83 FR 7812 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7039 To Modify Pricing for the Nasdaq Last Sale Data Product and To Make Other Related Changes to Nasdaq Rules
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 36 (February 22, 2018)
Federal Register Volume 83, Issue 36 (February 22, 2018)
| Page Range | 7812-7820 | |
| FR Document | 2018-03568 |
[Federal Register Volume 83, Number 36 (Thursday, February 22, 2018)] [Notices] [Pages 7812-7820] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-03568] [[Page 7812]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82723; File No. SR-NASDAQ-2018-010] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Rule 7039 To Modify Pricing for the Nasdaq Last Sale Data Product and To Make Other Related Changes to Nasdaq Rules February 15, 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 February 2, 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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 7039 (Nasdaq Last Sale and Nasdaq Last Sale Plus Data Feeds) \3\ to modify pricing for the Nasdaq Last Sale (``NLS'') data product and to make other related changes to Nasdaq rules. --------------------------------------------------------------------------- \3\ References to rules are to Nasdaq rules, unless otherwise noted. --------------------------------------------------------------------------- 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 purpose of this proposal is to amend Rule 7039 to modify the pricing framework for the NLS data product. NLS is a market data product that comprises two proprietary data feeds containing real-time last sale Information \4\ for trades executed on the Exchange or reported to the FINRA/Nasdaq Trade Reporting Facility (the ``FINRA/ Nasdaq TRF'').\5\ As such, NLS is a ``non-core'' product that provides a subset of the ``core'' last-sale data provided by securities information processors (``SIPs'') under the CTA Plan and the Nasdaq UTP Plan. --------------------------------------------------------------------------- \4\ In this filing, Nasdaq is proposing, among other things, to adopt new defined terms for use in Rule 7039. At a later date, Nasdaq intends to submit an additional proposed rule change to move these definitions into a new rule and propose to expand its applicability to all market data fee rules in the 7000 rule series. The term ``Information'' is a broad generic term designed to encompass the full range of information or data transmitted by Nasdaq, and as such will be defined to mean ``any data or information that has been collected, validated, processed and/or recorded by the Exchange and made available for transmission relating to: (i) Eligible securities or other financial instruments, markets, products, vehicles, indicators or devices; (ii) activities of the Exchange; or (iii) other information or data from the Exchange. Information includes, but is not limited to, any element of information used or processed in such a way that Exchange Information or a substitute for such Information can be identified, recalculated or re-engineered from the processed information.'' The term is not currently defined in Exchange rules. Of note, ``Derived Data'' is excluded from the definition of ``Information,'' and as discussed below, is defined separately. The term ``Information'' will be proposed for wider use in a future rule filing concerning definitions. \5\ See Nasdaq Rule 7039(a)-(c). See also Securities Exchange Act Release No. 71351 (January 17, 2014), 79 FR 4200 (January 24, 2014) (SR-NASDAQ-2014-006) (notice of filing and immediate effectiveness regarding permanent approval of NLS). --------------------------------------------------------------------------- As reflected in the filing that originally established it,\6\ NLS was designed to enable market-data ``distributors to provide free access to the data [contained in NLS] to millions of individual investors via the internet and television'' and was expected to ``increase[ ] the availability of NASDAQ proprietary market data to individual investors.'' \7\ Similarly, in its filing to offer NLS on a permanent, rather than a pilot, basis, Nasdaq stated that ``[d]uring the pilot period, the program has vastly increased the availability of NASDAQ proprietary market data to individual investors. Based upon data from NLS Distributors, NASDAQ believes that since its launch in July 2008, the NLS data has been viewed by millions of investors on websites operated by Google, Interactive Data, and Dow Jones, among others.'' \8\ --------------------------------------------------------------------------- \6\ See SR-NASDAQ-2006-060 (Amendment No. 2, June 10, 2008) (available at http://nasdaq.cchwallstreet.com/NASDAQ/pdf/nasdaq-filings/2006/SR-NASDAQ-2006-060_Amendment_2.pdf). See also Securities Exchange Act Release No. 57965 (June 16, 2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-060) (approving SR-NASDAQ- 2006-060, as amended by Amendment Nos. 1 and 2, to implement NLS on a pilot basis). \7\ SR-NASDAQ-2006-060 (Amendment No. 2, June 10, 2008), at 3. \8\ Securities Exchange Act Release No. 71351 (January 17, 2014), 79 FR 4200 (January 24, 2014) (SR-NASDAQ-2014-006). --------------------------------------------------------------------------- The fee schedule for NLS currently offers Distributors \9\ several different pricing models from which they may select in determining the fees applicable to distribution of the product. Specifically, in keeping with the goal of NLS to promote the accessibility of data to individual investors, Distributors may choose to distribute NLS in an uncontrolled fashion via television or the internet and pay under pricing models that require them to estimate the number of households or website visitors to which the data is provided. Alternatively, a Distributor may opt for a pricing model that requires it to count its customers based on a username and password system, or a model under which data is supplied on an ad hoc basis in response to customer queries. In both these cases, the pricing model assumes distribution through a website, such as might be provided by a broker-dealer (``BD'') to customers who log in using a username and password, or who enter ticker symbols into a website to [[Page 7813]] query for last sale information.\10\ Thus, consistent with the stated purpose of NLS, the fee structure under which NLS is made available reflects a model of widespread distribution to individual investors. The fees for these different pricing models are tiered based on volume, with the fees for marginal usage reduced as a Distributor achieves certain volume levels. Moreover, the maximum monthly fee for NLS, regardless of usage levels, under these distribution models is $41,500. --------------------------------------------------------------------------- \9\ Nasdaq is proposing to define a ``Distributor'' as ``an entity, as identified in the Nasdaq Global Data Agreement (or any successor agreement), that executes such an Agreement and has access to Exchange Information, together with its affiliates having such access.'' The Nasdaq Global Data Agreement is the standardized agreement that entities receiving Information sign to establish a contractual relationship with the Exchange. The word is currently defined in several Exchange rules--e.g., Rules 7047 (Nasdaq Basic), 7019 (Market Data Distributor Fees), and 7023 (Nasdaq Depth-of-Book Data)--in terms that focus on (i) receipt of Exchange information, and (ii) the provision of the information to internal or external Subscribers. Thus, ``Distributor'' broadly covers any person that receives Information and makes it available. Since such persons are required to sign the Nasdaq Global Data Agreement to establish a contractual right to distribute Information, the new definition is intended to simplify the definition through reference to the objective fact of a contract, but is not intended to narrow or broaden the scope of the term from the manner in which it is defined in existing rules. In fact, Rule 7019 similarly refers to the requirement that distributors execute an agreement with the Exchange. The new definition further specifies that the term Distributor includes both an entity and its affiliates that have access to Information; the inclusion of affiliates and the reference to having access are both consistent with the manner in which current definitions are interpreted. The new definition also eliminates superfluous references to internal and external receipt and distribution. \10\ Nasdaq notes that BDs may provide NLS data to customers in circumstances where they are not required to provide a consolidated display by SEC Rule 603(c), 17 CFR 242.603(c). See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 35569 [sic] -37570 (June 29, 2005) (File No. S7-10-04) (``Reg NMS Adopting Release''). --------------------------------------------------------------------------- Many data products sold by Nasdaq and others distinguish between data usage based on whether the data is being used by ``Professionals'' or ``Non-Professionals,'' with different prices charged for each category.\11\ A ``Non-Professional'' is defined as ``a natural person who is not: (A) Registered or qualified in any capacity with the Securities and Exchange Commission, the Commodity Futures Trading Commission, any state securities agency, any securities exchange or association, or any commodities or futures contract market or association; (B) engaged as an `investment' adviser' as that term is defined in Section 202(a)(11) of the Investment Advisers Act of 1940 (whether or not registered or qualified under that Act); or (C) employed by a bank or other organization exempt from registration under federal or state securities laws to perform functions that would require registration or qualification if such functions were performed for an organization not so exempt.'' \12\ A ``Professional'' is defined as ``any natural person, proprietorship, corporation, partnership, or other entity whatever other than a Non-Professional.'' \13\ The fee structure for NLS does not, however, currently contain provisions that make these distinctions or that clearly contemplate internal distribution of the product to BD employees or other Professionals. Rather, the fee structures and distribution models of NLS reflect Nasdaq's assumption that it is a product of interest to a broad range of individual investors, to be distributed in a relatively uncontrolled manner through websites (either password protected or not) or television.\14\ --------------------------------------------------------------------------- \11\ See, e.g., Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileged Basis (``Nasdaq UTP Plan'') (available at http://www.utpplan.com/utp_plan); Rule 7023 (Nasdaq Depth-of-Book Data); Rule 7026 (Distribution Models); Rule 7047 (Nasdaq Basic). \12\ The term ``Non-Professional'' is currently defined at Rules 7023(a)(3)(A) and 7047(d)(3)(A). The definition of Non-Professional is well-established in the securities industry, and has been part of the Nasdaq rule book since at least 2002. See Securities Exchange Act Release No. 46521 (September 20, 2002), 67 FR 61179 at n.10 (September 27, 2002) (SR-NASD-2002-33). The Exchange proposes to maintain that definition, correcting the citation to the definition of investment adviser as defined in the Investment Advisers Act of 1940. \13\ Nasdaq is proposing to adopt these definitions as part of Rule 7039, but will propose to move them, along with similar definitions appearing elsewhere in the Exchange's rules, into a single definition rule in a subsequent filing. ``Professional Subscriber'' is currently defined at Rules 7023(a)(3)(B) and 7047(d)(3)(B). The definitions proposed to be included in Rule 7039 are substantively the same as definitions found in existing Exchange rules, with the clarification that either a natural person or an entity may be a Professional. \14\ Regardless of the fee structure selected, NLS Distributors pay a monthly Distributor fee, as provided in Rule 7039(c) (which is being redesignated, with certain modifications described below, as Rule 7039(d)). In addition, as provided in Rule 7035, all market data distributors pay a monthly administrative fee (formerly a higher annual fee) of $50 (for delayed distribution) or $100 (for real-time, or real-time and delayed distribution). The administrative fee is paid on a per distributor basis; thus, if a distributor is already paying the fee with respect to a product other than NLS, it would not incur an additional