81 FR 95666 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Administrative Charges for Distributors of Proprietary Data Feed Products
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 249 (December 28, 2016)
Federal Register Volume 81, Issue 249 (December 28, 2016)
| Page Range | 95666-95669 | |
| FR Document | 2016-31309 |
[Federal Register Volume 81, Number 249 (Wednesday, December 28, 2016)] [Notices] [Pages 95666-95669] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-31309] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79649; File No. SR-NASDAQ-2016-172] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify Administrative Charges for Distributors of Proprietary Data Feed Products December 21, 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 December 14, 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 the Substance of the Proposed Rule Change The Exchange proposes to amend the Exchange's data fees at Rule 7035 to change the billing cycle for administrative fees paid by distributors of Nasdaq market data from annual to monthly, and to: (1) Replace the current $500 annual administrative fee assessed to distributors of delayed market data with a $50 monthly administrative fee, and (2) replace the current $1,000 annual administrative fee assessed to distributors of real-time market data with a $100 monthly administrative fee. The proposal is described further below.\3\ --------------------------------------------------------------------------- \3\ NASDAQ BX, Inc. and NASDAQ PHLX LLC are filing companion proposals similar to this one. All three proposals will change the billing cycle for administrative fees paid by distributors of market data from annual to monthly, and will: (1) replace the current $500 annual administrative fee assessed to distributors of delayed market data with a $50 monthly administrative fee, and (2) replace the current $1,000 annual administrative fee assessed to distributors of real-time market data with a $100 monthly administrative fee. --------------------------------------------------------------------------- While these amendments are effective upon filing, the Exchange has designated the proposed amendments to be operative on January 1, 2017. 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 change the billing cycle for administrative fees paid by distributors of Nasdaq market data from annual to monthly, and to: (1) Replace the current $500 annual administrative fee assessed to distributors of delayed market data with a $50 monthly administrative fee, and (2) replace the current $1,000 annual administrative fee assessed to distributors of real-time market data with a $100 monthly administrative fee. Annual Administrative Fee Nasdaq assesses an annual administrative fee to any market data distributor that receives a proprietary market data product. The amount of that fee is $500 for delayed market data and $1,000 for real-time market data. Distributors of both delayed and real-time market data are not required to pay both fees; they are charged only the higher fee. The time difference between ``delayed'' and ``real-time'' data varies by product. Nasdaq Basic data, for example, is considered delayed after 15 minutes, while data from the Nasdaq Market Pathfinders Service is considered delayed after 24 hours. The specific delay interval applicable to each product is published on the Nasdaq Trader Web site. The fee is not prorated if the distributor receives the data feed for less than a year. Proposed Changes The Exchange proposes to change the billing cycle for administrative fees paid by distributors of Nasdaq market data from annual to monthly, and to: (1) replace the current $500 annual administrative fee assessed to distributors of delayed market data with [[Page 95667]] a $50 monthly administrative fee, and (2) replace the current $1,000 annual administrative fee assessed to distributors of real-time market data with a $100 monthly administrative fee. The purposes of the proposal are to: (1) facilitate billing by aligning the current annual administrative fee billing cycle with Nasdaq's standard monthly billing cycle; (2) allocate the fee more equitably by charging distributors that receive less than a year of market data an administrative fee only for those months that they receive market data; (3) bring the Exchange's administrative fee into alignment with the PSX and BX market data administrative fees, which, after current proposals take effect, will be charged the same administrative fees on the same billing cycle; and (4) offset cost increases caused by general price inflation. The complexity of administering Nasdaq's market data program has increased significantly since the current fee was set in July of 2006. New, more complex products and services require Nasdaq to expend more resources in administration and monitoring. For example, the introduction of Enhanced Display Solutions--which allow subscribers to view Nasdaq market data on computer monitors and export it to applications--required Nasdaq to create new reporting systems and review mechanisms for the use of market data. New reporting and review mechanisms also had to be created to implement Managed Data Solutions, which allow electronic systems access to Nasdaq market data without human intervention. The Nasdaq Basic Net Reporting Program--a service that allows distributors to lower the cost of Nasdaq Basic by reporting the number of natural persons using the data rather than the number of electronic devices able to display that data--also required Nasdaq to develop new reporting systems. All of these programs were created in response to customer demand, and all require administrative expenditures that had not been necessary when the amount of the administrative fee was set in 2006. The administrative fee is entirely optional in that it applies only to firms that elect to distribute Nasdaq proprietary data. The proposed changes do not raise the cost of any other Nasdaq product, except to the extent that they increase the total cost of purchasing market data. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\4\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\5\ 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. --------------------------------------------------------------------------- \4\ 15 U.S.C. 78f(b). \5\ 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 national market system, 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.'' \6\ --------------------------------------------------------------------------- \6\ 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 \7\ (``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.