81 FR 96527 - Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the Exchange's Transaction Fees at Rule 7019 (Market Data Distributor Fees)
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 251 (December 30, 2016)
Federal Register Volume 81, Issue 251 (December 30, 2016)
| Page Range | 96527-96530 | |
| FR Document | 2016-31681 |
[Federal Register Volume 81, Number 251 (Friday, December 30, 2016)] [Notices] [Pages 96527-96530] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-31681] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79690; File No. SR-BX-2016-073] Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend the Exchange's Transaction Fees at Rule 7019 (Market Data Distributor Fees) December 23, 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 20, 2016, NASDAQ BX, Inc. (``BX'' 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 the Exchange's transaction fees at Rule 7019 (Market Data Distributor Fees) to (i) increase the Monthly Internal Distributor Fee from $500 to $750 for BX TotalView, and (ii) increase the Monthly External Distributor Fee from $1,250 to $1,500 for BX TotalView, as described further below. The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqbx.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 increase the Monthly Internal Distributor Fee from $500 to $750 for BX TotalView, and to increase the Monthly External Distributor Fee from $1,250 to $1,500 for BX TotalView. TotalView is a proprietary feed that provides subscribers with full depth-of-book data on BX for Nasdaq-listed securities and securities not listed on Nasdaq. TotalView allows customers to view all displayed quotes and orders attributed to specific market participants at every price level on BX, access total displayed anonymous interest at every price level on BX, and to see the total size of all displayed quotes and orders on BX. TotalView also offers trade data for BX executions that occur on BX. Customers may access TotalView as either a Distributor, or through Direct Access. Rule 7019(b) defines a ``distributor'' of Exchange data as ``any entity that receives a feed or data file of Exchange data directly from the Exchange or indirectly through another entity and then distributes it either internally (within that entity) or externally (outside that entity).'' \3\ Rule 7019(c) defines ``Direct Access'' as ``a telecommunications interface with the Exchange for receiving Exchange data, or receiving an Exchange data feed within the Exchange co-location facility, or receiving Exchange data via an Extranet access provider or other such provider that is fee-liable under 7025.'' \4\ --------------------------------------------------------------------------- \3\ See Rule 7019(b). The Rule also provides that all distributors shall execute an Exchange distributor agreement, and states that the Exchange itself is a vendor of its data feed(s) and has executed an Exchange distributor agreement and pays the distributor charge. Id. \4\ See Rule 7019(c). --------------------------------------------------------------------------- The Exchange proposed the TotalView fees, among others, in 2009, following its acquisition by Nasdaq, Inc. and the resumption of its cash equities trading business.\5\ The Exchange proposed that Distributors of TotalView would pay a $500 monthly fee to distribute the data feed internally (i.e., to employees) and a $1,250 monthly fee to distribute to external customers.\6\ --------------------------------------------------------------------------- \5\ See Securities Exchange Act Release No. 59307 (January 28, 2009), 74 FR 6069 (February 4, 2009) (Notice of filing of SR-BX- 2009-005). BX proposed, for the first year of BX's operation, to make TotalView available free of charge. Id. \6\ Id. The Exchange also proposed that Distributors pay a $1,000 monthly fee to receive the data directly from the Exchange, since the Exchange incurs costs to support the connection to each direct Distributor; indirect Distributors (i.e., those receiving data from a direct Distributor) would not pay this charge. --------------------------------------------------------------------------- In support of these fees, the Exchange noted that the TotalView fee structure is similar to the structure for the TotalView data product offered by The NASDAQ Stock Market LLC (``Nasdaq''), but that the overall level of fees is lower than for Nasdaq TotalView. The lower fee levels for BX TotalView reflected the start-up nature of the Exchange's new equities trading platform, and was designed help to attract order flow to the Exchange, since, at its inception, the Exchange had zero market share and therefore set its fees, including data fees, with a view to attracting order flow. Finally, the Exchange noted that the alternatives that exist for market participants to determine market depth--such as other depth of book products that may be associated with markets with more liquidity, or order routing strategies designed to ascertain market depth--provided incentives for the Exchange to ensure that its fees for BX TotalView were set reasonably.\7\ --------------------------------------------------------------------------- \7\ Id. --------------------------------------------------------------------------- With this proposal, BX proposes to increase the Monthly Internal Distributor Fee from $500 to $750 for BX TotalView, and increase the Monthly External Distributor Fee from [[Page 96528]] $1,250 to $1,500 for BX TotalView. BX is only changing the fee for the Monthly Internal and External Distributor Fees. The terms of access for TotalView, and the definition of ``Direct Access'' and ``Distributor,'' remain the same. This fee increase is justified because BX has not increased the Distributor fees for TotalView since they were initially proposed in 2009, although the value of BX TotalView has increased since that time. Since 2009, BX's market share for quoting and trading of Nasdaq-listed securities and securities not listed on Nasdaq has increased, which has, in turn, increased the content and therefore the value of the TotalView product. In addition, various technical changes have enhanced TotalView by improving the performance and the resiliency of the BX matching engine, which, in turn, has improved outbound messaging through TotalView, especially during peak times of messaging traffic.