administrative fee if it also began to distribute NLS. --------------------------------------------------------------------------- Nasdaq is proposing changes to the current NLS fee structure in order to more clearly reflect the use cases under which NLS is currently made available and to establish pricing for additional use cases. First, Nasdaq is proposing to categorize existing fee distribution models as ``distribution models for the general investing public,'' while also specifically identifying the terms and conditions applicable to each of these pricing categories. Thus, distribution via a username/password entitlement system is being defined as a ``Per User'' distribution model. In order to adopt the Per User model, (i) a Distributor must distribute NLS solely to ``Users'' for ``Display Usage,'' \15\ (ii) all such Users must be either Non-Professionals or Professionals whom the Distributor has no reason to believe are using NLS in their professional capacity, and (iii) the Distributor must restrict and track access to NLS using a username/password logon or comparable method of regulating access approved by Nasdaq. --------------------------------------------------------------------------- \15\ ``User'' is being defined as ``a natural person who has access to Exchange Information.'' The term is not currently defined in Exchange rules so the definition will provide a convenient nomenclature for distinguishing natural persons with access to Exchange Information from other instances of access to Exchange Information. The term is currently used, but not defined, in Rule 7039, and the new definition is intended to be consistent with the manner in which the term is currently construed. The Exchange proposes introducing a definition here to prevent any potential confusion between a User (a natural person who has access to Exchange Information), a Recipient (a natural person or entity that has access to Exchange Information), and a Subscriber (a method of accessing Exchange Information). ``Display Usage'' is being defined as ``any method of accessing Exchange Information that involves the display of such data on a screen or other mechanism designed for access or use by a natural person or persons.'' This definition is consistent with current definitions of the term in, for example, Rule 7023 (Nasdaq Depth-of-Book Data). The effect of these definitions together is to limit the availability of this pricing model to visual access by natural persons, thus excluding access by automated processes such as trading algorithms. --------------------------------------------------------------------------- Thus, a Per User model might be used by a BD to distribute NLS to customers through on-line brokerage accounts accessible after the customer logs in using a username and password. While many of the Recipients of data under such a model would be Non-Professionals, the model does not require a Distributor to limit distribution to Non- Professionals. Rather, the model would allow a Distributor to provide the data to Professionals, as long as it has no reason to believe that they are using the data in a professional capacity. Thus, for example, if a BD makes the data available to all of its on-line customers, it would not have any basis to believe that customers who happen to be Professionals would be using the data in a Professional capacity. By contrast, the Per User model would not allow a BD to distribute the data to a set of Users consisting solely of its own employees, since it would be reasonable to expect that the employees would use the data in connection with their employment. Similarly, if a Distributor provided the data through terminals generally made available to Professionals in their place of employment, or marketed the product to persons known to be Professionals, it would be unreasonable for the Distributor to believe that the data was not being used for professional purposes. The proposed standard for the applicability of the Per User model is similar to, but less strict than, the standard adopted by Nasdaq with respect to the availability of an enterprise license for a BD to distribute Nasdaq Basic \16\ to an unlimited number of Professionals and Non-Professionals who are natural persons and with whom it has a brokerage relationship.\17\ With [[Page 7814]] respect to that license, a Professional may not use an instance of Nasdaq Basic obtained under the license in its professional capacity; moreover, the BD Distributor would be expected to enforce this limitation or jeopardize its eligibility for the reduced fee provided by the license. The proposed standard with respect to Nasdaq Last Sale is less stringent, because occasional incidental use by a Professional in connection with its professional activities would not affect the Distributor's eligibility for the Per User fee, as long as the Distributor, in establishing the connection to the Professional User, did not have reason to believe that professional usage would occur. Nasdaq believes that a different standard that might occasionally result in incidental Professional use is reasonable because NLS contains less information and does not provide pre-trade transparency, and is therefore likely to be of less consistent use to a Professional than Nasdaq Basic or other products that provide greater pre-trade information. Accordingly, Nasdaq proposes to adopt a more permissive standard that will impose lower administrative burdens on Distributors. --------------------------------------------------------------------------- \16\ Nasdaq Basic (Rule 7047) comprises best bid and offer and last sale information from the Exchange and the FINRA/Nasdaq TRF. \17\ Securities Exchange Act Release No. 65526 (October 11, 2011), 76 FR 64137 (October 17, 2011) (SR-NASDAQ-2011-130) (adopting enterprise license for non-professional brokerage customers); Securities Exchange Act Release No. 72620 (July 16, 2014), 79 FR 42572 (July 22, 2014) (expanding enterprise license to include professional brokerage customers). --------------------------------------------------------------------------- A Distributor selecting the Per User model is charged based on the number of Users with the potential to access NLS during a month. However, if the Distributor is able to track the number of Users that actually accessed NLS during a month, the Distributor will be charged based on the number of such Users. This latter provision represents a change from current methodology, and will provide an incentive for Distributors to implement systems to track actual data usage, since this will allow them to reduce the fees that they pay. Apart from this change, the fees applicable to this model are not being modified. The ``Per Query'' model will be available if: (i) A Distributor distributes NLS solely to Users for Display Usage, and (ii) the Distributor tracks queries using a method approved by Nasdaq. Thus, in contrast to a Per User model, which makes all data available in a streaming or montage format, the Per Query model supplies only as much data as the User requests on an ad hoc basis. Because a Per Query model is unlikely to be of significant use to Professionals acting in a professional capacity, the model does not place limitations on the persons to whom it is offered (as long as they are natural persons viewing the data through Display Usage). The model also does not require the Distributor to limit access through any sort of entitlement system; thus, Per Query data may be made available through a publicly accessible website. However, if a Distributor selecting the Per Query model does restrict access using a username/password system, the Distributor may opt to be charged under the Per User model in a particular month if the applicable Per Query charges that month would exceed the applicable Per User charges.\18\ The applicable fees for the per query model are not being changed. --------------------------------------------------------------------------- \18\ This is not a change from the current rule, although Nasdaq is clarifying the language that describes this fee cap. --------------------------------------------------------------------------- Unrestricted distribution via the internet is being defined as a ``Per Device'' model, and is available to a Distributor that: (i) Distributes NLS for Display Usage in a manner that does not restrict access, and (ii) tracks the number of unique Devices that access NLS during each month using a method approved by Nasdaq.\19\ Thus, this distribution method does not require the Distributor to distinguish among Non-Professionals or Professionals receiving the data, since the data is made freely available to internet users. The method would generally be used by internet news sites, but might also be used by a BD if it wished to place freely available content on its website. A Distributor using this method would be charged for each unique Device accessing the data, regardless of whether it is controlled by a Recipient.\20\ Thus, for example, if a single person owned a laptop, a smartphone, and a tablet and used all three to access the data, the Distributor would be charged for each Device. This is the case because the Distributor would track usage based on the unique characteristics of the Device (including, but not limited to, IP address, host name, and cookie data), but would likely not have data that would allow it to associate the Devices with a single user.\21\ --------------------------------------------------------------------------- \19\ As reflected in the definition adopted as part of this filing, the term ``Device'' has the same meaning as ``Subscriber.'' A Subscriber, in turn, is not a person, but rather means ``a device, computer terminal, automated service, or unique user identification and password combination that is not shared and prohibits simultaneous access, and which is capable of receiving Exchange Information; `Interrogation Device', `Device' or `Access' have the same meaning as `Subscriber'. For any device, computer terminal, automated service, or unique user identification and password combination that is shared or allows simultaneous access, Subscriber shall mean the number of such simultaneous accesses.'' The definitions of these terms are consistent with the definitions found in IM-7023-1 (U.S. Non-Display Information) and are intended to be construed in a similar manner, while specifying, in accordance with current interpretations, that the term covers the capability to receive Information as well as the actual receipt. Thus, a single Recipient with two devices constitutes two Subscribers. \20\ The term ``Recipient'' is defined to mean ``any natural person, proprietorship, corporation, partnership, or other entity whatever that has access to Exchange Information.'' This term, which is not currently defined in Exchange Rules, simply provides a convenient method for referring to both natural and legal persons that have access to Exchange Information, and is defined to prevent any confusion among the terms Subscriber (a technical term describing how Information is received from the Exchange), Recipient (a natural person or entity that receives Information), and, as discussed above, a User (a natural person who receives Information). \21\ The definition of Subscriber is also proposed to be used with respect to proposed Rule 7039(c), as described below, and Nasdaq expects to propose to apply the definition to other market data rules in the future. However, the portion of the definition pertaining to ``simultaneous accesses'' is not relevant to the ``Per Device'' model. Accordingly, Nasdaq is proposing to add language to Rule 7039(b)(3) to provide that a Distributor under the Per Device model will be charged based on the number of unique Devices without regard to the number of simultaneous accesses by a single Device. --------------------------------------------------------------------------- Rule 7039 currently uses the term ``Unique Visitors'' and requires the number of Unique Visitors to be validated by a Nasdaq-approved vendor, but does not define the term. The new term ``Device'' is intended to clarify that the fee is to be assessed based on the number of Devices that visit a site to get data, rather than the number of persons. While this term does not reflect a change from the manner in which the term ``unique visitor'' has been interpreted by the Exchange, Nasdaq believes that the change will make the application of the rule clearer. Moreover, the fees associated with particular levels of distribution under this model are not