\8\ 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.'' \9\ --------------------------------------------------------------------------- \7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \8\ See NetCoalition, at 534-535. \9\ 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' . . . .'' \10\ --------------------------------------------------------------------------- \10\ 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 proposal to replace the current $500 annual administrative fee assessed to distributors of delayed market data with a $50 monthly administrative fee, and the current $1,000 annual administrative fee assessed to distributors of real-time data with a $100 monthly administrative fee, is fair and equitable in accordance with Section 6(b)(4) of the Act, and not unreasonably discriminatory in accordance with Section 6(b)(5) of the Act. As described above, the proposed fee change is reasonable and necessary to facilitate billing, allocate fees more equitably, align administrative fees with those of the PSX and BX exchanges, and to offset general price inflation. Moreover, administrative fees are constrained by the Exchange's need to compete for order flow. The Exchange believes that the proposed change 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. 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 proposal is to replace the current $500 annual administrative fee assessed to distributors of delayed market data with a $50 monthly administrative fee, and the current $1,000 annual administrative fee assessed to distributors of real-time market data with a $100 monthly administrative fee. If the changes proposed herein are unattractive to market participants, it is likely that the Exchange will lose market share as a result. Specifically, market forces constrain administrative fees in three respects. First, all fees associated with [[Page 95668]] proprietary data are constrained by competition among exchanges and other entities attracting order flow. Second, administrative fees impact the total cost of market data, and are constrained by the total cost of the market data offered by other entities. Third, competition among distributors constrains the total cost of market data, including administrative fees. Competition for Order Flow Administrative fees 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 self-regulatory organization (``SRO'') markets, as well as internalizing broker-dealers (``BDs'') and various forms of alternative trading systems (``ATSs''), including dark pools and electronic communication networks (``ECNs''). Each SRO market competes to produce transaction reports via trade executions, and two FINRA-regulated Trade Reporting Facilities (``TRFs'') compete to attract internalized transaction reports. 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, BATS, and IEX. 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 market data 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 market 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. Administrative fees are part of the total cost of proprietary data. A supracompetitive increase in the fees charged for either transactions or market data has the potential to impair revenues from both products. Competition From Market Data Providers Administrative fees are constrained by competition from other exchanges that sell market data, such as NYSE and BATS. If administrative fees were to become excessive, distributors may elect to discontinue one or two products or services purchased from Nasdaq, or reduce the level of their purchases, to signal that the overall cost of market data had become excessive. Such a reduction in purchases would act as a discipline to Nasdaq's administrative fees, and would constrain the Exchange in its pricing decisions. Competition Among Distributors Distributors provide another form of price discipline for market data products. Distributors are in competition for users, and can curtail their purchases of market data if the total price of market data, including administrative fees, were set above competitive levels. In summary, market forces constrain the level of administrative fees through competition for order flow, competition from other sources of proprietary data, and in the competition among distributors for customers. 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.\11\ --------------------------------------------------------------------------- \11\ 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: 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-2016-172 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-2016-172. 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 [[Page 95669]] Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASDAQ-2016-172, and should be submitted on or before January 18, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\12\ --------------------------------------------------------------------------- \12\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2016-31309 Filed 12-27-16; 8:45 am] BILLING CODE 8011-01-P
![95666 Federal Register / Vol. 81, No. 249 / Wednesday, December 28, 2016 / Notices
arguments concerning the foregoing, SECURITIES AND EXCHANGE at the Commission’s Public Reference
including whether the proposed rule COMMISSION Room.
change is consistent with the Act.
II. Self-Regulatory Organization’s
Comments may be submitted by any of [Release No. 34–79649; File No. SR–
NASDAQ–2016–172]
Statement of the Purpose of, and
the following methods: Statutory Basis for, the Proposed Rule
Electronic Comments Self-Regulatory Organizations; The Change
• Use the Commission’s Internet NASDAQ Stock Market LLC; Notice of In its filing with the Commission, the
comment form (http://www.sec.gov/ Filing and Immediate Effectiveness of Exchange included statements
rules/sro.shtml); or Proposed Rule Change To Modify concerning the purpose of and basis for
Administrative Charges for the proposed rule change and discussed
• Send an email to rule-comments@
Distributors of Proprietary Data Feed any comments it received on the
sec.gov. Please include File Number SR–
Products proposed rule change. The text of these
IEX–2016–21 on the subject line.
statements may be examined at the
Paper Comments December 21, 2016. places specified in Item IV below. The
Pursuant to Section 19(b)(1) of the Exchange has prepared summaries, set
• Send paper comments in triplicate Securities Exchange Act of 1934 forth in sections A, B, and C below, of
to Secretary, Securities and Exchange (‘‘Act’’),1 and Rule 19b–4 thereunder,2 the most significant aspects of such
Commission, 100 F Street NE., notice is hereby given that on December statements.