\8\ BX also notes that the proposed new TotalView fees remain consistent with fees for comparable products offered by other exchanges. This fee increase therefore reflects the increased value of the TotalView product and the comparative cost of other similar products. --------------------------------------------------------------------------- \8\ Specifically, in 2016, BX split its matching engine into four matching engines to improve the handling and execution of orders by increasing system resiliency and reduce the impact of peaks in messaging traffic. In anticipation of this change, BX implemented a series of system upgrades in 2015, including upgrading the servers for the BX matching engine, upgrading the matching engine to the newest and most efficient version, and upgrading the necessary tools to effectively monitor the Nasdaq BX marketplace. --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\9\ in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\10\ 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. --------------------------------------------------------------------------- \9\ 15 U.S.C. 78f(b). \10\ 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.'' \11\ --------------------------------------------------------------------------- \11\ 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 \12\ (``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.\13\ 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.'' \14\ --------------------------------------------------------------------------- \12\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \13\ See NetCoalition, at 534-535. \14\ 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'. . . .'' \15\ --------------------------------------------------------------------------- \15\ 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)). --------------------------------------------------------------------------- More specifically, the SEC recognized the importance of competition in setting fees for non-core market data products when approving the TotalView fees in 2009.\16\ The SEC noted that TotalView related to the distribution of non-core, depth of book market data products, and the SEC was therefore able to use a market-based approach in analyzing the appropriateness of the fees.\17\ Accordingly, the SEC recognized both BX's compelling need to attract order flow from market participants; and the availability to market participants of alternatives to purchasing BX's depth-of-book order data.\18\ The SEC stated that, given the competitive landscape of trading in cash equities, BX must compete vigorously for order flow to maintain its share of trading volume.\19\ This compelling need to attract order flow imposed significant pressure on BX to act reasonably in setting its fees for BX market data, particularly given that the market participants that must pay such fees often will be the same market participants from whom BX must attract order flow. The SEC also noted that, in setting the fees for its TotalView data, BX must consider the extent to which market participants would choose one or more alternatives instead of purchasing the Exchange's data.\20\ The Commission stated that the availability of those alternatives, as well as the BX's compelling need to attract order flow, imposed significant competitive pressure on the BX to act equitably, fairly, and reasonably in setting the terms of its proposal.\21\ --------------------------------------------------------------------------- \16\ See Securities Exchange Act Release No. 59615 (March 20, 2009), 74 FR 14604 (March 31, 2009) (Order approving SR-BX-2009- 005). Core data is the best-priced quotations and comprehensive last-sale reports of all markets that the Commission, pursuant to Rule 603(b), requires a central processor to consolidate and distribute to the public pursuant to joint-SRO plans. In contrast, individual exchanges and other market participants distribute non- core data voluntarily. Id. \17\ Id. \18\ Id. \19\ Id. \20\ Id. \21\ Id. In approving the TotalView fees, the Commission also did not find a substantial countervailing basis to conclude that the proposal nevertheless failed to meet an applicable requirement of the Act or the rules thereunder. --------------------------------------------------------------------------- The same arguments apply with respect to the proposed fee increase here. Although BX is a more mature market than in 2009, competition for order flow remains fierce, and some of the market participants that purchase TotalView are the same market participants from whom BX must attract order flow. Additionally, market participants continue to have a range of other market data products that they could purchase as alternatives to TotalView. As with the initial TotalView fees, the significant competitive pressure with respect to order flow and market data products therefore requires BX to act equitably, fairly, and reasonably in setting the terms of its proposed TotalView fees. The Exchange also believes that the increase in the Monthly Internal Distributor Fee from $500 to $750 and the increase in the Monthly External Distributor Fee from $1,250 to $1,500 is reasonable because these fee increases reflect the current value of the TotalView product. TotalView provides comprehensive order and trade information for Nasdaq-listed securities and securities not listed on Nasdaq, and the value of a product that offers such information increases as BX's market share increases. As noted above, when TotalView was initially proposed, BX was seeking to