changing. Nasdaq is also replacing the requirement that the number be validated by a third party with a requirement that the Distributor's tracking method be approved by Nasdaq. This change reflects the fact that methods of tracking web traffic have become more developed since the time Rule 7039 was first adopted and therefore do not require third-party validation. As is currently the case, the maximum fee that any Distributor would be required to pay for NLS under any combination of these distribution models would be $41,500. However, Nasdaq is proposing to eliminate the existing fee schedule for television distribution and is instead proposing that a Distributor that wishes to distribute Nasdaq Last Sale via television must pay the maximum fee and may then distribute Nasdaq Last Sale either solely via television or in [[Page 7815]] combination with unlimited use of the Per User, Per Query, and/or Per Device model. This is the case because all current television Distributors also distribute NLS via the internet and pay the maximum fee. Thus, no current Distributors would be affected by the elimination of the specific television schedule. Moreover, in light of the confluence of television and internet content, and the extent to which television broadcasters use both media to reach their audience, Nasdaq believes that providing a license for multiple means of distribution in tandem is reasonable. Nasdaq further believes that the maximum fee of $41,500 per month is a reasonable charge to assess a Distributor that wishes to engage in unlimited distribution of the product through either television or television in combination with web-based media. The current fee and distribution framework for NLS is not structured in a manner that contemplates distribution to a base of Professionals, such as might occur if a BD made the data available to its registered representatives through an employer-provided workstation or software application. For this reason, Nasdaq believes that it is appropriate to adopt a fee schedule that covers use cases that are not contemplated by the current fee schedule. Under the proposal, if a Distributor is not able to use any of the distribution models for the general investing public but still wishes to distribute NLS, it will be required to pay fees applicable to a model for ``specialized usage.'' In general, the model would require a Distributor to track either the number of Subscribers to which the data is made available or the number of queries made for the data, and would impose either a per Subscriber fee or a per query fee. The per Subscriber fee will be $13 for NLS for Nasdaq and $13 for NLS for NYSE/NYSE American or any Derived Data therefrom.\22\ The per query fee will be $0.0025 for NLS for Nasdaq and $0.0015 for NLS for NYSE/NYSE American. The per query fees assessed to Subscribers will be capped on a monthly basis at the level of the monthly per Subscriber fee. Thus, a particular Subscriber would not be charged more than $13 for NLS for Nasdaq or $13 for NLS for NYSE/NYSE American, regardless of the number of queries submitted by it. --------------------------------------------------------------------------- \22\ ``Derived Data'' is defined to mean ``any information generated in whole or in part from Exchange Information such that the information generated cannot be reverse engineered to recreate Exchange Information, or be used to create other data that is recognizable as a reasonable substitute for such Exchange Information.'' This definition is substantially the same as the definition currently found in Rule 7047 (Nasdaq Basic) and the differences in wording are intended merely to make the language clearer. --------------------------------------------------------------------------- For Distributors under the specialized usage model that provides ``Display Usage,'' a net reporting option would be available to reduce the overall number of Subscribers for which a fee will be assessed.\23\ Under the proposed netting rules: --------------------------------------------------------------------------- \23\ Netting does not apply to uses other than Display Usage, but the same rules are used for Nasdaq Basic under Rule 7047. ---------------------------------------------------------------------------A Subscriber that receives access to NLS through multiple products controlled by an internal Distributor will be considered one Subscriber. Thus, if a BD acts as a Distributor of NLS in multiple forms through terminals provided to its employees, each terminal would be considered one Subscriber. A Subscriber that receives access to NLS through multiple products controlled by one external Distributor will be considered one Subscriber. Thus, if a BD arranges for its employees to receive access to multiple NLS products through a terminal provided by a single vendor on a terminal, each terminal would be considered one Subscriber. A Subscriber that receives access to NLS through one or more products controlled by an internal Distributor and also one or more products controlled by one external Distributor will be considered one Subscriber. Thus, if the BD provides employees with access through its own product(s) and through products from a single vendor on a terminal, each employee's terminal would still be considered one Subscriber. A Subscriber that receives access to NLS through one or more products controlled by an internal Distributor and also products controlled by multiple external Distributors will be treated as one Subscriber with respect to the products controlled by the internal Distributor and one of the external Distributors, and will be treated as an additional Subscriber for each additional external Distributor. Thus, a Subscriber receiving products through an internal Distributor and two external Distributors will be treated as two Subscribers. Put another way, access through an internal Distributor may be netted against access through one external Distributor, but netting may not occur beyond one external Distributor. Distributors benefitting from net reporting must demonstrate adequate internal controls for identifying, monitoring, and reporting all usage. The burden will be on the Distributor to demonstrate that particular instances of netting are justified. As an alternative to per Subscriber or per query fees, a Distributor that is a BD may purchase an enterprise license for internal Subscribers to receive NLS or Derived Data therefrom. The fee is $365,000 per month; provided, however, that if the BD obtains the license with respect to usage of NLS provided by an external Distributor that controls display of the product, the fee will be $365,000 per month for up to 16,000 internal Subscribers, plus $2 for each additional internal Subscriber over 16,000; and provided further that the BD must obtain a separate enterprise license for each external Distributor that controls display of the product if it wishes such external Distributor to be covered by an enterprise license rather than per-Subscriber fees. The enterprise license is in addition to the applicable Distributor Fee provided in Rule 7039(d). Nasdaq Last Sale Plus NLS Plus combines information available through NLS with information available through similar products--BX Last Sale and PSX Last Sale--offered by Nasdaq's affiliates, Nasdaq BX, Inc. (``BX'') and Nasdaq PHLX LLC (``Phlx''). Moreover, as provided in that Rule, NLS Plus may be received either by itself or in combination with Nasdaq Basic. The fees charged for NLS Plus, however, incorporate the underlying fees for the data elements combined through NLS Plus, together with an additional data consolidation fee of $350 per month. Thus, a Distributor receiving NLS Plus by itself would need to select a fee model under Rule 7039 to determine the applicable charges for the NLS component of NLS Plus (including the Distributor fee provided for by Rule 7039(d)). In addition, because a Distributor of NLS Plus is distributing each of the underlying components of NLS Plus, it also pays the administrative fees charged for distribution of Nasdaq, BX, and PSX data feeds.\24\ On the other hand, a Distributor receiving NLS Plus with Nasdaq Basic would select a fee model for Nasdaq Basic and pay the fees (including Distributor fees) applicable to that product, as well as the NLS Plus data consolidation fee and applicable [[Page 7816]] administrative fees for each NLS Plus component. --------------------------------------------------------------------------- \24\ See Nasdaq Rule 7035; BX Rule 7035; and Phlx Pricing Schedule Sec. VIII. All administrative fees are charged on a per Distributor, rather than a per product, basis. Currently, there are no user or Distributor fees applicable to BX Last Sale or PSX Last Sale. However, if BX or Phlx were to adopt user fees for these products in the future, the fees would also apply to persons receiving these products by means of NLS Plus. --------------------------------------------------------------------------- Since the fees for NLS Plus sold without Nasdaq Basic incorporate the fees for NLS, the various pricing model options available under Rule 7039, including the new pricing for specialized usage, would also be incorporated into the pricing for NLS Plus. No change to rule language is needed to effectuate this, since the rule language already incorporates NLS fees. However, Nasdaq is proposing to amend the rule to reflect the recent change in the assessment period for administrative fees under Nasdaq Rule 7035, BX Rule 7035, and the Phlx Pricing Schedule from annual to monthly, and to use the new defined term ``Information.'' In addition, Nasdaq is amending the description of NLS contained in Rule 7039(a). As described therein, NLS contains real-time last sale information for trades executed on Nasdaq or reported to the FINRA/ Nasdaq TRF for stocks listed on Nasdaq and on other markets. At the time of adoption of Rule 7039, however, it appears that the drafters of the rule used a reference to ``NYSE/Amex'' (subsequently amended to refer to ``NYSE/NYSE MKT'') as a short-hand term for stocks listed on venues other than Nasdaq, since NYSE and the American Stock Exchange were, together with Nasdaq, the primary listing venues at that time.\25\ In fact, NLS has always disseminated transaction reports associated with all three national market system plan tapes--Tape A for NYSE, Tape C for Nasdaq, and Tape B for other exchanges, including the American Stock Exchange (later known as NYSE MKT and now as NYSE American). Thus, as new listing venues such as the BATS Exchange emerged, information for transactions in securities listed on those exchanges were also included. Accordingly, Nasdaq is clarifying the language of Rule 7039(a) to include ``transaction reports for NYSE- listed stocks and stocks listed on NYSE American and other Tape B listing venues.'' Nasdaq is also making additional housekeeping changes to the rule to: (i) Use the defined term ``Information'', (ii) streamline the wording of the rule's preamble, and (iii) clarify the language of certain pricing tiers to eliminate instances where the same number of Devices or queries is listed as part of two different pricing tiers. --------------------------------------------------------------------------- \25\ Securities Exchange Act Release No. 57965 (June 16, 2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-060). See also Securities Exchange Act Release No. 68568 (January 3, 2013), 78 FR 1910 (January 9, 2013) (SR-NASDAQ-2012-145). --------------------------------------------------------------------------- Nasdaq is amending Rule 7039(d) (formerly 7039(c)) to provide that the monthly Distributor fee for a Distributor under subsection (c) (Distribution Models for Specialized Usage) providing external, or external and internal, distribution, is $2,000; in all other cases, the Distributor fee for NLS remains $1,500. However, Nasdaq is also adding language to provide that a Distributor of two or more products containing NLS data (i.e., NLS, NLS Plus, or Nasdaq Basic) is required to pay a Distributor fee with respect to only one of the products. Thus, a Distributor of both NLS and Nasdaq Basic would not be required to pay both the fee provided for in Rule 7039 and the comparable fee provided for in Rule 7047; however, it would be required to pay the highest fee ($2,000 or $1,500) otherwise applicable to any of the products that it distributes. Finally, Nasdaq is making amendments to Rule 7047(b)(5) to: (i) Clarify that BDs distributing Nasdaq Basic thereunder also have the right to distribute Nasdaq Last Sale data to an unlimited number of Professionals and Non-Professionals who are natural persons and with whom the broker-dealer has a brokerage relationship (similar to the scope of Nasdaq Basic distribution), (ii) provide that such BDs would not be required to pay fees under Rule 7039(b) or (c); and (iii) provide that the elimination of duplicative Distributor fees provided under Rule 7039(d) would also apply under Rule 7047(b)(5), such that the BD would pay a Distributor fee with respect to only one product thereunder. 