Washington, DC 20549–1090. 14, 2016, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed A. Self-Regulatory Organization’s
All submissions should refer to File
with the Securities and Exchange Statement of the Purpose of, and
Number SR–IEX–2016–21. This file
Commission (‘‘SEC’’ or ‘‘Commission’’) Statutory Basis for, the Proposed Rule
number should be included on the
the proposed rule change as described Change
subject line if email is used. To help the
Commission process and review your in Items I, II, and III below, which Items 1. Purpose
comments more efficiently, please use have been prepared by the Exchange.
The purpose of the proposed rule
only one method. The Commission will The Commission is publishing this
change is to change the billing cycle for
post all comments on the Commission’s notice to solicit comments on the
administrative fees paid by distributors
Internet Web site (http://www.sec.gov/ proposed rule change from interested
of Nasdaq market data from annual to
rules/sro.shtml). Copies of the persons.
monthly, and to: (1) Replace the current
submission, all subsequent I. Self-Regulatory Organization’s $500 annual administrative fee assessed
amendments, all written statements Statement of the Terms of the Substance to distributors of delayed market data
with respect to the proposed rule of the Proposed Rule Change with a $50 monthly administrative fee,
change that are filed with the and (2) replace the current $1,000
Commission, and all written The Exchange proposes to amend the
annual administrative fee assessed to
communications relating to the Exchange’s data fees at Rule 7035 to
distributors of real-time market data
proposed rule change between the change the billing cycle for
with a $100 monthly administrative fee.
Commission and any person, other than administrative fees paid by distributors
those that may be withheld from the of Nasdaq market data from annual to Annual Administrative Fee
public in accordance with the monthly, and to: (1) Replace the current Nasdaq assesses an annual
provisions of 5 U.S.C. 552, will be $500 annual administrative fee assessed administrative fee to any market data
available for Web site viewing and to distributors of delayed market data distributor that receives a proprietary
printing in the Commission’s Public with a $50 monthly administrative fee, market data product. The amount of that
Reference Room, 100 F Street NE., and (2) replace the current $1,000 fee is $500 for delayed market data and
Washington, DC 20549, on official annual administrative fee assessed to $1,000 for real-time market data.
business days between the hours of distributors of real-time market data Distributors of both delayed and real-
10:00 a.m. and 3:00 p.m. Copies of the with a $100 monthly administrative fee. time market data are not required to pay
filing also will be available for The proposal is described further both fees; they are charged only the
inspection and copying at the principal below.3 higher fee. The time difference between
office of the Exchange. All comments While these amendments are effective ‘‘delayed’’ and ‘‘real-time’’ data varies
received will be posted without change; upon filing, the Exchange has by product. Nasdaq Basic data, for
the Commission does not edit personal designated the proposed amendments to example, is considered delayed after 15
identifying information from be operative on January 1, 2017. minutes, while data from the Nasdaq
submissions. You should submit only The text of the proposed rule change Market Pathfinders Service is
information that you wish to make is available on the Exchange’s Web site considered delayed after 24 hours. The
available publicly. All submissions at http://nasdaq.cchwallstreet.com, at specific delay interval applicable to
should refer to File Number SR–IEX– the principal office of the Exchange, and each product is published on the
2016–21 and should be submitted on or Nasdaq Trader Web site. The fee is not
before January 18, 2017. 1 15 U.S.C. 78s(b)(1). prorated if the distributor receives the
2 17 CFR 240.19b–4. data feed for less than a year.
