83 FR 3790 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Exchange Rule 7047

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 18 (January 26, 2018)

Page Range		3790-3794
FR Document		2018-01356

Federal Register, Volume 83 Issue 18 (Friday, January 26, 2018)

[Federal Register Volume 83, Number 18 (Friday, January 26, 2018)]
[Notices]
[Pages 3790-3794]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2018-01356]

[[Page 3790]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82541; File No. SR-NASDAQ-2018-004]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Exchange Rule 7047

January 19, 2018.
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 January 9, 2018, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to amend Exchange Rule 7047 to reflect
substantial enhancements to Nasdaq Basic since the current distribution
fees were set in 2009. Specifically, the Exchange proposes to modify
distribution fees, currently set at $1,500 for both internal and
external distribution, into separate fees of $2,000 per month for
external (or external and internal) distribution and $1,500 per month
for internal-only distribution. The proposal is described in further
detail below.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaq.cchwallstreet.com/, at the principal office of
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
The Exchange proposes to adjust the fee schedule for Nasdaq Basic
to reflect substantial enhancements to the product since the current
distribution fees were set in 2009.\3\ Specifically, the Exchange
proposes to amend the distribution fees for Nasdaq Basic at Rule 7047,
currently set at $1,500 for both internal and external distribution,
into separate fees of $2,000 per month for external (or external and
internal) distribution and $1,500 per month for internal-only
distribution.\4\
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\3\ See Securities Exchange Act Release No. 59244 (January 13,
2009), 74 FR 4065 (January 22, 2009) (SR-NASDAQ-2008-102). The
initial proposal included separate distribution fees for securities
listed with other exchanges, which were removed in Securities
Exchange Act Release No. 59712 (April 6, 2009), 74 FR 17273 (April
14, 2009) (SR-NASDAQ-2009-028). SR-NASDAQ-2009-028 also added a
credit for user fees, which was removed in Securities Exchange Act
Release No. 78578 (August 15, 2016), 81 FR 55513 (August 19, 2016)
(SR-NASDAQ-2016-109).
\4\ Distribution fees for Nasdaq Last Sale (``NLS'') set forth
at Rule 7039(c) shall remain unchanged.
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Nasdaq Basic
Nasdaq Basic is a real-time market data product that offers Best
Bid and Offer and Last Sale information for all U.S. exchange-listed
securities based on liquidity within the Nasdaq Market Center and
trades reported to the FINRA/Nasdaq Trade Reporting Facility (``TRF'').
It is a subset of the ``core'' quotation and last sale data provided by
securities information processors (``SIPs'') under the CTA Plan and the
Nasdaq UTP Plan. Nasdaq Basic is separated into three components, which
may be purchased individually or in combination: (i) Nasdaq Basic for
Nasdaq, which contains the best bid and offer on the Nasdaq Market
Center and last sale transaction reports for Nasdaq and the FINRA/
Nasdaq TRF for Nasdaq-listed stocks; (ii) Nasdaq Basic for NYSE, which
covers NYSE-listed stocks, and (iii) Nasdaq Basic for NYSE American
(formerly NYSE MKT), which provides data on stocks listed on NYSE
American and other listing venues whose quotes and trade reports are
disseminated on Tape B. The specific data elements available through
Nasdaq Basic are: (i) Nasdaq Basic Quotes (``QBBO''), the best bid and
offer and associated size available in the Nasdaq Market Center, as
well as last sale transaction reports; (ii) Nasdaq opening and closing
prices, as well as IPO and trading halt crosses; and (iii) general
exchange information, including systems status reports, trading halt
information, and a stock directory.
Each Distributor of Nasdaq Basic, or Derived Data therefrom,
currently pays $1,500 per month for either internal or external
distribution or both,\5\ in addition to user fees set forth under Rule
7047(b).
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\5\ See Rule 7047(c)(1).
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Proposed Change
Nasdaq Basic is one of a number of market information services
offered by the Exchange. Such services are inextricably connected to
trade execution: Market information services require trade orders to
provide useful information, and investors utilize market information to
make trading decisions. Over the eight years that have elapsed since
the current distribution fees were set in 2009,\6\ the Exchange has
invested in an array of upgrades to both its trade execution and market
information services, which have increased the value of these services
overall, and Nasdaq Basic in particular.\7\
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\6\ See Securities Exchange Act Release No. 59712 (April 6,
2009), 74 FR 17273 (April 14, 2009) (SR-NASDAQ-2009-028).
\7\ Many of these upgrades are common to several Nasdaq-
affiliated exchanges, as improvements to the products and services
of one exchange are reproduced in other exchanges.
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The Exchange proposes to adjust its fee schedule for Nasdaq Basic
to reflect the value of the many improvements to the product, which
include:
Enhanced Services. In 2014, the Exchange enhanced the
Nasdaq Basic data feed by: (i) Converting to binary codes to make more
efficient use of bandwidth and to provide greater timestamp
granularity; (ii) adding a symbol directory message to identify a
security and its key characteristics; (iii) adding a new IPO message
for Nasdaq-listed securities for quotation release time and IPO price;
and (iv) adding the Market Wide Circuit Breaker (``MWCB'') Decline
Level message to inform recipients of the setting for MWCB breach
points for the trading day, and an MWCB Status Level Message to inform
data recipients when an MWCB has breached an established level.\8\
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\8\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-45 and http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-33.
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Nanosecond Granularity. In 2016 [sic], Nasdaq introduced a
new version of Nasdaq Last Sale which allowed for timestamp granularity
to the nanosecond.\9\
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\9\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2016-03.