resume its cash equities trading business, which was reflected in the initial TotalView fees. Given that BX's market share in those securities [[Page 96529]] has increased since 2009, and given the technical enhancements to TotalView since that time, the proposed increase reasonably reflects the increased value of TotalView to market participants. The proposed fees are also fair and reasonable in that they compare favorably to fees charged by other exchanges for comparable products. The Exchange believes that these fees are an equitable allocation and are not unfairly discriminatory because the proposed fees for subscribers are uniform for all subscribers within a particular category, e.g., external Distributors will all pay the same Monthly External Distributor Fee. The proposal maintains the current distinction between internal and external Distributors in that external Distributors will continue to be charged a higher amount. Although the amount of the fee increase is proportionally greater for internal Distributors than external Distributors, the Exchange believes that this is equitable and not unfairly discriminatory because the fee increase better aligns the value of TotalView for purposes of internal distribution to the value of TotalView for purposes of external distribution. Under the proposal, the Exchange notes that internal Distributors will still pay a fee that is 50% less than external Distributors. The Exchange also believes that it is equitable and not unfairly discriminatory to increase the fee for internal and external distribution, and not for Direct Access. Rule 7019 provides that a distributor may distribute data either internally (within that entity) or externally (outside that entity), whereas a Direct Access subscriber is not permitted to distribute TotalView data. To the extent that the value of TotalView has increased since 2009 as the BX market has grown, the fee increase for internal and external distribution reflects this increased value and the fact that Distributors, by definition, have more ways than Direct Access subscribers to benefit from this increased value, e.g., through distribution. 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 fee levels 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 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. Here, the proposed changes to the charges assessed for internal and external Distributors of TotalView do not impose a burden on competition because TotalView is completely voluntary and subject to extensive competition both from other exchanges and from off-exchange venues. As is discussed in greater detail below, competition for order flow remains fierce, and some of the market participants that purchase TotalView are the same market participants from whom BX must attract order flow. Firms make decisions regarding TotalView 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. Additionally, market participants continue to have a range of other proprietary market data products that they could purchase as alternatives to TotalView. Third, competition among Distributors for customers will further constrain the cost of TotalView. There is therefore significant competitive pressure with respect to order flow and market data products that requires BX to act equitably, fairly, and reasonably in setting the terms of its proposed TotalView fees. Competition for Order Flow Fees related to TotalView 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 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 BX 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 [[Page 96530]] potential to impair revenues from both products. In this manner, the competition for order flow will constrain prices for proprietary data products. Substitute Products The price of depth-of-book data is constrained by the existence of competition from other exchanges, such as NYSE and BATS, which sell proprietary depth-of-book data. While a small number of highly sophisticated traders purchase depth-of-book products from multiple exchanges, most customers do not. Because most customers would not pay an excessive price for TotalView when substitute data is available from other proprietary sources, the Exchange is constrained in its pricing decisions. Competition Among Distributors Competition among Distributors provides another form of price discipline for proprietary data products. If the price of TotalView were set above competitive levels, Distributors purchasing TotalView would be at a disadvantage relative to their competitors, and would therefore either purchase a substitute or forego the product altogether. In summary, market forces constrain the price of depth-of-book data such as TotalView through competition for order flow, competition from substitute products, and in the competition among vendors 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.\22\ --------------------------------------------------------------------------- \22\ 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-BX-2016-073 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-BX-2016-073. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-BX-2016-073, and should be submitted on or before January 20, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\23\ --------------------------------------------------------------------------- \23\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-31681 Filed 12-29-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Notices 96527
POSTAL SERVICE I. Self-Regulatory Organization’s entity and then distributes it either
Statement of the Terms of Substance of internally (within that entity) or
Product Change—First-Class Package the Proposed Rule Change externally (outside that entity).’’ 3 Rule
Service Negotiated Service Agreement The Exchange proposes to amend the 7019(c) defines ‘‘Direct Access’’ as ‘‘a
Exchange’s transaction fees at Rule 7019 telecommunications interface with the
AGENCY: Postal ServiceTM.