2. Statutory Basis Nasdaq believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,\26\ in general, and with Sections 6(b)(4) and (5) of the Act,\27\ in particular, in that it provides for the equitable allocation of reasonable dues, fees, and other charges among its members, issuers and other persons using its facilities, and does not unfairly discriminate between customers, issuers, brokers or dealers. --------------------------------------------------------------------------- \26\ 15 U.S.C. 78f. \27\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- Rule 7039 and the fees established thereunder reflect Nasdaq's expectation, in creating NLS, that it would be used by market data Distributors (including retail BDs) to provide widespread distribution of last-sale information to individual investors by means of websites and television. The fee structure also reflects Nasdaq's assumption that BDs and others seeking proprietary data for Professional usage would purchase data with more content than NLS or NLS Plus, such as Nasdaq Basic or Nasdaq TotalView. Nevertheless, because there is a small amount of demand for use of NLS for purely Professional purposes, Nasdaq believes that it is appropriate to specifically define the circumstances to which the current fee schedule applies, while also establishing a set of fees for other circustances [sic], including usage other than Display Usage and purely Professional use. The statutory basis for Nasdaq's current fees for NLS has already been described in prior filings,\28\ and Nasdaq is not modifying these long-established fees except to the extent discussed below. The overall structure for distribution of NLS contemplates widespread distribution of NLS data through the internet and television, and, in general, does not require a Distributor to categorize data Recipients as either Professionals or Non-Professionals. Thus, neither the fees nor the distribution parameters for ``Per Query'' usage are changing, although Nasdaq is adding language to specify that Per Query usage contemplates distribution to Users through Display Usage. The change is reasonable because it conforms to the natural parameters under which Per Query usage would occur: the submission of a request followed by a display of the response. In making the change, however, Nasdaq makes it clear that Per Query usage would not allow submission of automated requests to obtain data for use by an algorithm or other automated process. The change also makes is clear, however, that a Distributor using the Per Query model would not be required to ascertain the identity of Recipients; thus, the change makes it clear that Per Query usage may be made available to both Professionals and Non-Professionals. For this reason, the change is not unfairly discriminatory. Moreover, the change is equitable because it will not limit access by any current Distributors. --------------------------------------------------------------------------- \28\ See supra nn. 6, 7, and 9 [sic]. --------------------------------------------------------------------------- With respect to Per User fees (formerly username/password fees), Nasdaq is likewise proposing only minimal changes to state that the existing fee schedule requires distribution to ``Users'' (i.e., natural persons) for Display Usage, and all such Users must be either Non- Professionals or Professionals whom the Distributor has no reason to believe are using NLS in their professional capacity. This change is reasonable because the level of fees associated with this use case is not changing. Moreover, the change is not inequitable because it will not limit access by any current Distributors paying under this model. Likewise, the change is not unfairly discriminatory [[Page 7817]] because it does not require a Distributor to conduct an exhaustive and costly inquiry into the nature of each of its Users, nor does it prevent distribution to Professionals, as long as the Distributor has no reason to believe that Professionals are using NLS in their professional capacity. Similarly, the change to allow a Distributor to track actual usage by a particular User and pay only if actual usage occurs during the month (as opposed to paying for all potential Users) is reasonable because it creates an incentive for a Distributor to reduce its fees by more carefully monitoring usage by its customers. The change is equitable and not unfairly discriminatory because Nasdaq believes that all Distributors are capable of implementing the change with minimal difficulty. The changes to the ``Per Device'' (formerly, unique visitor) use case are reasonable because they allow a Distributor to track usage based on readily available means of tracking unique Devices. Because Distributors have already adopted this methodology, the change in rule language makes it clear that this is the appropriate method to measure usage and that verification by a third-party is not required. Accordingly, the change imposes no additional administrative burdens on Distributors. The change is equitable and not unfairly discriminatory because all Distributors adopting this use case may readily use this methodology. The elimination of a specific model for television distribution, in favor of a model under which a Distributor engaging in television distribution pays the maximum NLS fee of $41,500 per month and may then distribute Nasdaq Last Sale via television to an unlimited number of households, either solely via television or in combination with unlimited use of the Per User, Per Query, and/or Per Device model, is reasonable because the fee allows the Distributor to engage in unlimited distribution of NLS via either television alone or television in combination with another distribution model for the general investing public, without the need to monitor usage or track the identity of Recipients. Moreover, the change is equitable and not unfairly discriminatory because all current television Distributors already pay this maximum fee. Accordingly, the change will have no impact on any current Distributors. Moreover, it is unlikely that under the current fee schedule for television, distribution by a particular broadcaster would occur at a level that would allow it to pay less than the maximum fee. As a result, the per viewer cost of television distribution is, and will continue to be, extremely small when expressed as the ratio between $41,500 and the total number of viewers. The introduction of a fee schedule for other use cases, including targeted use by Professionals and usage other than Display Usage, is not unfairly discriminatory because it is consistent with the fee schedules for numerous other data products that impose higher fees on Professionals in recognition of their more intensive usage of data feeds and the greater value they derive from such usage. Moreover, the proposed new fee schedule is consistent with an equitable allocation of fees because it recognizes the administrative costs and burdens associated with tracking Professional usage of the product, especially given the low demand for exclusively Professional use. Finally, the change is reasonable because the fees are geared to the actual level of usage, with options for either per Subscriber or per query fees. Moreover, Nasdaq is offering alternative pricing features that may allow some Distributors to reduce their level of fees, including a method for netting Subscribers and an enterprise license to allow unlimited usage by broker-dealer employees. Nasdaq further believes that the proposed change regarding a higher monthly Distributor fee for external distribution for use by Professionals and usage other than Display Usage (i.e., specialized usage) is not unreasonable because a higher fee for external, as opposed to solely 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.\29\ 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.'' \30\ 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\ The further change with regard to monthly Distributor fees is reasonable, equitable, and not unfairly discriminatory because it addresses a use case in which a Distributor is receiving two or three products that contain last sale information-- NLS, NLS Plus and/or Nasdaq Basic--and will specify that the Distributor is not required to pay a duplicative Distributor fee in that circumstance. --------------------------------------------------------------------------- \29\ See, e.g., Rules 7019 (Market Data Distributor Fees); 7022(c) (Short Interest Report); 7023(c) (Enterprise License Fees for Depth-of-Book Data); 7047(c) (Nasdaq Basic); and 7052(c) (Distributor Fees for Nasdaq Daily Short Volume and Monthly Short Sale Transaction Files). \30\ See Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21). \31\ Id. --------------------------------------------------------------------------- In adopting Regulation NMS, the Commission granted self-regulatory organizations (``SROs'') and 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.\32\ --------------------------------------------------------------------------- \32\ See Securities Exchange Act Release No. 51808 (June 9, 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 [[Page 7818]] the price at which such data is sold should be set by the market as well. Products such as NLS provide additional choices to BDs and other data consumers, in that they provide less than the quantum of data provided through the consolidated tape feeds but at a lower price. Thus, they provide BDs and others with an option to use a lesser amount of data in circumstances where SEC Rule 603(c) does not require a BD to provide a consolidated display.\33\ They are all, however, voluntary products for which market participants can readily substitute the consolidated data feeds. Accordingly, Nasdaq is constrained from pricing the product in a manner that would be inequitable or unfairly discriminatory. Moreover, the fees for these products, like all proprietary data fees, are constrained by the Exchange's need to compete for order flow. --------------------------------------------------------------------------- \33\ 17 CFR 242.603(c). --------------------------------------------------------------------------- Nasdaq believes that the defined terms being adopted in this proposed rule change are consistent with the provisions of Section 6 of the Act,\34\ in general, and with Section 6(b)(5) of the Act,\35\ in particular, in that they are designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest. Specifically, the defined terms are designed to promote the clear and consistent interpretation of Rule 7039, and are intended to serve as the model for a future filing that will propose consistent terminology throughout the rules governing the Exchange's Information products. As detailed above, the terms ``Derived Data'', ``Display Usage'', ``Distributor'', ``Non- Professional'', ``Professional'', ``Subscriber'', and ``Device'' are either substantively identical to, or are intended to be construed in a manner consistent with, terms already existing in the Exchange's rules, but are intended to be drafted in a clearer manner. Similarly, the terms ``Information'', ``Recipient'', and ``User'' are new, but are designed to provide convenient means of referring to concepts relevant to the application of Rule 7039 that are currently covered by undefined terms. --------------------------------------------------------------------------- \34\ 15 U.S.C. 78f. \35\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- Finally, the Exchange notes that the housekeeping changes made by this filing--clarifying the scope of Tape B data included in NLS and the monthly nature of the administrative fee--are non-substantive in nature and do not affect the equitable allocation of reasonable dues, fees, and other charges. Rather, these changes will make affected rules clearer, more succinct, and easier to use. Accordingly, the Exchange believes that these changes are consistent with Section 6(b)(5) of the Act,\36\ in that they are designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \36\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- 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. The proposed fee structure is designed to ensure a fair and reasonable use of Exchange resources by allowing the Exchange to recoup costs while continuing to offer its data products at competitive rates to firms. In particular, the proposal with respect to existing fees and associated standards for Per User, Per Query, and Per Device fee models, as well as the fee for television distribution, are designed to promote wide distribution to investors by placing less emphasis on the distinction between Professionals and Non-Professionals than is the case with respect to other data products. Nasdaq believes that this approach will promote competition by reducing administrative burdens on Distributors. The addition of a fee schedule for targeted Professional or Non-Display usage will not place a burden on competition because Nasdaq believes that the demand for such usage is limited, but adopting the applicable fee schedule will ensure that the product is available in cases where such demand exists.