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[[Page 3791]]

Exchange Traded Managed Funds (``ETMFs''). In 2015, the
Exchange modified the data feed for Nasdaq Basic to accommodate an
ETMF, a type of investment vehicle that combines the features of an
open-end mutual fund and an Exchange Traded Fund (``ETF'') to support
an actively managed-investment strategy.\10\ ETMF trading differs from
other types of equity trading in that it uses a trading protocol called
``Net Asset Value-Based Trading,'' in which all bids, offers, and
execution prices are expressed as a premium or discount to the ETMF's
next-determined Net Asset Value (``NAV''). This distinct pricing format
requires an entirely new set of data fields in which to distribute
information related to prices and trades, and the Exchange modified
Nasdaq Basic to accommodate that format.\11\
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\10\ See Securities Exchange Act Release No. 73562 (November 7,
2014), 79 FR 68309 (November 14, 2014) (SR-NASDAQ-2014-020)
(approving the listing and trading of Exchange-Traded Managed Fund
Shares).
\11\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2015-7.
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Qualified Contingent Trade Modifier. In 2015, Nasdaq
introduced a new field to Nasdaq Basic to identify a Qualified
Contingent Trades [sic] (``QCT''),\12\ a transaction consisting of two
or more component orders executed as agent or principal where the
execution of one component is contingent upon the execution of all
other components at or near the same time, and the price is determined
by the relationship between the component orders and not the current
market price for the security.\13\ The additional field identifies
whether a particular transaction is part of a QCT.
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\12\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2015-24.
\13\ See Securities Exchange Act Release No. 54389 (August 31,
2006), 71 FR 52829 (September 7, 2006).
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Adjusted Closing Price. In 2013, Nasdaq introduced the
adjusted closing price as a field to reflect a security's previous day
official closing price, adjusted for corporate actions. For Nasdaq-
listed securities, the Nasdaq Official Closing Price is used,\14\ and
the consolidated close from the security's listing exchange is used for
non-Nasdaq securities.\15\
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\14\ Nasdaq's closing cross process produces a tradable closing
price that represents either the closing cross or the best available
price at the time of the transaction.
\15\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-25.
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New System Event Messages. In 2013, Nasdaq began
disseminating event messages to indicate the start and end of system
hours.\16\
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\16\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-20.
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Geographic Diversity. In 2015, all of the Nasdaq Exchanges
moved their Disaster Recover [sic] (``DR'') center from Ashburn,
Virginia, to Chicago, Illinois. As a result, customers can both receive
market data and send orders through the Chicago facility, potentially
reducing overall networking costs. Adding such geographic diversity
helps protect the market in the event of a catastrophic event impacting
the entire East Coast.\17\
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\17\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2015-17.
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Chicago ``B'' Feeds. In 2017, all of the Nasdaq exchanges
added a multicast IP address for proprietary equity and options data
feeds in Chicago, allowing firms the choice of having additional
redundancy to ensure data continuity.\18\
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\18\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2017-02.
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While these changes were being implemented, distributor fees for
Nasdaq Basic were falling in real terms as a result of inflation.
Indeed, the proposed fee increase is partially offset by inflation,\19\
and represents only an approximately 3.7 percent annual increase
between 2009 and 2017. The Exchange believes that the remaining
percentage increase over inflation is more than justified by the
substantial upgrades described above.
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\19\ The Consumer Price Index indicates that prices increased
approximately 17 percent between January 2009 and November 2017. See
https://data.bls.gov/cgi-bin/cpicalc.pl.
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As a result of these upgrades, the Exchange proposes to separate
the internal and external distribution fees for Nasdaq Basic,
increasing external (and combined internal and external) distribution
fees from $1,500 to $2,000 per month, and leaving internal distribution
fees unchanged. Given these specific enhancements to Nasdaq Basic, and
to the Exchange's system generally, and given the fact that the
Exchange has not increased the distributor fees since 2009, the
Exchange believes that the proposed fee increase is appropriate.
Nasdaq Basic is optional in that the Exchange is not required to
offer it and broker-dealers are not required to purchase it. Firms can
discontinue use at any time and for any reason, including an assessment
of the fees charged.
The proposed change does not change the cost of any other Exchange
product.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\20\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\21\ 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.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(4) and (5).
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The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and self-regulatory organization (``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.'' \22\
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\22\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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Likewise, in NetCoalition v. Securities and Exchange Commission
\23\ (``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.\24\ 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.'' \25\
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\23\ See NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\24\ See NetCoalition, at 534-535.
\25\ Id. at 537.
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Further, ``[n]o one disputes that competition for order flow is
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .'' \26\
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\26\ 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)).
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The Exchange proposes to separate the internal and external
distribution fees for Nasdaq Basic, increasing external (and combined
internal and