(Market Data Distributor Fees) to (i) Exchange for receiving Exchange data,
ACTION: Notice. or receiving an Exchange data feed
increase the Monthly Internal
Distributor Fee from $500 to $750 for within the Exchange co-location facility,
SUMMARY: The Postal Service gives
BX TotalView, and (ii) increase the or receiving Exchange data via an
notice of filing a request with the Postal
Monthly External Distributor Fee from Extranet access provider or other such
Regulatory Commission to add a
$1,250 to $1,500 for BX TotalView, as provider that is fee-liable under 7025.’’ 4
domestic shipping services contract to The Exchange proposed the
the list of Negotiated Service described further below.
The text of the proposed rule change TotalView fees, among others, in 2009,
Agreements in the Mail Classification following its acquisition by Nasdaq, Inc.
Schedule’s Competitive Products List. is available on the Exchange’s Web site
at http://nasdaqbx.cchwallstreet.com/, and the resumption of its cash equities
DATES: Effective date: December 30, trading business.5 The Exchange
2016. at the principal office of the Exchange,
and at the Commission’s Public proposed that Distributors of TotalView
FOR FURTHER INFORMATION CONTACT: Reference Room. would pay a $500 monthly fee to
Elizabeth A. Reed, 202–268–3179. distribute the data feed internally (i.e.,
II. Self-Regulatory Organization’s to employees) and a $1,250 monthly fee
SUPPLEMENTARY INFORMATION: The
Statement of the Purpose of, and to distribute to external customers.6
United States Postal Service® hereby
Statutory Basis for, the Proposed Rule In support of these fees, the Exchange
gives notice that, pursuant to 39 U.S.C.
Change noted that the TotalView fee structure is
3642 and 3632(b)(3), on December 22,
In its filing with the Commission, the similar to the structure for the
2016, it filed with the Postal Regulatory
Exchange included statements TotalView data product offered by The
Commission a Request of the United
concerning the purpose of and basis for NASDAQ Stock Market LLC (‘‘Nasdaq’’),
States Postal Service to Add First-Class
the proposed rule change and discussed but that the overall level of fees is lower
Package Service Contract 72 to
any comments it received on the than for Nasdaq TotalView. The lower
Competitive Product List. Documents
proposed rule change. The text of these fee levels for BX TotalView reflected the
are available at www.prc.gov, Docket
statements may be examined at the start-up nature of the Exchange’s new
Nos. MC2017–70, CP2017–98.
places specified in Item IV below. The equities trading platform, and was
Stanley F. Mires, Exchange has prepared summaries, set designed help to attract order flow to
Attorney, Federal Compliance. forth in sections A, B, and C below, of the Exchange, since, at its inception, the
[FR Doc. 2016–31674 Filed 12–29–16; 8:45 am] the most significant aspects of such Exchange had zero market share and
BILLING CODE 7710–12–P statements. therefore set its fees, including data fees,
with a view to attracting order flow.
