81 FR 78890 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Institute a New Fee for the Distribution of Data
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 217 (November 9, 2016)
Federal Register Volume 81, Issue 217 (November 9, 2016)
| Page Range | 78890-78893 | |
| FR Document | 2016-27022 |
[Federal Register Volume 81, Number 217 (Wednesday, November 9, 2016)] [Notices] [Pages 78890-78893] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-27022] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79228; File No. SR-NASDAQ-2016-144] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Institute a New Fee for the Distribution of Data November 3, 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 20, 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 Rule 7047 of the Exchange's transaction fees to institute a new fee for the distribution of data derived from Nasdaq Basic on third-party Web sites or other electronic platforms, as described further below. The changes are being filed for immediate effectiveness and will become operative on October 20, 2016. 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 purpose of the proposed rule change is to introduce a new pricing model to keep pace with an evolving practice. Distributors have increasingly used Nasdaq Basic to make ``Derived Data'' available on a Web site or other electronic platform that is branded by a third party, or co-branded by a Distributor and a third party, and available to external subscribers. ``Derived Data'' is pricing data or other information that is created in whole or in part from Nasdaq information, but which cannot be reverse engineered to recreate Nasdaq information or be used to create other data that is recognizable as a reasonable substitute for Nasdaq information. The type of Derived Data subject to the proposed fee is taken from Nasdaq Basic, a proprietary data product that provides best bid and offer and last sale information for all U.S. exchange-listed stocks using data from the Nasdaq Market Center and the FINRA/Nasdaq Trade Reporting Facility. The Derived Data subject to the proposed fee is made available to subscribers on a ``Hosted Display Solution'': A product, solution or capability provided by a Distributor in which the Distributor makes the Derived Data available on a platform that reflects either a brand of a third party, or is co-branded with a third party and a Distributor, and available for use by external subscribers of the third party or the Distributor. The Distributor maintains control of the application's data, entitlements and display. The Hosted Display Solution may take a number of forms. For example, the Distributor may host a ``Widget,'' such as an iframe or applet, in which the Hosted Display Solution is a part or a subset of a Web site or platform. The Hosted Display Solution may also take the form of a ``White Label,'' in which the Distributor hosts or maintains the Web site or platform on behalf of a third-party entity. Although the specific forms may vary, Hosted Display Solutions allow Distributors to make Derived Data available on a platform that is branded with a third-party brand, or co-branded with a third party and a Distributor, for the use of external subscribers. Derived Data on a Hosted Display Solution may be used for a number of different purposes, to be determined by the Distributor. Possible uses include the display of information or data, or the creation of derivative instruments, such as swaps,\3\ swaptions,\4\ binary options,\5\ or contracts for difference.\6\ The specific use of the data will be determined by the Distributor, as the proposed fee will not depend on the purpose for placing the Derived Data on a Hosted Display Solution. --------------------------------------------------------------------------- \3\ A swap is a derivative contract in which two parties agree to exchange financial instruments. \4\ A swaption, or swap option, is an option to enter into a swap at a specified time. \5\ A binary option is a type of contract in which the return depends on the outcome of a true/false proposition. If the proposition is true, the option purchaser would be entitled to predetermined compensation; otherwise, the purchaser would receive no compensation. \6\ A contract for difference is an agreement to exchange the difference between the current value of an asset and its future value. If the price increases, the seller pays the buyer the amount of the increase. If the price decreases, the buyer pays the seller the amount of the decrease. --------------------------------------------------------------------------- The Exchange proposes a flat fee of $400 per month per Hosted Display Solution for each Distributor that makes Derived Data available on a Hosted Display Solution. The monthly fee will apply whenever such a Hosted Display Solution is employed at any time during the month. This fee will be in addition to the distributor fee owed for the distribution of Nasdaq Basic under Rule 7047(c)(1), as well as any fee that may be owed under Rule 7047(c)(2). Any Distributor that distributes Nasdaq data that is not Derived Data--i.e., Nasdaq Basic for Nasdaq, Nasdaq Basic for NYSE, or Nasdaq Basic for NYSE Market--on a Hosted Display Solution would be liable for any applicable per- subscriber or per-query fees set forth in [[Page 78891]] Rules 7047(b)(1)-(3), as well as the distribution fee under 7047(c)(1). The fee is entirely optional, in that it applies only to Distributors that opt to use Derived Data from Nasdaq Basic to create a Hosted Display Solution, as described herein. It does not impact or raise the cost of any other Nasdaq product, nor does it increase the cost of Nasdaq Basic, except in instances where Derived Data is made available on a Hosted Display Solution. Because ``Derived Data'' will be a defined term under the proposal, the Exchange also proposes replacing the phrase ``data derived'' in Rule 7047(c)(2) with the term ``Derived Data.'' 