[[Page 3792]]

external) distribution fees from $1,500 to $2,000 per month, and
leaving internal distribution fees unchanged. The Exchange believes
that the proposed fee increase is reasonable. While the Exchange has
not increased such fees since 2009, the Exchange has added a number of
enhancements since that time to Nasdaq Basic and the Exchange systems
that support it. These enhancements, which are described in greater
detail above, increase the value of Nasdaq Basic. The proposed fee
increase is therefore reflective of, and closely aligned to, these
enhancements and the corresponding increased value of the data feed.
The proposed changes are equitable allocations of reasonable dues,
fees and other charges because the Exchange makes all services and
products subject to these fees available on a non-discriminatory basis
to similarly-situated recipients, and the proposed fee increase here
will apply equally to all members that are external (or combined
internal and external) Distributors. As noted above, the Exchange has
made a number of product and system enhancements to Nasdaq Basic, and,
while internal Distributors have also received the benefit of these
enhancements, the Exchange is not increasing the fee for internal
Distributors at this time. This distinction is not unreasonable because
a higher fee for external, as opposed to internal, distribution is
based on the observation that external distributors typically charge
fees for external distribution, while internal distributors usually do
not. As such, external distributors have the opportunity to derive
greater value from such distribution, and that greater value is
reflected in higher external distribution fees. The differential
between external and internal distribution fees is well-recognized in
the financial services industry as a reasonable distinction, and has
been repeatedly accepted by the Commission as an equitable allocation
of reasonable dues, fees and other charges.\27\ The Act does not
prohibit all distinctions among customers, but rather discrimination
that is unfair. As the Commission has recognized, ``[i]f competitive
forces are operative, the self-interest of the exchanges themselves
will work powerfully to constrain unreasonable or unfair behavior.''
\28\ Accordingly, ``the existence of significant competition provides a
substantial basis for finding that the terms of an exchange's fee
proposal are equitable, fair, reasonable, and not unreasonably or
unfairly discriminatory.'' \29\
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\27\ See, e.g., Rules 7019 (Market Data Distributor Fees);
7022(c) (Short Interest Report); 7023(c) (Enterprise License Fees
for Depth-of-Book Data); and 7052(c) (Distributor Fees for Nasdaq
Daily Short Volume and Monthly Short Sale Transaction Files).
\28\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\29\ Id.
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In adopting Regulation NMS, the Commission granted SROs and broker-
dealers (``BDs'') increased authority and flexibility to offer new and
unique market data to the public. It was believed that this authority
would expand the amount of data available to consumers, and also spur
innovation and competition for the provision of market data. The
Commission concluded that Regulation NMS--by deregulating the market in
proprietary data--would itself further the Act's goals of facilitating
efficiency and competition:

[E]fficiency is promoted when broker-dealers who do not need the
data beyond the prices, sizes, market center identifications of the
NBBO and consolidated last sale information are not required to
receive (and pay for) such data. The Commission also believes that
efficiency is promoted when broker-dealers may choose to receive
(and pay for) additional market data based on their own internal
analysis of the need for such data.\30\
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\30\ See Securities Exchange Act Release No. 51808 (June 29,
2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting
Release'').

The Commission was speaking to the question of whether BDs should
be subject to a regulatory requirement to purchase data, such as depth-
of-book data, that is in excess of the data provided through the
consolidated tape feeds, and the Commission concluded that the choice
should be left to them. Accordingly, Regulation NMS removed unnecessary
regulatory restrictions on the ability of exchanges to sell their own
data, thereby advancing the goals of the Act and the principles
reflected in its legislative history. If the free market should
determine whether proprietary data is sold to BDs at all, it follows
that the price at which such data is sold should be set by the market
as well. Accordingly, ``the existence of significant competition
provides a substantial basis for finding that the terms of an
exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.'' \31\
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\31\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
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The proposed fees, like all market data fees, are constrained by
the Exchange's need to compete for order flow, as discussed below, and
are subject to competition from other exchanges and among broker-
dealers for customers. If Nasdaq is incorrect in its assessment of
price, it may lose market share as a result.

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

The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In terms of inter-market
competition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive, or rebate opportunities available at other venues to be more
favorable. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges and with
alternative trading systems that have been exempted from compliance
with the statutory standards applicable to exchanges. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
Nasdaq Basic is a type of ``non-core'' data that provides a subset
of the core quotation and last sale data provided by securities
information processors under the CTA Plan and the Nasdaq UTP Plan. In
2016, an Administrative Law Judge in an application for review by the
Securities Industry and Financial Markets Association of actions taken
by Self-Regulatory Organizations examined whether another non-core
product, Depth-of-Book data, is constrained by competitive forces.\32\
After a four-day hearing and presentation of substantial evidence, the
administrative law judge stated that ``competition plays a significant
role in restraining exchange pricing of depth-of-book products'' \33\
because ``depth-of-book products from different exchanges function as
substitutes for each other,'' \34\ and, as such, ``the threat of
substitution from depth-of-book customers constrains

[[Page 3793]]