A. Self-Regulatory Organization’s Finally, the Exchange noted that the
Statement of the Purpose of, and alternatives that exist for market
SECURITIES AND EXCHANGE Statutory Basis for, the Proposed Rule participants to determine market
COMMISSION Change depth—such as other depth of book
1. Purpose products that may be associated with
[Release No. 34–79690; File No. SR–BX– markets with more liquidity, or order
2016–073] The purpose of the proposed rule routing strategies designed to ascertain
change is to increase the Monthly market depth—provided incentives for
Self-Regulatory Organizations; Internal Distributor Fee from $500 to the Exchange to ensure that its fees for
NASDAQ BX, Inc.; Notice of Filing and $750 for BX TotalView, and to increase BX TotalView were set reasonably.7
Immediate Effectiveness of Proposed the Monthly External Distributor Fee With this proposal, BX proposes to
Rule Change to Amend the Exchange’s from $1,250 to $1,500 for BX TotalView. increase the Monthly Internal
Transaction Fees at Rule 7019 (Market TotalView is a proprietary feed that Distributor Fee from $500 to $750 for
Data Distributor Fees) provides subscribers with full depth-of- BX TotalView, and increase the
book data on BX for Nasdaq-listed Monthly External Distributor Fee from
December 23, 2016. securities and securities not listed on
Pursuant to Section 19(b)(1) of the Nasdaq. TotalView allows customers to 3 See Rule 7019(b). The Rule also provides that all
Securities Exchange Act of 1934 view all displayed quotes and orders distributors shall execute an Exchange distributor
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 attributed to specific market agreement, and states that the Exchange itself is a
notice is hereby given that on December participants at every price level on BX, vendor of its data feed(s) and has executed an
Exchange distributor agreement and pays the
20, 2016, NASDAQ BX, Inc. (‘‘BX’’ or access total displayed anonymous distributor charge. Id.
‘‘Exchange’’) filed with the Securities interest at every price level on BX, and 4 See Rule 7019(c).
and Exchange Commission (‘‘SEC’’ or to see the total size of all displayed 5 See Securities Exchange Act Release No. 59307
‘‘Commission’’) the proposed rule quotes and orders on BX. TotalView (January 28, 2009), 74 FR 6069 (February 4, 2009)
change as described in Items I, II, and also offers trade data for BX executions (Notice of filing of SR–BX–2009–005). BX proposed,
for the first year of BX’s operation, to make
III below, which Items have been that occur on BX.
srobinson on DSK5SPTVN1PROD with NOTICES
TotalView available free of charge. Id.
prepared by the Exchange. The Customers may access TotalView as 6 Id. The Exchange also proposed that Distributors
Commission is publishing this notice to either a Distributor, or through Direct pay a $1,000 monthly fee to receive the data
solicit comments on the proposed rule Access. Rule 7019(b) defines a directly from the Exchange, since the Exchange
change from interested persons. ‘‘distributor’’ of Exchange data as ‘‘any incurs costs to support the connection to each
direct Distributor; indirect Distributors (i.e., those
entity that receives a feed or data file of receiving data from a direct Distributor) would not
1 15 U.S.C. 78s(b)(1). Exchange data directly from the pay this charge.
2 17 CFR 240.19b–4. Exchange or indirectly through another 7 Id.