For the Commission, by the Division of 3 NASDAQ BX, Inc. and NASDAQ PHLX LLC are
Trading and Markets, pursuant to delegated filing companion proposals similar to this one. All Proposed Changes
sradovich on DSK3GMQ082PROD with NOTICES
authority.17 three proposals will change the billing cycle for
administrative fees paid by distributors of market
The Exchange proposes to change the
Eduardo A. Aleman, billing cycle for administrative fees paid
data from annual to monthly, and will: (1) replace
Assistant Secretary. the current $500 annual administrative fee assessed by distributors of Nasdaq market data
[FR Doc. 2016–31311 Filed 12–27–16; 8:45 am] to distributors of delayed market data with a $50 from annual to monthly, and to: (1)
monthly administrative fee, and (2) replace the
BILLING CODE 8011–01–P
current $1,000 annual administrative fee assessed to
replace the current $500 annual
distributors of real-time market data with a $100 administrative fee assessed to
17 17 CFR 200.30–3(a)(12). monthly administrative fee. distributors of delayed market data with
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a $50 monthly administrative fee, and of the Act,4 in general, and furthers the distributors of delayed market data with
(2) replace the current $1,000 annual objectives of Sections 6(b)(4) and 6(b)(5) a $50 monthly administrative fee, and
administrative fee assessed to of the Act,5 in particular, in that it the current $1,000 annual
distributors of real-time market data provides for the equitable allocation of administrative fee assessed to
with a $100 monthly administrative fee. reasonable dues, fees and other charges distributors of real-time data with a
The purposes of the proposal are to: among members and issuers and other $100 monthly administrative fee, is fair
(1) facilitate billing by aligning the persons using any facility, and is not and equitable in accordance with
current annual administrative fee billing designed to permit unfair Section 6(b)(4) of the Act, and not
cycle with Nasdaq’s standard monthly discrimination between customers, unreasonably discriminatory in
billing cycle; (2) allocate the fee more issuers, brokers, or dealers. accordance with Section 6(b)(5) of the
equitably by charging distributors that The Commission and the courts have Act. As described above, the proposed
receive less than a year of market data repeatedly expressed their preference fee change is reasonable and necessary
an administrative fee only for those for competition over regulatory to facilitate billing, allocate fees more
months that they receive market data; intervention in determining prices, equitably, align administrative fees with
(3) bring the Exchange’s administrative products, and services in the securities those of the PSX and BX exchanges, and
fee into alignment with the PSX and BX markets. In Regulation NMS, while to offset general price inflation.
market data administrative fees, which, adopting a series of steps to improve the Moreover, administrative fees are
national market system, the Commission constrained by the Exchange’s need to
after current proposals take effect, will
highlighted the importance of market compete for order flow.
be charged the same administrative fees
forces in determining prices and SRO The Exchange believes that the
on the same billing cycle; and (4) offset
revenues and, also, recognized that proposed change is an equitable
cost increases caused by general price
current regulation of the market system allocation and is not unfairly
inflation.
‘‘has been remarkably successful in discriminatory because the Exchange
The complexity of administering promoting market competition in its will apply the same fee to all similarly-
Nasdaq’s market data program has broader forms that are most important to situated distributors.
increased significantly since the current investors and listed companies.’’ 6
fee was set in July of 2006. New, more Likewise, in NetCoalition v. Securities B. Self-Regulatory Organization’s
complex products and services require and Exchange Commission 7 Statement on Burden on Competition
Nasdaq to expend more resources in (‘‘NetCoalition’’) the D.C. Circuit upheld The Exchange does not believe that
administration and monitoring. For the Commission’s use of a market-based the proposed rule change will impose
example, the introduction of Enhanced approach in evaluating the fairness of any burden on competition not
Display Solutions—which allow market data fees against a challenge necessary or appropriate in furtherance
subscribers to view Nasdaq market data claiming that Congress mandated a cost- of the purposes of the Act. In terms of
on computer monitors and export it to based approach.8 As the court inter-market competition, the Exchange
applications—required Nasdaq to create emphasized, the Commission ‘‘intended notes that it operates in a highly
new reporting systems and review in Regulation NMS that ‘market forces, competitive market in which market
mechanisms for the use of market data. rather than regulatory requirements’ participants can readily favor competing
New reporting and review mechanisms play a role in determining the market venues if they deem fee levels at a
also had to be created to implement data . . . to be made available to particular venue to be excessive. In such
Managed Data Solutions, which allow investors and at what cost.’’ 9 an environment, the Exchange must
electronic systems access to Nasdaq Further, ‘‘[n]o one disputes that continually adjust its fees to remain
market data without human competition for order flow is ‘fierce.’ competitive with other exchanges and
intervention. The Nasdaq Basic Net . . . As the SEC explained, ‘[i]n the U.S. with alternative trading systems that
Reporting Program—a service that national market system, buyers and have been exempted from compliance
allows distributors to lower the cost of sellers of securities, and the broker- with the statutory standards applicable
Nasdaq Basic by reporting the number dealers that act as their order-routing to exchanges. Because competitors are
of natural persons using the data rather agents, have a wide range of choices of free to modify their own fees in
than the number of electronic devices where to route orders for execution’; response, and because market
able to display that data—also required [and] ‘no exchange can afford to take its participants may readily adjust their
Nasdaq to develop new reporting market share percentages for granted’ order routing practices, the Exchange
systems. All of these programs were because ‘no exchange possesses a believes that the degree to which fee
created in response to customer monopoly, regulatory or otherwise, in changes in this market may impose any
demand, and all require administrative the execution of order flow from broker burden on competition is extremely
expenditures that had not been dealers’ . . . .’’ 10 limited.