their depth-of-book prices.'' \35\ As a result, ``[s]hifts in order
flow and threats of shifting order flow provide a significant
competitive force in the pricing of . . . depth-of-book data.'' \36\
The judge concluded that ``[u]nder the standards articulated by the
Commission and D.C. Circuit, the Exchanges have shown that they are
subject to significant competitive forces in setting fees for depth-of-
book data: the availability of alternatives to the Exchanges' depth-of-
book products, and the Exchanges' need to attract order flow from
market participants constrains prices.'' \37\ As such, Nasdaq's depth-
of-book fees are ``constrained by significant competitive forces.''
\38\
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\32\ See Securities Industry and Financial Markets Association,
Initial Decision Release No. 1015, 2016 SEC LEXIS 2278 (A.L.J. June
1, 2016).
\33\ Id. at 92.
\34\ Id.
\35\ Id. at 93
\36\ Id. at 104.
\37\ Id. at 86.
\38\ Id. at 120.
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As an example of the impact of market forces on the price of
proprietary data, the Exchange just last year lowered the Nasdaq Basic
Enterprise License fee for the distribution of certain information by
broker-dealers from $350,000 to $100,000.\39\
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\39\ See Securities Exchange Act Release No. 79456 (December 2,
2016) 81 FR 88716 (December 8, 2016) (SR-NASDAQ-2016-162) (proposing
a fee decrease for an enterprise license for the distribution of
Nasdaq Basic to Non-Professional and Professional Subscribers with
whom the broker-dealer has a brokerage relationship).
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Market forces constrain the price of Nasdaq Basic, just as they do
other market data fees, in the competition among exchanges and other
entities to attract order flow and in the competition among
Distributors for customers. Order flow is the ``life blood'' of the
exchanges. Broker-dealers currently have numerous alternative venues
for their order flow, including SRO markets, as well as internalizing
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 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.
Transaction execution and proprietary data products are
complementary in that market data is both an input and a byproduct of
the execution service. In fact, market data and trade execution are a
paradigmatic example of joint products with joint costs. The decision
whether and on which platform to post an order will depend on the
attributes of the platform where the order can be posted, including the
execution fees, data quality and price, and distribution of its data
products. Without trade executions, exchange data products cannot
exist. Moreover, data products are valuable to many end users only
insofar as they provide information that end users expect will assist
them or their customers in making trading decisions.
The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's transaction execution
platform and the cost of regulating the exchange to ensure its fair
operation and maintain investor confidence. The total return that a
trading platform earns reflects the revenues it receives from both
trading execution and data products and the joint costs it incurs to
provide both.
Moreover, the operation of the exchange is characterized by high
fixed costs and low marginal costs. This cost structure is common in
content and content distribution industries such as software, where
developing new software typically requires a large initial investment
(and continuing large investments to upgrade the software), but once
the software is developed, the incremental cost of providing that
software to an additional user is typically small, or even zero (e.g.,
if the software can be downloaded over the internet after being
purchased).\40\
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\40\ See William J. Baumol and Daniel G. Swanson, ``The New
Economy and Ubiquitous Competitive Price Discrimination: Identifying
Defensible Criteria of Market Power,'' Antitrust Law Journal, Vol.
70, No. 3 (2003).
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In Nasdaq's case, it is costly to build and maintain a trading
platform, but the incremental cost of trading each additional share on
an existing platform, or distributing an additional instance of data,
is very low. Market information and executions are each produced
jointly (in the sense that the activities of trading and placing orders
are the source of the information that is distributed) and are each
subject to significant scale economies. In such cases, marginal cost
pricing is not feasible because if all sales were priced at the margin,
Nasdaq would be unable to defray its platform costs of providing the
joint products.
An exchange's BD customers view the costs of transaction executions
and of data as a unified cost of doing business with the exchange. A BD
will disfavor a particular exchange if the expected revenues from
executing trades on the exchange do not exceed net transaction
execution costs and the cost of data that the BD chooses to buy to
support its trading decisions (or those of its customers). The choice
of data products is, in turn, a product of the value of the products in
making profitable trading decisions. If the cost of the product exceeds
its expected value, the BD will choose not to buy it. Moreover, as a BD
chooses to direct fewer orders to a particular exchange, the value of
the product to that BD decreases, for two reasons. First, the product
will contain less information, because executions of the BD's trading
activity will not be reflected in it. Second, and perhaps more
important, the product will be less valuable to that BD because it does
not provide information about the venue to which it is directing its
orders. Data from the competing venue to which the BD is directing more
orders will become correspondingly more valuable.
Competition among trading platforms can be expected to constrain
the aggregate return each platform earns from the sale of its joint
products, but different platforms may choose from a range of possible,
and equally reasonable, pricing strategies as the means of recovering
total costs. Nasdaq pays rebates to attract orders, charges relatively
low prices for market information and charges relatively high prices
for accessing posted liquidity. Other platforms may choose a strategy
of paying lower liquidity rebates to attract orders, setting relatively
low prices for accessing posted liquidity, and setting relatively high
prices for market information. Still others may provide most data free
of charge and rely exclusively on transaction fees to recover their
costs. Finally, some platforms may incentivize use by providing
opportunities for equity ownership, which may allow them to charge
lower direct fees for executions and data.
In this environment, there is no economic basis for regulating
maximum prices for one of the joint products in an industry in which
suppliers face competitive constraints with regard to the joint
offering. Such regulation is unnecessary because an ``excessive'' price
for one of the joint products will ultimately have to be reflected in
lower prices for other products sold by the firm, or otherwise the firm
will experience a loss in the volume of its sales that will be adverse
to its overall profitability. In other words, an increase in the price
of data will ultimately have to be accompanied by a decrease in the