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$1,250 to $1,500 for BX TotalView. BX current regulation of the market system that, given the competitive landscape of
is only changing the fee for the Monthly ‘‘has been remarkably successful in trading in cash equities, BX must
Internal and External Distributor Fees. promoting market competition in its compete vigorously for order flow to
The terms of access for TotalView, and broader forms that are most important to maintain its share of trading volume.19
the definition of ‘‘Direct Access’’ and investors and listed companies.’’ 11 This compelling need to attract order
‘‘Distributor,’’ remain the same. Likewise, in NetCoalition v. Securities flow imposed significant pressure on BX
This fee increase is justified because and Exchange Commission 12 to act reasonably in setting its fees for
BX has not increased the Distributor (‘‘NetCoalition’’) the D.C. Circuit upheld BX market data, particularly given that
fees for TotalView since they were the Commission’s use of a market-based the market participants that must pay
initially proposed in 2009, although the approach in evaluating the fairness of such fees often will be the same market
value of BX TotalView has increased market data fees against a challenge participants from whom BX must attract
since that time. Since 2009, BX’s market claiming that Congress mandated a cost- order flow. The SEC also noted that, in
share for quoting and trading of Nasdaq- based approach.13 As the court setting the fees for its TotalView data,
listed securities and securities not listed emphasized, the Commission ‘‘intended BX must consider the extent to which
on Nasdaq has increased, which has, in in Regulation NMS that ‘market forces, market participants would choose one
turn, increased the content and rather than regulatory requirements’ or more alternatives instead of
therefore the value of the TotalView play a role in determining the market purchasing the Exchange’s data.20 The
product. In addition, various technical data . . . to be made available to Commission stated that the availability
changes have enhanced TotalView by investors and at what cost.’’ 14 of those alternatives, as well as the BX’s
improving the performance and the Further, ‘‘[n]o one disputes that compelling need to attract order flow,
resiliency of the BX matching engine, competition for order flow is ‘fierce.’ imposed significant competitive
which, in turn, has improved outbound . . . As the SEC explained, ‘[i]n the U.S. pressure on the BX to act equitably,
messaging through TotalView, national market system, buyers and fairly, and reasonably in setting the
especially during peak times of sellers of securities, and the broker- terms of its proposal.21
messaging traffic.8 BX also notes that dealers that act as their order-routing The same arguments apply with
the proposed new TotalView fees agents, have a wide range of choices of respect to the proposed fee increase
remain consistent with fees for where to route orders for execution’; here. Although BX is a more mature
comparable products offered by other [and] ‘no exchange can afford to take its market than in 2009, competition for
exchanges. This fee increase therefore market share percentages for granted’ order flow remains fierce, and some of
reflects the increased value of the because ‘no exchange possesses a the market participants that purchase
TotalView product and the comparative monopoly, regulatory or otherwise, in TotalView are the same market
cost of other similar products. the execution of order flow from broker participants from whom BX must attract
dealers’. . . .’’ 15 order flow. Additionally, market
2. Statutory Basis More specifically, the SEC recognized participants continue to have a range of
The Exchange believes that its the importance of competition in setting other market data products that they
proposal is consistent with Section 6(b) fees for non-core market data products could purchase as alternatives to
of the Act,9 in general, and furthers the when approving the TotalView fees in TotalView. As with the initial
objectives of Sections 6(b)(4) and 6(b)(5) 2009.16 The SEC noted that TotalView TotalView fees, the significant
of the Act,10 in particular, in that it related to the distribution of non-core, competitive pressure with respect to
provides for the equitable allocation of depth of book market data products, and order flow and market data products
reasonable dues, fees and other charges the SEC was therefore able to use a therefore requires BX to act equitably,
among members and issuers and other market-based approach in analyzing the fairly, and reasonably in setting the
persons using any facility, and is not appropriateness of the fees.17 terms of its proposed TotalView fees.
designed to permit unfair Accordingly, the SEC recognized both The Exchange also believes that the
discrimination between customers, BX’s compelling need to attract order increase in the Monthly Internal
issuers, brokers, or dealers. flow from market participants; and the Distributor Fee from $500 to $750 and
The Commission and the courts have availability to market participants of the increase in the Monthly External
repeatedly expressed their preference alternatives to purchasing BX’s depth- Distributor Fee from $1,250 to $1,500 is
for competition over regulatory of-book order data.18 The SEC stated reasonable because these fee increases
intervention in determining prices, reflect the current value of the
products, and services in the securities 11 Securities Exchange Act Release No. 51808
TotalView product. TotalView provides
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) comprehensive order and trade
markets. In Regulation NMS, while (‘‘Regulation NMS Adopting Release’’).