necessary when the amount of the The Exchange believes that the The proposal is to replace the current
administrative fee was set in 2006. proposal to replace the current $500 $500 annual administrative fee assessed
annual administrative fee assessed to to distributors of delayed market data
The administrative fee is entirely
optional in that it applies only to firms with a $50 monthly administrative fee,
4 15 U.S.C. 78f(b).
that elect to distribute Nasdaq and the current $1,000 annual
5 15 U.S.C. 78f(b)(4) and (5).
proprietary data. 6 Securities Exchange Act Release No. 51808
administrative fee assessed to
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
distributors of real-time market data
The proposed changes do not raise the
sradovich on DSK3GMQ082PROD with NOTICES
(‘‘Regulation NMS Adopting Release’’). with a $100 monthly administrative fee.
cost of any other Nasdaq product, 7 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. If the changes proposed herein are
except to the extent that they increase 2010). unattractive to market participants, it is
the total cost of purchasing market data. 8 See NetCoalition, at 534–535.
likely that the Exchange will lose
9 Id. at 537.
2. Statutory Basis 10 Id. at 539 (quoting Securities Exchange Act
market share as a result.
Release No. 59039 (December 2, 2008), 73 FR
Specifically, market forces constrain
The Exchange believes that its 74770, 74782–83 (December 9, 2008) (SR– administrative fees in three respects.
proposal is consistent with Section 6(b) NYSEArca–2006–21)). First, all fees associated with
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Reference Room, 100 F Street NE., comments on the Advance Notice from prepared summaries, set forth in
Washington, DC 20549 on official interested persons. sections A and B below, of the most
business days between the hours of significant aspects of such statements.
I. Clearing Agency’s Statement of the
10:00 a.m. and 3:00 p.m. Copies of such
Terms of Substance of the Advance (A) Clearing Agency’s Statement on
filing also will be available for Notice Comments on the Advance Notice
inspection and copying at the principal
The proposed change would change Received From Members, Participants or
office of the Exchange. All comments
the methodology that FICC uses in the Others
received will be posted without change;
the Commission does not edit personal Mortgage-Backed Securities Division’s Written comments relating to the
identifying information from (‘‘MBSD’’) value-at-risk (‘‘VaR’’) model proposed change have not been solicited
submissions. You should submit only from one that employs a full revaluation or received. FICC will notify the
information that you wish to make approach to one that would employ a Commission of any written comments
available publicly. All submissions sensitivity approach, as described in received by FICC
should refer to File Number SR– greater detail below.4
The proposed change would also (B) Advance Notice Filed Pursuant to
NASDAQ–2016–172, and should be Section 806(e) of the Payment, Clearing
submitted on or before January 18, 2017. amend the MBSD Rules to (1) revise the
definition of VaR Charge to reference an and Settlement Supervision Act
For the Commission, by the Division of alternative volatility calculation
Trading and Markets, pursuant to delegated Description of the Change
(referred to herein as the Margin Proxy
authority.12 (as defined in Item II(B) below)), which FICC is proposing to change the
Eduardo A. Aleman, would be employed in the event that the methodology that is currently used in
Assistant Secretary. requisite data used to employ the MBSD’s VaR model from one that
[FR Doc. 2016–31309 Filed 12–27–16; 8:45 am] sensitivity approach is unavailable for employs a full revaluation approach to
BILLING CODE 8011–01–P an extended period of time, (2) revise one that would employ a sensitivity
the definition of VaR Charge to include approach. In connection with this
a minimum amount (the ‘‘VaR Floor’’) change, FICC is also proposing to (1)
SECURITIES AND EXCHANGE that FICC would employ as an amend the definition of VaR Charge to
COMMISSION alternative to the amount calculated by reference that an alternative volatility
the proposed VaR model for portfolios calculation (referred to herein as the
where the VaR Floor would be greater Margin Proxy (as defined in section B
[Release No. 34–79643; File No. SR–FICC–