[[Page 3794]]

cost of executions, or the volume of both data and executions will
fall.\41\
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\41\ Moreover, the level of competition and contestability in
the market is evident in the numerous alternative venues that
compete for order flow, including SRO markets, internalizing BDs and
various forms of ATSs, including dark pools and ECNs. Each SRO
market competes to produce transaction reports via trade executions,
and two FINRA-regulated TRFs compete to attract internalized
transaction reports. It is common for BDs to further and exploit
this competition by sending their order flow and transaction reports
to multiple markets, rather than providing them all to a single
market. Competitive markets for order flow, executions, and
transaction reports provide pricing discipline for the inputs of
proprietary data products. The large number of SROs, TRFs, BDs, and
ATSs that currently produce proprietary data or are currently
capable of producing it provides further pricing discipline for
proprietary data products. Each SRO, TRF, ATS, and BD is currently
permitted to produce proprietary data products, and many currently
do or have announced plans to do so, including Nasdaq, NYSE, NYSE
American, NYSE Arca, IEX, and Chicago Board Options Exchange
(``CBOE'').
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The proposed changes will separate the internal and external
distribution fees for Nasdaq Basic, increasing external distribution
fees from $1,500 to $2,000 per month, and leaving internal distribution
fees unchanged. The proposed price changes will not impose any burden
on competition because external distributors typically charge fees for
external distribution, and thereby usually derive greater value from
such distribution than internal distributors, which typically do not
charge fees, and that greater value supports higher external
distribution fees. This distinction between external and internal
distribution fees is common in the financial services industry, and has
been applied to other products without any anti-competitive effect. As
explained, these fees will become one aspect of the total cost of
interacting with the Exchange, and if these total costs prove to be
excessive, the Exchange will lose revenue 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.

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.\42\
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\42\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 Comments

Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NASDAQ-2018-004 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-2018-004. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NASDAQ-2018-004 and should be submitted
on or before February 16, 2018.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
---------------------------------------------------------------------------

\43\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01356 Filed 1-25-18; 8:45 am]
BILLING CODE 8011-01-P

3794 Federal Register / Vol. 83, No. 18 / Friday, January 26, 2018 / Notices

cost of executions, or the volume of both At any time within 60 days of the personal identifying information from
data and executions will fall.41 filing of the proposed rule change, the comment submissions. You should
The proposed changes will separate Commission summarily may submit only information that you wish
the internal and external distribution temporarily suspend such rule change if to make available publicly. All
fees for Nasdaq Basic, increasing it appears to the Commission that such submissions should refer to File
external distribution fees from $1,500 to action is: (i) Necessary or appropriate in Number SR–NASDAQ–2018–004 and
$2,000 per month, and leaving internal the public interest; (ii) for the protection should be submitted on or before
distribution fees unchanged. The of investors; or (iii) otherwise in February 16, 2018.
proposed price changes will not impose furtherance of the purposes of the Act. For the Commission, by the Division of
any burden on competition because If the Commission takes such action, the Trading and Markets, pursuant to delegated
external distributors typically charge Commission shall institute proceedings authority.43
fees for external distribution, and to determine whether the proposed rule Eduardo A. Aleman,
thereby usually derive greater value should be approved or disapproved. Assistant Secretary.
from such distribution than internal
distributors, which typically do not IV. Solicitation of Comments [FR Doc. 2018–01356 Filed 1–25–18; 8:45 am]
charge fees, and that greater value Interested persons are invited to BILLING CODE 8011–01–P

