
and more robust infrastructure to support the growing needs of our 
Options Participants (``NOM Refresh''). In connection with the NOM 
Refresh, NOM Market Makers will be required to make changes to

[[Page 72845]]

connect to the new NOM System via their SQF Ports, among other changes. 
The number of SQF Ports required by NOM Market Makers may be reduced, 
since a single connection may be utilized to quote across all symbols. 
The Exchange anticipates that NOM Market Makers will benefit from the 
efficiency of the service that will be available to them as a result of 
the NOM Refresh. While NOM Market Makers will be required to make 
network and other technical changes in order to connect to NOM via SQF, 
the Exchange believes that costs will decline overall as a result of 
the more efficient connectivity offered by the NOM Refresh.
    The Exchange intends to provide NOM Market Makers with new SQF 
ports for connectivity and functionality testing so that NOM Market 
Makers may migrate from the old to the new SQF Ports over a reasonable 
period of time. The Exchange proposes to amend the current SQF Port 
pricing of $750 per port, per month for purposes of the NOM Refresh. 
During the months of October and November 2016 (``NOM Refresh 
Period''), NOM Market Makers will be subject to a Fixed SQF Port Fee. 
The Fixed SQF Port Fee will be the amount that was paid by the NOM 
Market Maker for SQF Ports for the month of August 2016. NOM Market 
Makers will not be assessed an SQF Port Fee for their use of the new 
version of the SQF Ports to connect to the new environment during the 
NOM Refresh Period.\4\ The current SQF Port Fee of $750 will no longer 
be assessed to current NOM Market Makers. Only new SQF Ports would be 
utilized as of December 1, 2016; the current ports will be eliminated 
after the NOM Refresh is complete.
---------------------------------------------------------------------------

    \4\ For example if a NOM Market Maker obtained 1 new SQF Port to 
test during the NOM Refresh Period, the NOM Market Maker would not 
be assessed a new SQF Port Fee for that port, but would only pay the 
Fixed SQF Port Fee during the two months.
---------------------------------------------------------------------------

    If a NOM Participant applies to be a new NOM Market Maker after 
October 3, 2016 and requests an SQF Port during the time period from 
October 3, 2016 through November 30, 2016, the new NOM Market Maker 
would be assessed $750.00 per port, per month.
    The Exchange intends to file a separate rule change to propose new 
SQF Ports Fees for December 2016.
    The Exchange also proposes to delete the OTTO Port Transition Fee 
Waiver. This waiver states that NOM Participants will not be assessed 
an SQF Port Fee in the month in which the NOM Participant has cancelled 
an OTTO Port and transitioned to an SQF Port. In order to receive the 
waiver, the Participant is required to provide the Exchange with 
written notification of the transition. In light of the proposed 
amendments to SQF fees, the Exchange proposes to remove the OTTO Port 
Transition Fee Waive [sic].
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, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    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.'' \7\
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Likewise, in NetCoalition v. Securities and Exchange Commission \8\ 
(``NetCoalition'') the D.C. 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.\9\ 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.'' \10\
---------------------------------------------------------------------------

    \8\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \9\ See NetCoalition, at 534-535.
    \10\ Id. at 537.
---------------------------------------------------------------------------

    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 dealers' . . . . '' \11\ 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.
---------------------------------------------------------------------------

    \11\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
---------------------------------------------------------------------------

    The Exchange believes it is reasonable to allow NOM Market Makers 
to utilize new SQF Ports at no cost during the NOM Refresh Period to 
transition their current SQF Ports to the new SQF Ports that will be 
offered as a result of the NOM Refresh. In order to ease the transition 
from the current ports to new ports, NOM Market Makers would be given 
an extended period to test functionality and connectivity and resolve 
any issues that may arise during the testing phase with the new SQF 
Ports. Therefore, pursuant to this proposal, new SQF Ports will be 
offered at no cost to those NOM Market Makers that currently pay $750 
per SQF Port, per month.
    The Exchange believes it is equitable and not unfairly 
discriminatory to allow NOM Market Makers to utilize new SQF Ports at 
no cost because the Exchange is permitting all current NOM Market 
Makers, who will be paying the SQF Port Fixed Fee, the opportunity to 
utilize the new SQF Ports at no costs.
    The Exchange's proposal to transition to a Fixed SQF Port Fee 
during the NOM Refresh Period (October and November 2016) is reasonable 
because NOM Market Makers will be able to continue to utilize their 
existing SQF Ports during the NOM Refresh Period to continue to conduct 
their business at a fixed cost. The Exchange believes that this will 
allow NOM Market Makers to have flexibility when testing the new SQF 
Ports as they will not be limited in number by cost.
    The Exchange believes that assessing a Fixed SQF Port Fee utilizing 
the August 2016 billing is reasonable because the Exchange desires to 
offer NOM Market Makers who currently have SQF Ports some certainty 
with respect to their costs through the NOM Refresh. The Exchange 
believes that utilizing the month of August 2016 as the Fixed SQF Port 
Fee is reasonable because it should reflect an accurate representation 
of the number of ports typically utilized by that particular NOM Market 
Maker for SQF Ports. The month of August is typically not an active 
trading month and should be representative of the typical pattern of