2016–801] than the model-based charge amount, below)) would be employed in the event
(3) eliminate two components from the that the requisite data used to employ
Self-Regulatory Organizations; Fixed Required Fund Deposit calculation that the sensitivity approach is unavailable
Income Clearing Corporation; Notice of would no longer be necessary following for an extended period of time, (2)
Filing of an Advance Notice To implementation of the proposed VaR revise the definition of VaR Charge to
Implement a Change to the model, and (4) change the margining include a VaR Floor that FICC would
Methodology Used in the MBSD VaR approach that FICC may employ for employ as an alternative to the amount
Model certain securities with inadequate calculated by the proposed VaR model
historical pricing data from one that for portfolios where the VaR Floor
December 21, 2016. calculates charges using a historic index would be greater than the model-based
Pursuant to Section 806(e)(1) of Title volatility model to one that would charge amount, (3) eliminate two
VIII of the Dodd-Frank Wall Street employ a simple haircut method, as components from the Required Fund
Reform and Consumer Protection Act described in greater detail below. Deposit calculation that would no
entitled the Payment, Clearing, and The proposed sensitivity approach longer be necessary following
Settlement Supervision Act of 2010 and Margin Proxy methodologies would implementation of the proposed VaR
(‘‘Clearing Supervision Act’’ or be reflected in the Methodology and model, and (4) change the margining
‘‘Payment, Clearing and Settlement Model Operations Document—MBSD approach that FICC may employ for
Supervision Act’’) 1 and Rule 19b- Quantitative Risk Model (the ‘‘QRM certain securities with inadequate
4(n)(1)(i) under the Securities Exchange Methodology’’). FICC is requesting historical pricing data from one that
Act of 1934 (‘‘Act’’),2 notice is hereby confidential treatment of this document calculates charges using a historic index
given that on November 23, 2016, the and has filed it separately with the volatility model to one that would
Fixed Income Clearing Corporation Secretary of the Commission.5 employ a simple haircut method. These
(‘‘FICC’’) filed with the Securities and II. Clearing Agency’s Statement of the changes are described in more detail
Exchange Commission (‘‘Commission’’) Purpose of, and Statutory Basis for, the below.
the advance notice as described in Items Advance Notice A. The Required Fund Deposit and
I, II and III below, which Items have In its filing with the Commission, the Clearing Fund Calculation Overview
been prepared primarily by FICC clearing agency included statements
(‘‘Advance Notice’’).3 The Commission A key tool that FICC uses to manage
concerning the purpose of and basis for market risk is the daily calculation and
is publishing this notice to solicit the Advance Notice and discussed any collection of Required Fund Deposits
comments it received on the Advance from Clearing Members. The Required
12 17 CFR 200.30–3(a)(12). Notice. The text of these statements may Fund Deposit serves as each Clearing
sradovich on DSK3GMQ082PROD with NOTICES
1 12 U.S.C. 5465(e)(1).
2 17 CFR 240.19b–4(n)(1)(i).
be examined at the places specified in Member’s margin. The aggregate of all
3 FICC also filed a proposed rule change with the
Item IV below. The clearing agency has Clearing Members’ Required Fund
Commission pursuant to Section 19(b)(1) of the Deposits constitutes the Clearing Fund
4 Capitalized terms used herein and not defined
Securities Exchange Act of 1934 and Rule 19b–4 of MBSD, which FICC would access
thereunder, seeking approval of changes to its rules shall have the meaning assigned to such terms in
necessary to implement the proposal. 15 U.S.C. the MBSD Clearing Rules (‘‘MBSD Rules’’) available should a defaulting Clearing Member’s
78s(b)(1) and 17 CFR 240.19b–4. See File No. SR– at www.dtcc.com/legal/rules-and-procedures.aspx. own Required Fund Deposit be
FICC–2016–007. 5 See 17 CFR 240.24b–2. insufficient to satisfy losses to FICC
VerDate Sep<11>2014 18:54 Dec 27, 2016 Jkt 241001 PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 E:\FR\FM\28DEN1.SGM 28DEN1](https://thefederalregister.org/doc/81_FR_95915/page/4.svg)
Document Created: 2016-12-28 02:17:14
Document Modified: 2016-12-28 02:17:14
| 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 95666 |
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