supports higher external distribution submit written data, views, and
fees. This distinction between external arguments concerning the foregoing,
and internal distribution fees is including whether the proposed rule SECURITIES AND EXCHANGE
common in the financial services change is consistent with the Act. COMMISSION
industry, and has been applied to other Comments may be submitted by any of [Release No. 34–82566; File No. SR–NYSE–
products without any anti-competitive the following methods: 2018–04]
effect. As explained, these fees will Electronic Comments
become one aspect of the total cost of Self-Regulatory Organizations; New
interacting with the Exchange, and if • Use the Commission’s internet York Stock Exchange LLC; Notice of
these total costs prove to be excessive, comment form (http://www.sec.gov/ Filing and Immediate Effectiveness of
the Exchange will lose revenue as a rules/sro.shtml); or Proposed Rule Change To Amend Its
result. Accordingly, the Exchange does • Send an email to rule-comments@ Listing Standard for Warrants in
not believe that the proposed changes sec.gov. Please include File Number SR– Section 703.12 of the Exchange’s
will impair the ability of members or NASDAQ–2018–004 on the subject line. Listed Company Manual
competing order execution venues to Paper Comments January 22, 2018.
maintain their competitive standing in
• Send paper comments in triplicate Pursuant to Section 19(b)(1) of the
the financial markets.
to Secretary, Securities and Exchange Securities Exchange Act of 1934
C. Self-Regulatory Organization’s Commission, 100 F Street NE, (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
Statement on Comments on the Washington, DC 20549–1090. notice is hereby given that on January
Proposed Rule Change Received From All submissions should refer to File 11, 2018, New York Stock Exchange
Members, Participants, or Others Number SR–NASDAQ–2018–004. This LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
No written comments were either file number should be included on the with the Securities and Exchange
solicited or received. subject line if email is used. To help the Commission (‘‘SEC’’ or ‘‘Commission’’)
Commission process and review your the proposed rule change as described
III. Date of Effectiveness of the comments more efficiently, please use in Items I and II below, which Items
Proposed Rule Change and Timing for only one method. The Commission will have been prepared by the Exchange.
Commission Action post all comments on the Commission’s The Commission is publishing this
The foregoing rule change has become internet website (http://www.sec.gov/ notice to solicit comments on the
effective pursuant to Section rules/sro.shtml). Copies of the proposed rule change from interested
19(b)(3)(A)(ii) of the Act.42 submission, all subsequent persons.
amendments, all written statements I. Self-Regulatory Organization’s
41 Moreover, the level of competition and
with respect to the proposed rule Statement of the Terms of Substance of
contestability in the market is evident in the change that are filed with the
numerous alternative venues that compete for order the Proposed Rule Change
flow, including SRO markets, internalizing BDs and Commission, and all written
various forms of ATSs, including dark pools and communications relating to the The Exchange proposes to amend its
ECNs. Each SRO market competes to produce proposed rule change between the listing standard for warrants as set forth
transaction reports via trade executions, and two Commission and any person, other than in Section 703.12 of the Exchange’s
FINRA-regulated TRFs compete to attract Listed Company Manual (the ‘‘Manual’’)
internalized transaction reports. It is common for those that may be withheld from the
BDs to further and exploit this competition by public in accordance with the to create an exception to the prohibition
sending their order flow and transaction reports to provisions of 5 U.S.C. 552, will be on reducing the exercise price of listed
multiple markets, rather than providing them all to available for website viewing and warrants so as to permit exercise price
a single market. Competitive markets for order flow, reductions that are widely publicized
executions, and transaction reports provide pricing printing in the Commission’s Public
discipline for the inputs of proprietary data Reference Room, 100 F Street NE, and that continue in effect for at least 20
products. The large number of SROs, TRFs, BDs, Washington, DC 20549, on official business days 3 (or such longer period as
and ATSs that currently produce proprietary data business days between the hours of may be required under the tender offer
daltland on DSKBBV9HB2PROD with NOTICES

or are currently capable of producing it provides rules of the Securities and Exchange
further pricing discipline for proprietary data 10:00 a.m. and 3:00 p.m. Copies of the
products. Each SRO, TRF, ATS, and BD is currently filing also will be available for
43 17 CFR 200.30–3(a)(12).
permitted to produce proprietary data products, and inspection and copying at the principal 1 15
many currently do or have announced plans to do U.S.C. 78s(b)(1).
office of the Exchange. All comments 2 17 CFR 240.19b–4.
so, including Nasdaq, NYSE, NYSE American,
NYSE Arca, IEX, and Chicago Board Options received will be posted without change. 3 The term ‘‘business day’’ is used as defined in
Exchange (‘‘CBOE’’). Persons submitting comments are Rule 14d–1(g)(3) under the Act (17 CFR 240.14d–
42 15 U.S.C. 78s(b)(3)(A)(ii). cautioned that we do not redact or edit 1(g)(3)).

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Document Created: 2018-10-26 10:03:14
Document Modified: 2018-10-26 10:03:14

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		83 FR 3790