\37\ The other proposed changes are designed to keep industry professionals and investors better informed about NLS and NLS Plus and associated fees through changes that will provide greater clarity and precision in affected rules. These changes include the adoption of definitions that are not intended to vary substantively from definitions and concepts already reflected in Exchange rules, but are intended to promote the reader's understanding of the principles used to construe these rules. --------------------------------------------------------------------------- \37\ Similarly, the external Distributor fee applicable to usage under that model 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. The 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. --------------------------------------------------------------------------- The market for data products is extremely competitive and firms may freely choose alternative venues and data vendors based on the aggregate fees assessed, the data offered, and the value provided. This rule proposal does not burden competition, since other SROs and data vendors continue to offer alternative data products and, like the Exchange, set fees, but rather reflects the competition between data feed vendors and will further enhance such competition. NLS competes directly with existing similar products and potential products of market data vendors. The product is part of the existing market for proprietary last sale data products that is currently competitive and inherently contestable because there is fierce competition for the inputs necessary to the creation of proprietary data and strict pricing discipline for the proprietary products themselves. Numerous exchanges compete with each other for listings, trades, and market data itself, providing virtually limitless opportunities for entrepreneurs who wish to produce and distribute their own market data. This proprietary data is produced by each individual exchange, as well as other entities, in a vigorously competitive market. Similarly, with respect to the FINRA/ Nasdaq TRF data that is a component of the product, allowing exchanges to operate TRFs has permitted them to earn revenues by providing technology and data in support of the non-exchange segment of the market. This revenue opportunity has also resulted in fierce competition between the two current TRF operators, with both TRFs charging extremely low trade reporting fees and rebating the majority of the revenues they receive from core market data to the parties reporting trades. 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 [[Page 7819]] 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 products and the joint costs it incurs. 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).\38\ --------------------------------------------------------------------------- \38\ 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). --------------------------------------------------------------------------- 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. Similarly, data products cannot make use of TRF trade reports without the raw material of the trade reports themselves, and therefore necessitate the costs of operating, regulating,\39\ and maintaining a trade reporting system, costs that must be covered through the fees charged for use of the facility and sales of associated data. --------------------------------------------------------------------------- \39\ It should be noted that the costs of operating the FINRA/ Nasdaq TRF borne by Nasdaq include regulatory charges paid by Nasdaq to FINRA. --------------------------------------------------------------------------- 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. Similarly, in the case of products such as NLS that may be distributed through market data vendors, the vendors provide price discipline for proprietary data products because they control the primary means of access to end users. Vendors impose price restraints based upon their business models. For example, vendors such as Bloomberg and Reuters that assess a surcharge on data they sell may refuse to offer proprietary products that end users will not purchase in sufficient numbers. Internet portals, such as Google, impose a discipline by providing only data that will enable them to attract ``eyeballs'' that contribute to their advertising revenue. Retail BDs, such as Schwab and Fidelity, offer their retail customers proprietary data only if it promotes trading and generates sufficient commission revenue. Although the business models may differ, these vendors' pricing discipline is the same: they can simply refuse to purchase any proprietary data product that fails to provide sufficient value. Exchanges, TRFs, and other producers of proprietary data products must understand and respond to these varying business models and pricing disciplines in order to market proprietary data products successfully. Moreover, Nasdaq believes that products such as NLS can enhance order flow to Nasdaq by providing more widespread distribution of information about transactions in real time, thereby encouraging wider participation in the market by investors with access to the internet or television. Conversely, the value of such products to Distributors and investors decreases if order flow falls, because the products contain less content. 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 cost of executions, or the volume of both data and executions will fall.\40\ --------------------------------------------------------------------------- \40\ 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 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. 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 BATS/Direct Edge. --------------------------------------------------------------------------- [[Page 7820]] The proposed fee structure is designed to ensure a fair and reasonable use of Exchange resources by allowing the Exchange to recoup costs while continuing to offer its data products at competitive rates to firms. 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 Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act \41\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\42\ --------------------------------------------------------------------------- \41\ 15 U.S.C. 78s(b)(3)(A)(iii). \42\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) requires a self-regulatory organization to give the Commission written notice of its intent to file the proposed rule change at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The Exchange has satisfied this requirement. --------------------------------------------------------------------------- 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 [email protected]. Please include File Number SR-NASDAQ-2018-010 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-2018-010. 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-2018-010 and should be submitted on or before March 15, 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. 2018-03568 Filed 2-21-18; 8:45 am] BILLING CODE 8011-01-P
![7812 Federal Register / Vol. 83, No. 36 / Thursday, February 22, 2018 / Notices
SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s a pilot, basis, Nasdaq stated that
COMMISSION Statement of the Purpose of, and ‘‘[d]uring the pilot period, the program
Statutory Basis for, the Proposed Rule has vastly increased the availability of
[Release No. 34–82723; File No. SR– Change NASDAQ proprietary market data to
NASDAQ–2018–010] individual investors. Based upon data
1. Purpose
from NLS Distributors, NASDAQ
Self-Regulatory Organizations; The The purpose of this proposal is to believes that since its launch in July
Nasdaq Stock Market LLC; Notice of amend Rule 7039 to modify the pricing 2008, the NLS data has been viewed by
Filing and Immediate Effectiveness of framework for the NLS data product. millions of investors on websites
Proposed Rule Change To Amend Rule NLS is a market data product that operated by Google, Interactive Data,
7039 To Modify Pricing for the Nasdaq comprises two proprietary data feeds and Dow Jones, among others.’’ 8
Last Sale Data Product and To Make containing real-time last sale The fee schedule for NLS currently
Other Related Changes to Nasdaq Information 4 for trades executed on the offers Distributors 9 several different
Rules Exchange or reported to the FINRA/ pricing models from which they may
Nasdaq Trade Reporting Facility (the select in determining the fees applicable
February 15, 2018. ‘‘FINRA/Nasdaq TRF’’).5 As such, NLS to distribution of the product.
Pursuant to Section 19(b)(1) of the is a ‘‘non-core’’ product that provides a Specifically, in keeping with the goal of
Securities Exchange Act of 1934 subset of the ‘‘core’’ last-sale data NLS to promote the accessibility of data
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 provided by securities information to individual investors, Distributors may
notice is hereby given that on February processors (‘‘SIPs’’) under the CTA Plan choose to distribute NLS in an
2, 2018, The Nasdaq Stock Market LLC and the Nasdaq UTP Plan. uncontrolled fashion via television or
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the As reflected in the filing that the internet and pay under pricing
Securities and Exchange Commission originally established it,6 NLS was models that require them to estimate the
(‘‘SEC’’ or ‘‘Commission’’) the proposed designed to enable market-data number of households or website
rule change as described in Items I, II, ‘‘distributors to provide free access to visitors to which the data is provided.
and III below, which Items have been the data [contained in NLS] to millions Alternatively, a Distributor may opt for
prepared by the Exchange. The of individual investors via the internet a pricing model that requires it to count
Commission is publishing this notice to and television’’ and was expected to its customers based on a username and
solicit comments on the proposed rule ‘‘increase[ ] the availability of NASDAQ password system, or a model under
change from interested persons. proprietary market data to individual which data is supplied on an ad hoc
investors.’’ 7 Similarly, in its filing to basis in response to customer queries. In
I. Self-Regulatory Organization’s offer NLS on a permanent, rather than both these cases, the pricing model
Statement of the Terms of Substance of assumes distribution through a website,
the Proposed Rule Change 4 In this filing, Nasdaq is proposing, among other
such as might be provided by a broker-
things, to adopt new defined terms for use in Rule dealer (‘‘BD’’) to customers who log in
The Exchange proposes to amend 7039. At a later date, Nasdaq intends to submit an
additional proposed rule change to move these using a username and password, or who
Rule 7039 (Nasdaq Last Sale and Nasdaq
definitions into a new rule and propose to expand enter ticker symbols into a website to
Last Sale Plus Data Feeds) 3 to modify its applicability to all market data fee rules in the
pricing for the Nasdaq Last Sale (‘‘NLS’’) 7000 rule series. The term ‘‘Information’’ is a broad 8 Securities Exchange Act Release No. 71351
data product and to make other related generic term designed to encompass the full range (January 17, 2014), 79 FR 4200 (January 24, 2014)
changes to Nasdaq rules. of information or data transmitted by Nasdaq, and (SR–NASDAQ–2014–006).