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\7\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\8\ 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 its facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \7\ 15 U.S.C. 78f(b). \8\ 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.'' \9\ --------------------------------------------------------------------------- \9\ 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 \10\ (``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.\11\ 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.'' \12\ --------------------------------------------------------------------------- \10\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \11\ See NetCoalition at 534-535; see also Sec. Indus. Fin. Mkts. Ass'n (SIFMA), Initial Decision Release No. 1015, 2016 SEC LEXIS 2278 (ALJ June 1, 2016) (applying a market-based approach to the Regulation NMS analysis). \12\ NetCoalition 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'. . . .'' \13\ --------------------------------------------------------------------------- \13\ 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 that the introduction of a fee for the use of Derived Data on Hosted Display Solutions is reasonable because: (i) All proprietary data fees are constrained by the Exchange's need to compete for order flow; (ii) proprietary data fees are subject to market competition from substitute products; and (iii) the proposed fee will be constrained by downstream competition among Distributors and third- party firms. The Exchange does not currently have a specific fee for making Derived Data available on Hosted Display Solutions for external subscribers; the proposed fee will be $400 per month for any use of a Hosted Display Solution to display Derived Data at any time during that month. A Distributor who makes Derived Data available on a Hosted Display Solution would not be subject to the per-Subscriber or per- query user fees set forth in Rules 7047(b)(1)-(3) because Derived Data, by definition, cannot be reverse engineered to recreate the data that is fee-liable under those rules. This is in contrast to any firm that distributes Nasdaq data that is not Derived Data on a Hosted Display Solution, which would be subject to such user fees. The Exchange believes that this fee is an equitable allocation and is not unfairly discriminatory because the Exchange will apply the same fee to all similarly situated distributors. 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. The proposed fee in this case applies to data derived from Nasdaq Basic, which is subject to competition from the NYSE, BATS, and other exchanges that offer similar products. In sum, 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. Market forces constrain the proposed fee in three specific respects. First, all fees related to Nasdaq Basic are constrained by competition among exchanges and other entities in attracting order flow. Firms make decisions regarding Nasdaq Basic and other proprietary data based on the total cost of interacting with the Exchange, and order flow would be harmed by the supracompetitive pricing of any proprietary data product. Second, the price of Nasdaq Basic is constrained by the existence of multiple substitutes that are offered, or may be offered, by entities that offer proprietary or non- proprietary data. Third, the proposed fee will be constrained by competition among Distributors and third parties for subscribers. Competition for Order Flow Fees related to Nasdaq Basic are constrained by competition among exchanges and other entities seeking to attract order flow. Order flow is the ``life blood'' of the exchanges. Broker-dealers currently have numerous alternative venues for their order flow, including thirteen self-regulatory organization (``SRO'') markets, as well as internalizing broker-dealers (``BDs'') and various forms of alternative trading [[Page 78892]] 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. The existence of fierce competition for order flow implies a high degree of price sensitivity on the part of BDs, which may readily reduce costs by directing orders toward the lowest-cost trading venues. The level of competition and contestability in the market for order flow is demonstrated by the numerous 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. For a variety of reasons, competition from new entrants, especially for order execution, has increased dramatically over the last decade. Each SRO, TRF, ATS, and BD that competes for order flow is permitted to produce proprietary data products. Many currently do or have announced plans to do so, including NYSE, NYSE Amex, NYSE Arca, and BATS. This is because Regulation NMS deregulated the market for proprietary data. While BDs had 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. Order routers and market data vendors can facilitate production of proprietary data products for single or multiple BDs. The potential sources of proprietary products are virtually limitless. The markets for order flow and proprietary data are inextricably linked: A trading platform cannot