adopting a series of steps to improve the 12 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. information for Nasdaq-listed securities
current market model, the Commission 2010). and securities not listed on Nasdaq, and
highlighted the importance of market 13 See NetCoalition, at 534–535. the value of a product that offers such
forces in determining prices and SRO 14 Id. at 537.
information increases as BX’s market
15 Id. at 539 (quoting Securities Exchange Act
revenues and, also, recognized that share increases. As noted above, when
Release No. 59039 (December 2, 2008), 73 FR
74770, 74782–83 (December 9, 2008) (SR–
TotalView was initially proposed, BX
8 Specifically, in 2016, BX split its matching
NYSEArca–2006–21)). was seeking to resume its cash equities
engine into four matching engines to improve the 16 See Securities Exchange Act Release No. 59615 trading business, which was reflected in
handling and execution of orders by increasing (March 20, 2009), 74 FR 14604 (March 31, 2009) the initial TotalView fees. Given that
system resiliency and reduce the impact of peaks (Order approving SR–BX–2009–005). Core data is
BX’s market share in those securities
srobinson on DSK5SPTVN1PROD with NOTICES
in messaging traffic. In anticipation of this change, the best-priced quotations and comprehensive last-
BX implemented a series of system upgrades in sale reports of all markets that the Commission,
2015, including upgrading the servers for the BX pursuant to Rule 603(b), requires a central processor 19 Id.
matching engine, upgrading the matching engine to to consolidate and distribute to the public pursuant 20 Id.
the newest and most efficient version, and to joint-SRO plans. In contrast, individual 21 Id. In approving the TotalView fees, the
upgrading the necessary tools to effectively monitor exchanges and other market participants distribute Commission also did not find a substantial
the Nasdaq BX marketplace. non-core data voluntarily. Id. countervailing basis to conclude that the proposal
9 15 U.S.C. 78f(b). 17 Id.
nevertheless failed to meet an applicable
10 15 U.S.C. 78f(b)(4) and (5). 18 Id. requirement of the Act or the rules thereunder.
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![96530 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Notices
potential to impair revenues from both of investors; or (iii) otherwise in For the Commission, by the Division of
products. In this manner, the furtherance of the purposes of the Act. Trading and Markets, pursuant to delegated
competition for order flow will If the Commission takes such action, the authority.23
constrain prices for proprietary data Commission shall institute proceedings Robert W. Errett,
products. to determine whether the proposed rule Deputy Secretary.
should be approved or disapproved. [FR Doc. 2016–31681 Filed 12–29–16; 8:45 am]
Substitute Products
BILLING CODE 8011–01–P
The price of depth-of-book data is IV. Solicitation of Comments
constrained by the existence of Interested persons are invited to
competition from other exchanges, such submit written data, views, and SECURITIES AND EXCHANGE
as NYSE and BATS, which sell arguments concerning the foregoing, COMMISSION
proprietary depth-of-book data. While a including whether the proposed rule
[Release No. 34–79682; File No. SR–FINRA–
small number of highly sophisticated change is consistent with the Act. 2016–048]
traders purchase depth-of-book products Comments may be submitted by any of
from multiple exchanges, most the following methods: Self-Regulatory Organizations;
customers do not. Because most Financial Industry Regulatory
customers would not pay an excessive Electronic Comments
Authority, Inc.; Notice of Filing and
price for TotalView when substitute • Use the Commission’s Internet Immediate Effectiveness of a Proposed
data is available from other proprietary comment form (http://www.sec.gov/ Rule Change To Eliminate Fees for
sources, the Exchange is constrained in rules/sro.shtml); or Historical Trade Data Accessed
its pricing decisions. • Send an email to rule-comments@ Through the FINRA ADDS Web Site
sec.gov. Please include File Number SR–
Competition Among Distributors December 23, 2016.
BX–2016–073 on the subject line.