[[Page 72846]]

usage for the NOM Market Maker. Also, these NOM Market Makers would not 
be assessed any fees to utilize as many new SQF Ports as they require 
to test in the new system.
    The Exchange believes that assessing a Fixed SQF Port Fee utilizing 
the August 2016 billing is equitable and not unfairly discriminatory 
because the Exchange will assess all current users of SQF Ports a Fixed 
SQF Port Fee based on the same criteria.
    The Exchange believes that assessing new NOM Market Makers that do 
not have any SQF Ports and became NOM Market Makers after October 3, 
2016, the current SQF Port fee of $750, per port, per month from 
October 3, 2016 through November 30, 2016 is reasonable because these 
NOM Market Makers would not be required to maintain two sets of ports 
during the transition.\12\ Existing NOM Market Makers will be required 
to maintain old as well as new SQF ports during portions of the 
migration. These NOM Market Makers would be able to commence utilizing 
the new SQF ports for testing. As previously explained, the technology 
refresh will increase the efficiency with which members can connect to 
the NOM System. As a result of the refresh, members would not be 
required to utilize the same number of ports as they do today to 
connect to the NOM System and therefore this should reduce the number 
of SQF ports required and lower costs.
---------------------------------------------------------------------------

    \12\ Currently, all NOM Market Makers are utilizing SQF Ports. 
If a NOM Participant applied to become a NOM Market Maker from 
October 3, 2016 through November 30, 2016, they could still obtain 
the current SQF Ports. After December 1, 2016, only the new SQF 
Ports would be offered to all NOM Market Makers.
---------------------------------------------------------------------------

    The Exchange believes that assessing new NOM Market Makers that do 
not have any SQF Ports and became NOM Market Makers after October 3, 
2016, the current SQF Port fee of $750, per port, per month from 
October 3, 2016 through November 30, 2016 is equitable and not unfairly 
discriminatory because new NOM Market Makers would not be paying a 
Fixed SQF Port Fee for their current SQF Ports. All current NOM Market 
Makers would be paying a Fixed SQF Port Fee to utilize SQF Ports.
    The Exchange's proposal to remove the OTTO Port Transition Fee 
Waiver is reasonable because the Exchange is amending the pricing for 
SQF Ports. Today, the Exchange is assessing $750 to obtain either an 
OTTO or SQF Port. With the NOM Refresh, the Exchange proposed to amend 
pricing for SQF Ports and eliminate the waiver because the pricing for 
SQF Ports is currently changing and will be changed again in November. 
A NOM Market Maker that does not have any SQF Ports and desires to 
obtain an SQF Port would be assessed $750.
    The Exchange's proposal to remove the OTTO Port Transition Fee 
Waiver is equitable and not unfairly discriminatory because the 
Exchange will not offer any Participant the waiver.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    In this instance, the proposed changes to the SQF Port Fee do not 
impose a burden on competition because if the changes proposed herein 
are unattractive to market participants, it is likely that the Exchange 
will lose market share as a result. Accordingly, the Exchange does not 
believe that the proposed changes will impair the ability of members or 
competing order execution venues to maintain their competitive standing 
in the financial markets.
    In terms of intra-market competition, offering NOM Market Makers 
the opportunity to utilize certain SQF Ports during the NOM Refresh 
Period at no cost does not impose an undue burden on competition. NOM 
Market Makers would be able to readily test ports at no additional cost 
and without limit. The Exchange is permitting all current NOM Market 
Makers, who will be paying the SQF Port Fixed Fee, the opportunity to 
utilize the new SQF Ports at no costs.
    The assessment of a Fixed SQF Port Fee does not impose an undue 
burden on competition because utilizing the month of August 2016 as the 
Fixed SQF Port Fee is an accurate representation of the number of ports 
typically utilized by that particular NOM Market Maker for SQF Ports. 
The month of August is typically not an active trading month and should 
be representative of the typical pattern of usage for the NOM Market 
Maker. All current users of SQF Ports will be assessed a Fixed SQF Port 
Fee based on the same criteria.
    The Exchange believes that assessing new NOM Market Makers that do 
not have any SQF Ports and become NOM Market Makers after October 3, 
2016, the current SQF Port fee of $750, per port, per month from 
October 3, 2016 through November 30, 2016 does not impose an undue 
burden on competition because new NOM Market Makers would not be paying 
a Fixed SQF Port Fee for their current SQF Ports. All current NOM 
Market Makers would be paying a Fixed SQF Port Fee to utilize SQF 
Ports.
    The Exchange's proposal to delete the OTTO Port Transition Fee does 
not impose an undue burden on competition because the Exchange will not 
offer any Participant the waiver.

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\13\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

[[Page 72847]]

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-2016-133 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-2016-133. 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-2016-133 and should 
be submitted on or before November 14, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-25467 Filed 10-20-16; 8:45 am]
 BILLING CODE 8011-01-P