generate market information unless it receives trade orders. As a result, the competition for order flow constrains the prices that platforms can charge for proprietary data products. Firms make decisions on how much and what types of data to consume based on the total cost of interacting with Nasdaq and other exchanges. Data fees are but one factor in a total platform analysis. If the cost of the product exceeds its expected value, the broker- dealer will choose not to buy it. A supracompetitive increase in the fees charged for either transactions or proprietary data has the potential to impair revenues from both products. In this manner, the competition for order flow will constrain prices for proprietary data products, including charges relating to Nasdaq Basic. Substitute Products The price of data derived from Nasdaq Basic is constrained by the existence of multiple substitutes offered by numerous entities, including both proprietary data offered by other SROs or other entities, and non-proprietary data disseminated by Nasdaq in its capacity as a Securities Information Processor (``SIP'') for the national market system plan governing securities listed on Nasdaq as a national securities exchange (``Nasdaq UTP Plan''). The information provided through Nasdaq Basic is a subset of the best bid and offer and last sale data provided by the SIP. The ``core'' data disseminated by the SIP consists of best-price quotations and last sale information from all markets in U.S.-listed equities; Nasdaq Basic provides best bid and offer and last sale information for all U.S. exchange-listed stocks based on trade reports from the Nasdaq Market Center and the FINRA/Nasdaq Trade Reporting Facility. Many customers that purchase SIP data do not also purchase Nasdaq Basic because they are substitutes; moreover, in cases where customers buy both products, they may shift the extent to which they purchase one or the other based on price changes. The SIP constrains the price of Nasdaq Basic because no purchaser would pay an excessive price for Nasdaq Basic when substitute data is also available from the SIP. Proprietary data sold by other exchanges also constrain the price of Nasdaq Basic. NYSE and BATS, like Nasdaq, sell proprietary non-core data that include best bid and offer and last sale data. Customers do not typically purchase proprietary best bid and offer and last sale data from multiple exchanges. Other proprietary data products constrain the price of Nasdaq Basic because no customer would pay an excessive price for Nasdaq Basic when substitute data is available from other proprietary sources. The effectiveness of competition in constraining prices for Nasdaq Basic is demonstrated by the fact that the fee to distribute data derived from Nasdaq Basic to non-professional subscribers has remained unchanged since July 29, 2011.\14\ --------------------------------------------------------------------------- \14\ See Securities Exchange Act Release No. 64994 (July 29, 2011), 76 FR 47621 (August 5, 2011) (SR-NASDAQ-2011-091). --------------------------------------------------------------------------- Competitive Market Structure The fee for making Derived Data available on a Hosted Display Solution is also constrained by competition among Distributors and third-party firms placing their brand names on Hosted Display Solutions. Distributors must compete for customers. Firms placing their brand on Hosted Display Solutions must compete for subscribers. If the price of Hosted Display Solutions were to exceed competitive levels, thereby placing Distributors and third party firms at a competitive disadvantage relative to firms that did not purchase Nasdaq products, Distributors and the third party firms would take their business elsewhere. There are no legal, regulatory, or other requirements restricting their ability to do so. In summary, market forces constrain the proposed fee through competition for order flow, competition from substitute data products, and in the competition among Distributors and third party for subscribers. For these reasons, the Exchange has provided a substantial basis demonstrating that the fee is equitable, fair, reasonable, and not unreasonably discriminatory, and therefore consistent with and in furtherance of the purposes of the Exchange Act. 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.\15\ --------------------------------------------------------------------------- \15\ 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 [[Page 78893]] 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 [email protected]. Please include File Number SR-NASDAQ-2016-144 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-2016-144. 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-2016-144 and should be submitted on or before November 30, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\16\ --------------------------------------------------------------------------- \16\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-27022 Filed 11-8-16; 8:45 am] BILLING CODE 8011-01-P
![78890 Federal Register / Vol. 81, No. 217 / Wednesday, November 9, 2016 / Notices
available for Web site viewing and The changes are being filed for external subscribers of the third party or
printing in the Commission’s Public immediate effectiveness and will the Distributor. The Distributor
Reference Room, 100 F Street NE., become operative on October 20, 2016. maintains control of the application’s
Washington, DC 20549 on official The text of the proposed rule change data, entitlements and display.