as such will be defined to mean ‘‘any data or 9 Nasdaq is proposing to define a ‘‘Distributor’’ as
The text of the proposed rule change information that has been collected, validated, ‘‘an entity, as identified in the Nasdaq Global Data
is available on the Exchange’s website at processed and/or recorded by the Exchange and Agreement (or any successor agreement), that
http://nasdaq.cchwallstreet.com, at the made available for transmission relating to: (i) executes such an Agreement and has access to
Eligible securities or other financial instruments, Exchange Information, together with its affiliates
principal office of the Exchange, and at markets, products, vehicles, indicators or devices; having such access.’’ The Nasdaq Global Data
the Commission’s Public Reference (ii) activities of the Exchange; or (iii) other Agreement is the standardized agreement that
Room. information or data from the Exchange. Information entities receiving Information sign to establish a
includes, but is not limited to, any element of contractual relationship with the Exchange. The
II. Self-Regulatory Organization’s information used or processed in such a way that word is currently defined in several Exchange
Statement of the Purpose of, and Exchange Information or a substitute for such rules—e.g., Rules 7047 (Nasdaq Basic), 7019
Information can be identified, recalculated or re-
Statutory Basis for, the Proposed Rule engineered from the processed information.’’ The
(Market Data Distributor Fees), and 7023 (Nasdaq
Change Depth-of-Book Data)—in terms that focus on (i)
term is not currently defined in Exchange rules. Of receipt of Exchange information, and (ii) the
note, ‘‘Derived Data’’ is excluded from the provision of the information to internal or external
In its filing with the Commission, the definition of ‘‘Information,’’ and as discussed Subscribers. Thus, ‘‘Distributor’’ broadly covers any
Exchange included statements below, is defined separately. The term person that receives Information and makes it
concerning the purpose of and basis for ‘‘Information’’ will be proposed for wider use in a available. Since such persons are required to sign
future rule filing concerning definitions.
the proposed rule change and discussed 5 See Nasdaq Rule 7039(a)–(c). See also Securities
the Nasdaq Global Data Agreement to establish a
any comments it received on the contractual right to distribute Information, the new
Exchange Act Release No. 71351 (January 17, 2014), definition is intended to simplify the definition
proposed rule change. The text of these 79 FR 4200 (January 24, 2014) (SR–NASDAQ–2014– through reference to the objective fact of a contract,
statements may be examined at the 006) (notice of filing and immediate effectiveness but is not intended to narrow or broaden the scope
places specified in Item IV below. The regarding permanent approval of NLS). of the term from the manner in which it is defined
6 See SR–NASDAQ–2006–060 (Amendment No.
Exchange has prepared summaries, set in existing rules. In fact, Rule 7019 similarly refers
2, June 10, 2008) (available at http:// to the requirement that distributors execute an
forth in sections A, B, and C below, of
daltland on DSKBBV9HB2PROD with NOTICES
nasdaq.cchwallstreet.com/NASDAQ/pdf/nasdaq- agreement with the Exchange. The new definition
the most significant aspects of such filings/2006/SR-NASDAQ-2006-060_Amendment_ further specifies that the term Distributor includes
statements. 2.pdf). See also Securities Exchange Act Release No. both an entity and its affiliates that have access to
57965 (June 16, 2008), 73 FR 35178 (June 20, 2008) Information; the inclusion of affiliates and the
(SR–NASDAQ–2006–060) (approving SR– reference to having access are both consistent with
1 15 U.S.C. 78s(b)(1). NASDAQ–2006–060, as amended by Amendment the manner in which current definitions are
2 17 CFR 240.19b–4. Nos. 1 and 2, to implement NLS on a pilot basis). interpreted. The new definition also eliminates
3 References to rules are to Nasdaq rules, unless 7 SR–NASDAQ–2006–060 (Amendment No. 2, superfluous references to internal and external
otherwise noted. June 10, 2008), at 3. receipt and distribution.
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![Federal Register / Vol. 83, No. 36 / Thursday, February 22, 2018 / Notices 7813
query for last sale information.10 Thus, Professional.’’ 13 The fee structure for must be either Non-Professionals or
consistent with the stated purpose of NLS does not, however, currently Professionals whom the Distributor has
NLS, the fee structure under which NLS contain provisions that make these no reason to believe are using NLS in
is made available reflects a model of distinctions or that clearly contemplate their professional capacity, and (iii) the
widespread distribution to individual internal distribution of the product to Distributor must restrict and track
investors. The fees for these different BD employees or other Professionals. access to NLS using a username/
pricing models are tiered based on Rather, the fee structures and password logon or comparable method
volume, with the fees for marginal usage distribution models of NLS reflect of regulating access approved by
reduced as a Distributor achieves certain Nasdaq’s assumption that it is a product Nasdaq.
volume levels. Moreover, the maximum of interest to a broad range of individual Thus, a Per User model might be used
monthly fee for NLS, regardless of usage investors, to be distributed in a by a BD to distribute NLS to customers
levels, under these distribution models relatively uncontrolled manner through through on-line brokerage accounts
is $41,500. websites (either password protected or accessible after the customer logs in
not) or television.14 using a username and password. While
Many data products sold by Nasdaq
Nasdaq is proposing changes to the many of the Recipients of data under
and others distinguish between data
current NLS fee structure in order to such a model would be Non-
usage based on whether the data is
more clearly reflect the use cases under Professionals, the model does not
being used by ‘‘Professionals’’ or ‘‘Non-
which NLS is currently made available require a Distributor to limit
Professionals,’’ with different prices
and to establish pricing for additional distribution to Non-Professionals.
charged for each category.11 A ‘‘Non- use cases. First, Nasdaq is proposing to Rather, the model would allow a
Professional’’ is defined as ‘‘a natural categorize existing fee distribution Distributor to provide the data to
person who is not: (A) Registered or models as ‘‘distribution models for the Professionals, as long as it has no reason
qualified in any capacity with the general investing public,’’ while also to believe that they are using the data
Securities and Exchange Commission, specifically identifying the terms and in a professional capacity. Thus, for
the Commodity Futures Trading conditions applicable to each of these example, if a BD makes the data
Commission, any state securities pricing categories. Thus, distribution via available to all of its on-line customers,
agency, any securities exchange or a username/password entitlement it would not have any basis to believe
association, or any commodities or system is being defined as a ‘‘Per User’’ that customers who happen to be
futures contract market or association; distribution model. In order to adopt the Professionals would be using the data in
(B) engaged as an ‘investment’ adviser’ Per User model, (i) a Distributor must a Professional capacity. By contrast, the
as that term is defined in Section distribute NLS solely to ‘‘Users’’ for Per User model would not allow a BD
202(a)(11) of the Investment Advisers ‘‘Display Usage,’’ 15 (ii) all such Users to distribute the data to a set of Users
Act of 1940 (whether or not registered consisting solely of its own employees,
or qualified under that Act); or (C) 13 Nasdaq is proposing to adopt these definitions since it would be reasonable to expect
employed by a bank or other as part of Rule 7039, but will propose to move that the employees would use the data
organization exempt from registration them, along with similar definitions appearing
in connection with their employment.
under federal or state securities laws to elsewhere in the Exchange’s rules, into a single
definition rule in a subsequent filing. ‘‘Professional Similarly, if a Distributor provided the
perform functions that would require Subscriber’’ is currently defined at Rules data through terminals generally made
registration or qualification if such 7023(a)(3)(B) and 7047(d)(3)(B). The definitions available to Professionals in their place
functions were performed for an proposed to be included in Rule 7039 are of employment, or marketed the product
organization not so exempt.’’ 12 A substantively the same as definitions found in
existing Exchange rules, with the clarification that to persons known to be Professionals, it
‘‘Professional’’ is defined as ‘‘any either a natural person or an entity may be a would be unreasonable for the
natural person, proprietorship, Professional. Distributor to believe that the data was
corporation, partnership, or other entity 14 Regardless of the fee structure selected, NLS
not being used for professional
whatever other than a Non- Distributors pay a monthly Distributor fee, as
provided in Rule 7039(c) (which is being
purposes.
redesignated, with certain modifications described The proposed standard for the
10 Nasdaq notes that BDs may provide NLS data
below, as Rule 7039(d)). In addition, as provided in applicability of the Per User model is
to customers in circumstances where they are not Rule 7035, all market data distributors pay a similar to, but less strict than, the
required to provide a consolidated display by SEC monthly administrative fee (formerly a higher
Rule 603(c), 17 CFR 242.603(c). See Securities
standard adopted by Nasdaq with
annual fee) of $50 (for delayed distribution) or $100
Exchange Act Release No. 51808 (June 9, 2005), 70 (for real-time, or real-time and delayed respect to the availability of an
FR 37496, 35569 [sic] –37570 (June 29, 2005) (File distribution). The administrative fee is paid on a enterprise license for a BD to distribute
No. S7–10–04) (‘‘Reg NMS Adopting Release’’). per distributor basis; thus, if a distributor is already Nasdaq Basic 16 to an unlimited number
11 See, e.g., Joint Self-Regulatory Organization paying the fee with respect to a product other than of Professionals and Non-Professionals
Plan Governing the Collection, Consolidation and NLS, it would not incur an additional
Dissemination of Quotation and Transaction administrative fee if it also began to distribute NLS.
who are natural persons and with whom
Information for Nasdaq-Listed Securities Traded on 15 ‘‘User’’ is being defined as ‘‘a natural person it has a brokerage relationship.17 With
Exchanges on an Unlisted Trading Privileged Basis who has access to Exchange Information.’’ The term
(‘‘Nasdaq UTP Plan’’) (available at http:// is not currently defined in Exchange rules so the Exchange Information that involves the display of
www.utpplan.com/utp_plan); Rule 7023 (Nasdaq definition will provide a convenient nomenclature such data on a screen or other mechanism designed
Depth-of-Book Data); Rule 7026 (Distribution for distinguishing natural persons with access to for access or use by a natural person or persons.’’
Models); Rule 7047 (Nasdaq Basic). Exchange Information from other instances of This definition is consistent with current
12 The term ‘‘Non-Professional’’ is currently access to Exchange Information. The term is definitions of the term in, for example, Rule 7023
defined at Rules 7023(a)(3)(A) and 7047(d)(3)(A). currently used, but not defined, in Rule 7039, and (Nasdaq Depth-of-Book Data). The effect of these
The definition of Non-Professional is well- the new definition is intended to be consistent with definitions together is to limit the availability of
daltland on DSKBBV9HB2PROD with NOTICES
established in the securities industry, and has been the manner in which the term is currently this pricing model to visual access by natural
part of the Nasdaq rule book since at least 2002. See construed. The Exchange proposes introducing a persons, thus excluding access by automated
Securities Exchange Act Release No. 46521 definition here to prevent any potential confusion processes such as trading algorithms.