Competition among Distributors Pursuant to Section 19(b)(1) of the
provides another form of price Paper Comments Securities Exchange Act of 1934
discipline for proprietary data products. • Send paper comments in triplicate (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
If the price of TotalView were set above to Secretary, Securities and Exchange notice is hereby given that on December
competitive levels, Distributors Commission, 100 F Street NE., 20, 2016, Financial Industry Regulatory
purchasing TotalView would be at a Washington, DC 20549–1090. Authority, Inc. (‘‘FINRA’’) filed with the
disadvantage relative to their All submissions should refer to File Securities and Exchange Commission
competitors, and would therefore either Number SR–BX–2016–073. This file (‘‘SEC’’ or ‘‘Commission’’) the proposed
purchase a substitute or forego the number should be included on the rule change as described in Items I, II,
product altogether. subject line if email is used. To help the and III below, which Items have been
In summary, market forces constrain Commission process and review your prepared by FINRA. FINRA has
the price of depth-of-book data such as comments more efficiently, please use designated the proposed rule change as
TotalView through competition for only one method. The Commission will ‘‘establishing or changing a due, fee or
order flow, competition from substitute post all comments on the Commission’s other charge’’ under Section
products, and in the competition among Internet Web site (http://www.sec.gov/ 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–
vendors for customers. For these rules/sro.shtml). Copies of the 4(f)(2) thereunder,4 which renders the
reasons, the Exchange has provided a submission, all subsequent proposal effective upon receipt of this
substantial basis demonstrating that the amendments, all written statements filing by the Commission. The
fee is equitable, fair, reasonable, and not with respect to the proposed rule Commission is publishing this notice to
unreasonably discriminatory, and change that are filed with the solicit comments on the proposed rule
therefore consistent with and in Commission, and all written change from interested persons.
furtherance of the purposes of the communications relating to the
Exchange Act. I. Self-Regulatory Organization’s
proposed rule change between the Statement of the Terms of the Substance
C. Self-Regulatory Organization’s Commission and any person, other than of the Proposed Rule Change
Statement on Comments on the those that may be withheld from the
public in accordance with the FINRA is proposing to amend FINRA
Proposed Rule Change Received From
provisions of 5 U.S.C. 552, will be Rules 7510, 7710 and 7730 to eliminate
Members, Participants, or Others
available for Web site viewing and the fees for historical trade data
No written comments were either accessed through the FINRA Automated
printing in the Commission’s Public
solicited or received. Data Delivery System (‘‘FINRA ADDS’’)
Reference Room, 100 F Street NE.,
III. Date of Effectiveness of the Washington, DC 20549 on official Web site relating to trades reported to
Proposed Rule Change and Timing for business days between the hours of the Alternative Display Facility
Commission Action 10:00 a.m. and 3:00 p.m. Copies of the (‘‘ADF’’), OTC Reporting Facility
filing also will be available for (‘‘ORF’’) and Trade Reporting and
The foregoing rule change has become Compliance Engine (‘‘TRACE’’).
effective pursuant to Section inspection and copying at the principal
office of the Exchange. All comments The text of the proposed rule change
19(b)(3)(A)(ii) of the Act.22 is available on FINRA’s Web site at
At any time within 60 days of the received will be posted without change;
the Commission does not edit personal http://www.finra.org, at the principal
filing of the proposed rule change, the
srobinson on DSK5SPTVN1PROD with NOTICES
identifying information from office of FINRA and at the
Commission summarily may Commission’s Public Reference Room.
temporarily suspend such rule change if submissions. You should submit only
it appears to the Commission that such information that you wish to make 23 17 CFR 200.30–3(a)(12).
action is: (i) necessary or appropriate in available publicly. All submissions 1 15 U.S.C. 78s(b)(1).
the public interest; (ii) for the protection should refer to File Number SR–BX– 2 17 CFR 240.19b–4.
2016–073, and should be submitted on 3 15 U.S.C. 78s(b)(3)(A)(ii).
22 15 U.S.C. 78s(b)(3)(A)(ii). or before January 20, 2017. 4 17 CFR 240.19b–4(f)(2).
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Document Created: 2016-12-30 05:16:02
Document Modified: 2016-12-30 05:16:02
| 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 96527 |
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