business days between the hours of is available on the Exchange’s Web site The Hosted Display Solution may take
10:00 a.m. and 3:00 p.m. Copies of the at http://nasdaq.cchwallstreet.com, at a number of forms. For example, the
filing also will be available for the principal office of the Exchange, and Distributor may host a ‘‘Widget,’’ such
inspection and copying at the principal at the Commission’s Public Reference as an iframe or applet, in which the
office of DTC and on DTCC’s Web site Room. Hosted Display Solution is a part or a
(http://dtcc.com/legal/sec-rule- subset of a Web site or platform. The
II. Self-Regulatory Organization’s
filings.aspx). All comments received Hosted Display Solution may also take
Statement of the Purpose of, and
will be posted without change; the the form of a ‘‘White Label,’’ in which
Statutory Basis for, the Proposed Rule
Commission does not edit personal the Distributor hosts or maintains the
Change
identifying information from Web site or platform on behalf of a
submissions. You should submit only In its filing with the Commission, the third-party entity. Although the specific
information that you wish to make Exchange included statements forms may vary, Hosted Display
available publicly. All submissions concerning the purpose of and basis for Solutions allow Distributors to make
should refer to File Number SR–DTC– the proposed rule change and discussed Derived Data available on a platform
2016–802 and should be submitted on any comments it received on the that is branded with a third-party brand,
or before November 25, 2016. proposed rule change. The text of these or co-branded with a third party and a
By the Commission.
statements may be examined at the Distributor, for the use of external
places specified in Item IV below. The subscribers.
Brent J. Fields,
Exchange has prepared summaries, set Derived Data on a Hosted Display
Secretary. forth in sections A, B, and C below, of Solution may be used for a number of
[FR Doc. 2016–27030 Filed 11–8–16; 8:45 am] the most significant aspects of such different purposes, to be determined by
BILLING CODE 8011–01–P statements. the Distributor. Possible uses include
A. Self-Regulatory Organization’s the display of information or data, or the
Statement of the Purpose of, and creation of derivative instruments, such
SECURITIES AND EXCHANGE
Statutory Basis for, the Proposed Rule as swaps,3 swaptions,4 binary options,5
COMMISSION
Change or contracts for difference.6 The specific
[Release No. 34–79228; File No. SR– use of the data will be determined by
NASDAQ–2016–144] 1. Purpose the Distributor, as the proposed fee will
The purpose of the proposed rule not depend on the purpose for placing
Self-Regulatory Organizations; The the Derived Data on a Hosted Display
change is to introduce a new pricing
NASDAQ Stock Market LLC; Notice of Solution.
model to keep pace with an evolving
Filing and Immediate Effectiveness of The Exchange proposes a flat fee of
practice. Distributors have increasingly
Proposed Rule Change To Institute a $400 per month per Hosted Display
used Nasdaq Basic to make ‘‘Derived
New Fee for the Distribution of Data Solution for each Distributor that makes
Data’’ available on a Web site or other
November 3, 2016. electronic platform that is branded by a Derived Data available on a Hosted
third party, or co-branded by a Display Solution. The monthly fee will
Pursuant to Section 19(b)(1) of the
Distributor and a third party, and apply whenever such a Hosted Display
Securities Exchange Act of 1934
available to external subscribers. Solution is employed at any time during
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
‘‘Derived Data’’ is pricing data or the month. This fee will be in addition
notice is hereby given that on October
other information that is created in to the distributor fee owed for the
20, 2016, The NASDAQ Stock Market
whole or in part from Nasdaq distribution of Nasdaq Basic under Rule
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed
information, but which cannot be 7047(c)(1), as well as any fee that may
with the Securities and Exchange
reverse engineered to recreate Nasdaq be owed under Rule 7047(c)(2). Any
Commission (‘‘SEC’’ or ‘‘Commission’’)
information or be used to create other Distributor that distributes Nasdaq data
the proposed rule change as described
data that is recognizable as a reasonable that is not Derived Data—i.e., Nasdaq
in Items I, II, and III, below, which Items
substitute for Nasdaq information. The Basic for Nasdaq, Nasdaq Basic for
have been prepared by the Exchange.