(September 20, 2002), 67 FR 61179 at n.10 between a User (a natural person who has access 16 Nasdaq Basic (Rule 7047) comprises best bid
(September 27, 2002) (SR–NASD–2002–33). The to Exchange Information), a Recipient (a natural and offer and last sale information from the
Exchange proposes to maintain that definition, person or entity that has access to Exchange Exchange and the FINRA/Nasdaq TRF.
correcting the citation to the definition of Information), and a Subscriber (a method of 17 Securities Exchange Act Release No. 65526
investment adviser as defined in the Investment accessing Exchange Information). ‘‘Display Usage’’ (October 11, 2011), 76 FR 64137 (October 17, 2011)
Advisers Act of 1940. is being defined as ‘‘any method of accessing Continued
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![7816 Federal Register / Vol. 83, No. 36 / Thursday, February 22, 2018 / Notices
administrative fees for each NLS Plus monthly Distributor fee for a Distributor amount of demand for use of NLS for
component. under subsection (c) (Distribution purely Professional purposes, Nasdaq
Since the fees for NLS Plus sold Models for Specialized Usage) providing believes that it is appropriate to
without Nasdaq Basic incorporate the external, or external and internal, specifically define the circumstances to
fees for NLS, the various pricing model distribution, is $2,000; in all other cases, which the current fee schedule applies,
options available under Rule 7039, the Distributor fee for NLS remains while also establishing a set of fees for
including the new pricing for $1,500. However, Nasdaq is also adding other circustances [sic], including usage
specialized usage, would also be language to provide that a Distributor of other than Display Usage and purely
incorporated into the pricing for NLS two or more products containing NLS Professional use.
Plus. No change to rule language is data (i.e., NLS, NLS Plus, or Nasdaq The statutory basis for Nasdaq’s
needed to effectuate this, since the rule Basic) is required to pay a Distributor current fees for NLS has already been
language already incorporates NLS fees. fee with respect to only one of the described in prior filings,28 and Nasdaq
However, Nasdaq is proposing to amend products. Thus, a Distributor of both is not modifying these long-established
the rule to reflect the recent change in NLS and Nasdaq Basic would not be fees except to the extent discussed
the assessment period for administrative required to pay both the fee provided for below. The overall structure for
fees under Nasdaq Rule 7035, BX Rule in Rule 7039 and the comparable fee distribution of NLS contemplates
7035, and the Phlx Pricing Schedule provided for in Rule 7047; however, it widespread distribution of NLS data
from annual to monthly, and to use the would be required to pay the highest fee through the internet and television, and,
new defined term ‘‘Information.’’ ($2,000 or $1,500) otherwise applicable in general, does not require a Distributor
In addition, Nasdaq is amending the to any of the products that it distributes. to categorize data Recipients as either
description of NLS contained in Rule Finally, Nasdaq is making amendments Professionals or Non-Professionals.
7039(a). As described therein, NLS to Rule 7047(b)(5) to: (i) Clarify that BDs Thus, neither the fees nor the
contains real-time last sale information distributing Nasdaq Basic thereunder distribution parameters for ‘‘Per Query’’
for trades executed on Nasdaq or also have the right to distribute Nasdaq usage are changing, although Nasdaq is
reported to the FINRA/Nasdaq TRF for Last Sale data to an unlimited number adding language to specify that Per
stocks listed on Nasdaq and on other of Professionals and Non-Professionals Query usage contemplates distribution
markets. At the time of adoption of Rule who are natural persons and with whom to Users through Display Usage. The
7039, however, it appears that the the broker-dealer has a brokerage change is reasonable because it
drafters of the rule used a reference to relationship (similar to the scope of conforms to the natural parameters
‘‘NYSE/Amex’’ (subsequently amended Nasdaq Basic distribution), (ii) provide under which Per Query usage would
to refer to ‘‘NYSE/NYSE MKT’’) as a that such BDs would not be required to occur: the submission of a request
short-hand term for stocks listed on pay fees under Rule 7039(b) or (c); and followed by a display of the response.
venues other than Nasdaq, since NYSE (iii) provide that the elimination of In making the change, however, Nasdaq
and the American Stock Exchange were, duplicative Distributor fees provided makes it clear that Per Query usage
together with Nasdaq, the primary under Rule 7039(d) would also apply would not allow submission of
listing venues at that time.25 In fact, under Rule 7047(b)(5), such that the BD automated requests to obtain data for
NLS has always disseminated would pay a Distributor fee with respect use by an algorithm or other automated
transaction reports associated with all to only one product thereunder. process. The change also makes is clear,
three national market system plan however, that a Distributor using the Per
tapes—Tape A for NYSE, Tape C for 2. Statutory Basis Query model would not be required to
Nasdaq, and Tape B for other exchanges, Nasdaq believes that the proposed ascertain the identity of Recipients;
including the American Stock Exchange rule change is consistent with the thus, the change makes it clear that Per
(later known as NYSE MKT and now as provisions of Section 6 of the Act,26 in Query usage may be made available to
NYSE American). Thus, as new listing general, and with Sections 6(b)(4) and both Professionals and Non-
venues such as the BATS Exchange (5) of the Act,27 in particular, in that it Professionals. For this reason, the
emerged, information for transactions in provides for the equitable allocation of change is not unfairly discriminatory.
securities listed on those exchanges reasonable dues, fees, and other charges Moreover, the change is equitable
were also included. Accordingly, among its members, issuers and other because it will not limit access by any
Nasdaq is clarifying the language of persons using its facilities, and does not current Distributors.
Rule 7039(a) to include ‘‘transaction unfairly discriminate between With respect to Per User fees
reports for NYSE-listed stocks and customers, issuers, brokers or dealers. (formerly username/password fees),
stocks listed on NYSE American and Rule 7039 and the fees established Nasdaq is likewise proposing only
other Tape B listing venues.’’ Nasdaq is thereunder reflect Nasdaq’s expectation, minimal changes to state that the
also making additional housekeeping in creating NLS, that it would be used existing fee schedule requires
changes to the rule to: (i) Use the by market data Distributors (including distribution to ‘‘Users’’ (i.e., natural
defined term ‘‘Information’’, (ii) retail BDs) to provide widespread persons) for Display Usage, and all such
streamline the wording of the rule’s distribution of last-sale information to Users must be either Non-Professionals
preamble, and (iii) clarify the language individual investors by means of or Professionals whom the Distributor
of certain pricing tiers to eliminate websites and television. The fee has no reason to believe are using NLS
instances where the same number of structure also reflects Nasdaq’s in their professional capacity. This
Devices or queries is listed as part of assumption that BDs and others seeking change is reasonable because the level
two different pricing tiers. proprietary data for Professional usage of fees associated with this use case is
daltland on DSKBBV9HB2PROD with NOTICES
Nasdaq is amending Rule 7039(d) would purchase data with more content not changing. Moreover, the change is
(formerly 7039(c)) to provide that the than NLS or NLS Plus, such as Nasdaq not inequitable because it will not limit
Basic or Nasdaq TotalView. access by any current Distributors
25 Securities Exchange Act Release No. 57965
Nevertheless, because there is a small paying under this model. Likewise, the
(June 16, 2008), 73 FR 35178 (June 20, 2008) (SR–
NASDAQ–2006–060). See also Securities Exchange
change is not unfairly discriminatory
26 15 U.S.C. 78f.
Act Release No. 68568 (January 3, 2013), 78 FR
1910 (January 9, 2013) (SR–NASDAQ–2012–145). 27 15 U.S.C. 78f(b)(4) and (5). 28 See supra nn. 6, 7, and 9 [sic].
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![Federal Register / Vol. 83, No. 36 / Thursday, February 22, 2018 / Notices 7817
because it does not require a Distributor and will continue to be, extremely small powerfully to constrain unreasonable or
to conduct an exhaustive and costly when expressed as the ratio between unfair behavior.’’ 30 Accordingly, ‘‘the
inquiry into the nature of each of its $41,500 and the total number of existence of significant competition
Users, nor does it prevent distribution to viewers. provides a substantial basis for finding
Professionals, as long as the Distributor The introduction of a fee schedule for that the terms of an exchange’s fee
has no reason to believe that other use cases, including targeted use proposal are equitable, fair, reasonable,
Professionals are using NLS in their by Professionals and usage other than and not unreasonably or unfairly
professional capacity. Similarly, the Display Usage, is not unfairly discriminatory.’’ 31 The further change
change to allow a Distributor to track discriminatory because it is consistent with regard to monthly Distributor fees
actual usage by a particular User and with the fee schedules for numerous is reasonable, equitable, and not
pay only if actual usage occurs during other data products that impose higher unfairly discriminatory because it
the month (as opposed to paying for all fees on Professionals in recognition of addresses a use case in which a
potential Users) is reasonable because it their more intensive usage of data feeds Distributor is receiving two or three
creates an incentive for a Distributor to and the greater value they derive from products that contain last sale
reduce its fees by more carefully such usage. Moreover, the proposed information—NLS, NLS Plus and/or
monitoring usage by its customers. The new fee schedule is consistent with an Nasdaq Basic—and will specify that the
change is equitable and not unfairly equitable allocation of fees because it Distributor is not required to pay a
discriminatory because Nasdaq believes recognizes the administrative costs and duplicative Distributor fee in that
that all Distributors are capable of burdens associated with tracking circumstance.