type of Derived Data subject to the NYSE, or Nasdaq Basic for NYSE
The Commission is publishing this
proposed fee is taken from Nasdaq Market—on a Hosted Display Solution
notice to solicit comments on the
Basic, a proprietary data product that would be liable for any applicable per-
proposed rule change from interested
provides best bid and offer and last sale subscriber or per-query fees set forth in
persons.
information for all U.S. exchange-listed
I. Self-Regulatory Organization’s stocks using data from the Nasdaq
3 A swap is a derivative contract in which two
Statement of the Terms of Substance of parties agree to exchange financial instruments.
Market Center and the FINRA/Nasdaq 4 A swaption, or swap option, is an option to
the Proposed Rule Change Trade Reporting Facility. enter into a swap at a specified time.
The Exchange proposes to amend The Derived Data subject to the 5 A binary option is a type of contract in which
Rule 7047 of the Exchange’s transaction proposed fee is made available to the return depends on the outcome of a true/false
subscribers on a ‘‘Hosted Display proposition. If the proposition is true, the option
sradovich on DSK3GMQ082PROD with NOTICES
fees to institute a new fee for the purchaser would be entitled to predetermined
distribution of data derived from Solution’’: A product, solution or compensation; otherwise, the purchaser would
Nasdaq Basic on third-party Web sites capability provided by a Distributor in receive no compensation.
or other electronic platforms, as which the Distributor makes the Derived 6 A contract for difference is an agreement to
Data available on a platform that reflects exchange the difference between the current value
described further below. of an asset and its future value. If the price
either a brand of a third party, or is co- increases, the seller pays the buyer the amount of
1 15 U.S.C. 78s(b)(1). branded with a third party and a the increase. If the price decreases, the buyer pays
2 17 CFR 240.19b–4. Distributor, and available for use by the seller the amount of the decrease.
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![Federal Register / Vol. 81, No. 217 / Wednesday, November 9, 2016 / Notices 78891
Rules 7047(b)(1)–(3), as well as the play a role in determining the market competitive market in which market
distribution fee under 7047(c)(1). data . . . to be made available to participants can readily favor competing
The fee is entirely optional, in that it investors and at what cost.’’ 12 venues if they deem fee levels at a
applies only to Distributors that opt to Further, ‘‘[n]o one disputes that particular venue to be excessive, or
use Derived Data from Nasdaq Basic to competition for order flow is ‘fierce.’ rebate opportunities available at other
create a Hosted Display Solution, as . . . As the SEC explained, ‘[i]n the U.S. venues to be more favorable. In such an
described herein. It does not impact or national market system, buyers and environment, the Exchange must
raise the cost of any other Nasdaq sellers of securities, and the broker- continually adjust its fees to remain
product, nor does it increase the cost of dealers that act as their order-routing competitive with other exchanges and
Nasdaq Basic, except in instances where agents, have a wide range of choices of with alternative trading systems that
Derived Data is made available on a where to route orders for execution’; have been exempted from compliance
Hosted Display Solution. [and] ‘no exchange can afford to take its with the statutory standards applicable
Because ‘‘Derived Data’’ will be a market share percentages for granted’ to exchanges. Because competitors are
defined term under the proposal, the because ‘no exchange possesses a free to modify their own fees in
Exchange also proposes replacing the monopoly, regulatory or otherwise, in response, and because market
phrase ‘‘data derived’’ in Rule 7047(c)(2) the execution of order flow from broker participants may readily adjust their
with the term ‘‘Derived Data.’’ dealers’. . . .’’ 13 order routing practices, the Exchange
The Exchange believes that the believes that the degree to which fee
2. Statutory Basis
introduction of a fee for the use of changes in this market may impose any
The Exchange believes that its Derived Data on Hosted Display burden on competition is extremely
proposal is consistent with Section 6(b) Solutions is reasonable because: (i) All limited.
of the Act,7 in general, and furthers the proprietary data fees are constrained by The proposed fee in this case applies
objectives of Sections 6(b)(4) and 6(b)(5) the Exchange’s need to compete for to data derived from Nasdaq Basic,
of the Act,8 in particular, in that it order flow; (ii) proprietary data fees are which is subject to competition from the
provides for the equitable allocation of subject to market competition from NYSE, BATS, and other exchanges that
reasonable dues, fees and other charges substitute products; and (iii) the offer similar products. In sum, if the
among members and issuers and other proposed fee will be constrained by changes proposed herein are
persons using its facility, and is not downstream competition among unattractive to market participants, it is
designed to permit unfair Distributors and third-party firms. The likely that the Exchange will lose
discrimination between customers, Exchange does not currently have a market share as a result. Accordingly,
issuers, brokers, or dealers. specific fee for making Derived Data the Exchange does not believe that the
The Commission and the courts have available on Hosted Display Solutions proposed changes will impair the ability
repeatedly expressed their preference for external subscribers; the proposed of members or competing order
for competition over regulatory fee will be $400 per month for any use execution venues to maintain their
intervention in determining prices, of a Hosted Display Solution to display competitive standing in the financial
products, and services in the securities Derived Data at any time during that markets.
markets. In Regulation NMS, while month. A Distributor who makes Market forces constrain the proposed
adopting a series of steps to improve the Derived Data available on a Hosted fee in three specific respects. First, all
current market model, the Commission Display Solution would not be subject fees related to Nasdaq Basic are
highlighted the importance of market to the per-Subscriber or per-query user constrained by competition among
forces in determining prices and SRO fees set forth in Rules 7047(b)(1)–(3) exchanges and other entities in
revenues and, also, recognized that because Derived Data, by definition, attracting order flow. Firms make
current regulation of the market system cannot be reverse engineered to recreate decisions regarding Nasdaq Basic and
‘‘has been remarkably successful in the data that is fee-liable under those other proprietary data based on the total
promoting market competition in its rules. This is in contrast to any firm that cost of interacting with the Exchange,
broader forms that are most important to distributes Nasdaq data that is not and order flow would be harmed by the
investors and listed companies.’’ 9 Derived Data on a Hosted Display supracompetitive pricing of any
Likewise, in NetCoalition v. Securities Solution, which would be subject to proprietary data product. Second, the
and Exchange Commission 10 such user fees. The Exchange believes price of Nasdaq Basic is constrained by
(‘‘NetCoalition’’) the D.C. Circuit upheld that this fee is an equitable allocation the existence of multiple substitutes that
the Commission’s use of a market-based and is not unfairly discriminatory are offered, or may be offered, by
approach in evaluating the fairness of because the Exchange will apply the entities that offer proprietary or non-
market data fees against a challenge same fee to all similarly situated proprietary data. Third, the proposed
claiming that Congress mandated a cost- distributors. fee will be constrained by competition
based approach.11 As the court among Distributors and third parties for
emphasized, the Commission ‘‘intended B. Self-Regulatory Organization’s
Statement on Burden on Competition subscribers.
in Regulation NMS that ‘market forces,
rather than regulatory requirements’ The Exchange does not believe that Competition for Order Flow
the proposed rule change will impose Fees related to Nasdaq Basic are
7 15 U.S.C. 78f(b). any burden on competition not constrained by competition among
8 15 U.S.C. 78f(b)(4) and (5). necessary or appropriate in furtherance exchanges and other entities seeking to
9 Securities Exchange Act Release No. 51808
of the purposes of the Act. In terms of attract order flow. Order flow is the ‘‘life
sradovich on DSK3GMQ082PROD with NOTICES
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’). inter-market competition, the Exchange blood’’ of the exchanges. Broker-dealers
10 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. notes that it operates in a highly currently have numerous alternative
2010). venues for their order flow, including
11 See NetCoalition at 534–535; see also Sec. 12 NetCoalitionat 537. thirteen self-regulatory organization
Indus. Fin. Mkts. Ass’n (SIFMA), Initial Decision 13 Id.