implementing the change with minimal Professional usage of the product,
In adopting Regulation NMS, the
difficulty. especially given the low demand for
Commission granted self-regulatory
The changes to the ‘‘Per Device’’ exclusively Professional use. Finally,
organizations (‘‘SROs’’) and BDs
(formerly, unique visitor) use case are the change is reasonable because the
increased authority and flexibility to
reasonable because they allow a fees are geared to the actual level of
offer new and unique market data to the
Distributor to track usage based on usage, with options for either per
public. It was believed that this
readily available means of tracking Subscriber or per query fees. Moreover,
authority would expand the amount of
unique Devices. Because Distributors Nasdaq is offering alternative pricing
data available to consumers, and also
have already adopted this methodology, features that may allow some
spur innovation and competition for the
the change in rule language makes it Distributors to reduce their level of fees,
clear that this is the appropriate method including a method for netting provision of market data. The
to measure usage and that verification Subscribers and an enterprise license to Commission concluded that Regulation
by a third-party is not required. allow unlimited usage by broker-dealer NMS—by deregulating the market in
Accordingly, the change imposes no employees. proprietary data—would itself further
additional administrative burdens on Nasdaq further believes that the the Act’s goals of facilitating efficiency
Distributors. The change is equitable proposed change regarding a higher and competition:
and not unfairly discriminatory because monthly Distributor fee for external [E]fficiency is promoted when broker-
all Distributors adopting this use case distribution for use by Professionals and dealers who do not need the data beyond the
may readily use this methodology. usage other than Display Usage (i.e., prices, sizes, market center identifications of
The elimination of a specific model specialized usage) is not unreasonable the NBBO and consolidated last sale
for television distribution, in favor of a because a higher fee for external, as information are not required to receive (and
pay for) such data. The Commission also
model under which a Distributor opposed to solely internal, distribution believes that efficiency is promoted when
engaging in television distribution pays is based on the observation that external broker-dealers may choose to receive (and
the maximum NLS fee of $41,500 per distributors typically charge fees for pay for) additional market data based on their
month and may then distribute Nasdaq external distribution, while internal own internal analysis of the need for such
Last Sale via television to an unlimited distributors usually do not. As such, data.32
number of households, either solely via external distributors have the
television or in combination with opportunity to derive greater value from The Commission was speaking to the
unlimited use of the Per User, Per such distribution, and that greater value question of whether BDs should be
Query, and/or Per Device model, is is reflected in higher external subject to a regulatory requirement to
reasonable because the fee allows the distribution fees. The differential purchase data, such as depth-of-book
Distributor to engage in unlimited between external and internal data, that is in excess of the data
distribution of NLS via either television distribution fees is well- recognized in provided through the consolidated tape
alone or television in combination with the financial services industry as a feeds, and the Commission concluded
another distribution model for the reasonable distinction, and has been that the choice should be left to them.
general investing public, without the repeatedly accepted by the Commission Accordingly, Regulation NMS removed
need to monitor usage or track the as an equitable allocation of reasonable unnecessary regulatory restrictions on
identity of Recipients. Moreover, the dues, fees and other charges.29 The Act the ability of exchanges to sell their own
change is equitable and not unfairly does not prohibit all distinctions among data, thereby advancing the goals of the
discriminatory because all current customers, but rather discrimination Act and the principles reflected in its
television Distributors already pay this that is unfair. As the Commission has legislative history. If the free market
maximum fee. Accordingly, the change recognized, ‘‘[i]f competitive forces are should determine whether proprietary
will have no impact on any current operative, the self-interest of the data is sold to BDs at all, it follows that
daltland on DSKBBV9HB2PROD with NOTICES
Distributors. Moreover, it is unlikely exchanges themselves will work
that under the current fee schedule for 30 See Securities Exchange Act Release No. 59039
television, distribution by a particular 29 See,e.g., Rules 7019 (Market Data Distributor (December 2, 2008), 73 FR 74770 (December 9,
Fees); 7022(c) (Short Interest Report); 7023(c) 2008) (SR–NYSEArca–2006–21).
broadcaster would occur at a level that 31 Id.
(Enterprise License Fees for Depth-of-Book Data);
would allow it to pay less than the 7047(c) (Nasdaq Basic); and 7052(c) (Distributor 32 See Securities Exchange Act Release No. 51808
maximum fee. As a result, the per Fees for Nasdaq Daily Short Volume and Monthly (June 9, 2005), 70 FR 37496 (June 29, 2005)
viewer cost of television distribution is, Short Sale Transaction Files). (‘‘Regulation NMS Adopting Release’’).
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![7820 Federal Register / Vol. 83, No. 36 / Thursday, February 22, 2018 / Notices
The proposed fee structure is Paper Comments SECURITIES AND EXCHANGE
designed to ensure a fair and reasonable COMMISSION
use of Exchange resources by allowing • Send paper comments in triplicate
the Exchange to recoup costs while to Secretary, Securities and Exchange
[Release No. 34–82720; File No. SR–
continuing to offer its data products at Commission, 100 F Street NE,
PEARL–2018–03]
competitive rates to firms. Washington, DC 20549–1090.
C. Self-Regulatory Organization’s All submissions should refer to File Self-Regulatory Organizations; MIAX
Statement on Comments on the Number SR–NASDAQ–2018–010. This PEARL, LLC; Notice of Filing and
Proposed Rule Change Received From file number should be included on the Immediate Effectiveness of a Proposed
Members, Participants, or Others subject line if email is used. To help the Rule Change To Expand the Short
Commission process and review your Term Option Series Program
No written comments were either
comments more efficiently, please use
solicited or received. February 15, 2018.
only one method. The Commission will
III. Date of Effectiveness of the post all comments on the Commission’s Pursuant to the provisions of Section
Proposed Rule Change and Timing for internet website (http://www.sec.gov/ 19(b)(1) of the Securities Exchange Act
Commission Action rules/sro.shtml). Copies of the of 1934 (‘‘Act’’) 1 and Rule 19b–4
submission, all subsequent thereunder,2 notice is hereby given that
Because the foregoing proposed rule
amendments, all written statements on February 12, 2018, MIAX PEARL,
change does not: (i) Significantly affect
the protection of investors or the public with respect to the proposed rule LLC (‘‘MIAX PEARL’’ or ‘‘Exchange’’)
interest; (ii) impose any significant change that are filed with the filed with the Securities and Exchange
burden on competition; and (iii) become Commission, and all written Commission (‘‘Commission’’) a
operative for 30 days from the date on communications relating to the proposed rule change ’’) a proposed rule
which it was filed, or such shorter time proposed rule change between the change as described in Items I and II
as the Commission may designate, it has Commission and any person, other than below, which Items have been prepared
become effective pursuant to Section those that may be withheld from the by the Exchange. The Commission is
19(b)(3)(A)(iii) of the Act 41 and public in accordance with the publishing this notice to solicit
subparagraph (f)(6) of Rule 19b–4 provisions of 5 U.S.C. 552, will be comments on the proposed rule change
thereunder.42 available for website viewing and from interested persons.
At any time within 60 days of the printing in the Commission’s Public I. Self-Regulatory Organization’s
filing of the proposed rule change, the Reference Room, 100 F Street NE, Statement of the Terms of Substance of
Commission summarily may Washington, DC 20549 on official the Proposed Rule Change
temporarily suspend such rule change if business days between the hours of
it appears to the Commission that such 10:00 a.m. and 3:00 p.m. Copies of the The Exchange is filing a proposal to
action is: (i) Necessary or appropriate in filing also will be available for expand the Short Term Option Series
the public interest; (ii) for the protection inspection and copying at the principal Program to allow Monday expirations
of investors; or (iii) otherwise in office of the Exchange. All comments for options listed pursuant to the Short
furtherance of the purposes of the Act. received will be posted without change. Term Option Series Program, including
If the Commission takes such action, the Persons submitting comments are options on the SPDR S&P 500 ETF Trust
Commission shall institute proceedings cautioned that we do not redact or edit (‘‘SPY’’).
to determine whether the proposed rule personal identifying information from
should be approved or disapproved. The text of the proposed rule change
comment submissions. You should is available on the Exchange’s website at
IV. Solicitation of Comments submit only information that you wish http://www.miaxoptions.com/rule-
to make available publicly. All filings/pearl at MIAX PEARL’s principal
Interested persons are invited to
submissions should refer to File office, and at the Commission’s Public
submit written data, views, and
Number SR–NASDAQ–2018–010 and Reference Room.
arguments concerning the foregoing,
including whether the proposed rule should be submitted on or before March
15, 2018. II. Self-Regulatory Organization’s
change is consistent with the Act.
Statement of the Purpose of, and
Comments may be submitted by any of For the Commission, by the Division of
Statutory Basis for, the Proposed Rule
the following methods: Trading and Markets, pursuant to delegated
authority.43 Change
Electronic Comments
Eduardo A. Aleman, In its filing with the Commission, the
• Use the Commission’s internet Assistant Secretary. Exchange included statements
comment form (http://www.sec.gov/ [FR Doc. 2018–03568 Filed 2–21–18; 8:45 am] concerning the purpose of and basis for
rules/sro.shtml); or the proposed rule change and discussed
BILLING CODE 8011–01–P
• Send an email to rule-comments@ any comments it received on the
sec.gov. Please include File Number SR– proposed rule change. The text of these
NASDAQ–2018–010 on the subject line. statements may be examined at the
places specified in Item IV below. The
daltland on DSKBBV9HB2PROD with NOTICES
41 15 U.S.C. 78s(b)(3)(A)(iii). Exchange has prepared summaries, set
42 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
forth in sections A, B, and C below, of
the Commission written notice of its intent to file the most significant aspects of such
the proposed rule change at least five business days statements.
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
1 15 U.S.C. 78s(b)(1).
Commission. The Exchange has satisfied this
requirement. 43 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4.
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Document Created: 2018-02-22 02:51:04
Document Modified: 2018-02-22 02:51:04
| 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 7812 |
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