at 539 (quoting Securities Exchange Act
Release No. 1015, 2016 SEC LEXIS 2278 (ALJ June Release No. 59039 (December 2, 2008), 73 FR
(‘‘SRO’’) markets, as well as
1, 2016) (applying a market-based approach to the 74770, 74782–83 (December 9, 2008) (SR– internalizing broker-dealers (‘‘BDs’’) and
Regulation NMS analysis). NYSEArca–2006–21)). various forms of alternative trading
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![Federal Register / Vol. 81, No. 217 / Wednesday, November 9, 2016 / Notices 78893
change is consistent with the Act. SURFACE TRANSPORTATION BOARD operator. (Pet. 2.) 5 SMART, the public
Comments may be submitted by any of agency created in 2003 and authorized
the following methods: [Docket No. FD 36077; Docket No. NOR to provide commuter passenger service
42148]
over portions of the Line, holds the
Electronic Comments
North Coast Railroad Authority and exclusive right to operate passenger
• Use the Commission’s Internet Northwestern Pacific Railroad service, including the right to dispatch
comment form (http://www.sec.gov/ Company—Petition for Declaratory over portions of the Line. (Pet. 2–3.) In
rules/sro.shtml); or Order; North Coast Railroad Authority 2004, SMART obtained Board authority
and Northwestern Pacific Railroad to acquire the real estate and rail
• Send an email to rule-comments@ facilities and trackage to the Healdsburg
sec.gov. Please include File Number SR– Company v. Sonoma-Marin Area Rail
Transit District and Lombard segments of the Line.
NASDAQ–2016–144 on the subject line. Sonoma-Marin Area Rail Transit Dist.,
Paper Comments On October 4, 2016,1 North Coast FD 34400, slip op. at 1–2.6 NCRA owns
Railroad Authority (NCRA) and the Willits Segment. (Pet. 2–3.) NWPCo
• Send paper comments in triplicate Northwest Pacific Railroad Company operates on the Healdsburg and
to Brent J. Fields, Secretary, Securities (NWPCo) (together Petitioners) 2 filed a Lombard segments; SMART currently
and Exchange Commission, 100 F Street petition requesting an emergency has plans to operate on the Healdsburg
NE., Washington, DC 20549–1090. declaratory order and preliminary Segment. (Pet. 3.)
injunctive relief to prevent Sonoma- In 2011, NCRA and SMART entered
All submissions should refer to File
Marin Area Rail Transit District into an Operating and Coordination
Number SR–NASDAQ–2016–144. This
(SMART) from interfering with freight Agreement (Agreement) for the Line.
file number should be included on the
rail operations over portions of the (Pet., Williams Decl. para. 1.) The
subject line if email is used. To help the
Northwestern Pacific Railroad Line.3 Agreement gives SMART dispatching
Commission process and review your
(Pet. 2, 4–5, 10–11.) Board staff held two authority over the Lombard and
comments more efficiently, please use
conference calls with representatives of Healdsburg segments and a portion of
only one method. The Commission will
both parties on October 6 and October the Willits Segment. (Pet., Williams
post all comments on the Commission’s
11, 2016, to clarify the facts of the Decl., Ex. A at 4.) It defines dispatching
Internet Web site (http://www.sec.gov/
dispute over Petitioners’ request for as having the same meaning as in 49
rules/sro.shtml). Copies of the
preliminary injunctive relief. On CFR 241.5(1)(i). (Pet., Williams Decl.,
submission, all subsequent
October 21, 2016, the Board issued an Ex. A at Ex. 1 at i.) The Agreement also
amendments, all written statements
order denying the preliminary contains a provision addressing
with respect to the proposed rule
injunction. See N. Coast R.R. Auth. v. hazardous materials, which states in
change that are filed with the
Sonoma-Marin Area Rail Transit Dist. part:
Commission, and all written
(October 21 Decision), NOR 42148 (STB Neither Party shall use, generate, transport,
communications relating to the
served Oct. 21, 2016) (with handle or store Hardous Materials on the
proposed rule change between the
Commissioner Begeman partially Subject Segments other than as may be used
Commission and any person, other than by the Party in its operations in the normal
concurring).
those that may be withheld from the course of business or, in the case of NCRA,
public in accordance with the Background as may be transported by NCRA in its
provisions of 5 U.S.C. 552, will be The Line consists of three segments: capacity as a common carrier by rail and in
available for Web site viewing and The Willits Segment, the Healdsburg all events in accordance with Applicable
printing in the Commission’s Public Segment, and the Lombard Segment.
Laws.
Reference Room, 100 F Street NE., (Pet. 2–3.) NCRA, the public agency (Pet., Williams Decl., Ex. A at 11.) The
Washington, DC 20549, on official created to preserve freight operations on Agreement defines ‘‘Industrial Track’’ as
business days between the hours of the Line, holds the exclusive right to ‘‘all existing or later built track on the
10:00 a.m. and 3:00 p.m. Copies of the conduct freight operations over the Healdsburg and Lombard Segments
filing also will be available for Line. (Pet. 3.) 4 NWPCo is the freight used solely for NCRA Freight Service’’
inspection and copying at the principal and provides that ‘‘NCRA, at its own
office of the Exchange. All comments 1 These proceedings are not consolidated. A expense, shall have the exclusive right
received will be posted without change; single decision is being issued for administrative to manage’’ such track. (Id. at 3.)
the Commission does not edit personal purposes. Finally, the Agreement contains a
2 The initial pleading in this proceeding was
identifying information from provision subjecting disputes to
styled as ‘‘Finance Docket No. NOR 42148’’ but
submissions. You should submit only appears to request a declaratory order. (Pet. 2; arbitration. (Id. at 19.)
information that you wish to make Addendum to Pet. 2.) Therefore, the Board is On July 28, 2016, NWPCo began
available publicly. All submissions changing the docket number from NOR 42148 to FD transporting loaded liquid petroleum
should refer to File Number SR– 36077, without prejudice to Petitioners’ requesting gas (LPG) tank cars to, and storing them
to restyle their petition to seek another remedy, if
NASDAQ–2016–144 and should be any, that may be appropriate. All filings and at, the Schellville rail yard on the
submitted on or before November 30, decisions in Docket No. NOR 42148 will be
2016. considered part of the record in Docket No. FD subsequently acquired portions of the Line subject
36077. to NCRA’s freight easement).
For the Commission, by the Division of 3 The parties also refer to the Northwestern 5 See N.W. Pac. R.R.—Change in Operators
Trading and Markets, pursuant to delegated Pacific Railroad Line as the Northwestern Pacific Exemption—N. Coast R.R. Auth., FD 35073 (STB
sradovich on DSK3GMQ082PROD with NOTICES
authority.16 Line. For purposes of this decision, we will refer served Aug. 24, 2007).
Brent J. Fields, to it as the Line. 6 SMART retains the residual common carrier
4 In 1996, NCRA acquired Board authority to lease obligation over portions of the Line, including the
Secretary. and operate the Line. N. Coast R.R. Auth.—Lease & Lombard Segment, which is at issue here. See
[FR Doc. 2016–27022 Filed 11–8–16; 8:45 am] Operation Exemption—Cal. N. R.R., FD 33115 (STB Sonoma-Marin Area Rail Transit Dist., FD 34400,
BILLING CODE 8011–01–P
served Sept. 27, 1996). See also Sonoma-Marin slip op. at 2; see also Sonoma-Marin Area Rail
Area Rail Transit Dist.—Acquis. Exemption—N.W. Transit Dist.—Acquis. Exemption—in Marin Cty.,
Pac. R.R. Auth., FD 34400, slip op. at 1 (STB served Cal., FD 35732, slip op. at 2 n.2, 3 (STB served July
16 17 CFR 200.30–3(a)(12). March 10, 2004) (indicating that SMART 15, 2013).
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Document Created: 2016-11-09 01:39:37
Document Modified: 2016-11-09 01:39:37
| 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 | 81 FR 78890 |
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