
[Federal Register: August 9, 2010 (Volume 75, Number 152)]
[Notices]               
[Page 47871-47874]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09au10-90]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62629; File No. SR-NASDAQ-2010-096]

 
Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of a Proposed Rule Change Relating to the National 
Quotation Dissemination Service

August 3, 2010.
    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 August 2, 2010, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by NASDAQ. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ is proposing to amend NASDAQ Rule 7017 to re-establish 
retroactively through January 1, 2008, a pilot program under Nasdaq 
Rule 7017(b), which reduced from $50 to $10 the monthly fee that non-
professional users pay to receive the National Quotation Dissemination 
Service (``NQDS'').

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

    In its filing with the Commission, NASDAQ included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below, and is set forth in Sections A, B, and C below.

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

1. Purpose
    NASDAQ is proposing to re-establish retroactively through January 
1, 2008, the fee reduction pilot program under NASDAQ Rule 7017(b) that 
reduced from $50 to $10 the monthly fee that non-professional users pay 
to receive NQDS.
Background
    NASDAQ disseminates market data feeds in two capacities. First, 
NASDAQ disseminates consolidated or ``core'' data in its capacity as 
Securities Information Processor (``SIP'') for the national market 
system plan governing securities listed on NASDAQ as a national 
securities exchange (``NASDAQ UTP Plan'').\3\ As the SIP, NASDAQ 
disseminates the NASDAQ Level 1 data entitlement containing 
consolidated quotation and last sale information from each self-
regulatory organization (``SRO'') that quotes or trades NASDAQ-listed 
securities. NASDAQ collects revenue derived from the sale of NASDAQ 
Level 1, deducts expenses incurred as the SIP, and distributes the 
proceeds to the SROs pursuant to the terms of the NASDAQ UTP Plan.
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    \3\ See Securities Exchange Act Release No. 59039 (Dec. 2, 2008) 
at p. 41.
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    Second, NASDAQ separately disseminates proprietary or ``non-core'' 
data in its capacity as a registered national securities exchange. Non-
core data is any data generated by the NASDAQ Market Center Execution 
System that is voluntarily disseminated by NASDAQ. Non-core data is not 
required to be supplied to the SIP for inclusion in the consolidated 
data, including quotation and last sale data that is consolidated but 
which NASDAQ can disseminate separate and apart from the consolidated 
data.\4\ NASDAQ has numerous proprietary data products, such as NASDAQ 
TotalView, NASDAQ Last Sale, and NASDAQ Basic. Revenue from the sale of 
proprietary data products is NASDAQ's and is not distributed pursuant 
to the NASDAQ UTP Plan.
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    \4\ Id.
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    The National Quotation Dissemination Service (``NQDS'') is a 
proprietary data product that contains the best bid and offer quotation 
of each registered market maker quoting in NASDAQ-listed securities on 
the NASDAQ Stock Market. NQDS data is used not only by firms, 
associated persons, and other market professionals, but also by non-
professionals who receive the service through authorized vendors, 
including, for example, on-line brokerage firms.
    Prior to August 31, 2000, NQDS data was available through 
authorized vendors at a monthly rate of $50 for professionals and non-
professional users alike. In August 2000, NASDAQ filed a proposed rule 
change to reduce from $50 to $10 the monthly fee that non-professional 
users pay to receive NQDS data. The Commission approved the pilot on 
August 22, 2000, and the fee

[[Page 47872]]

reduction commenced on August 31, 2000 on a one-year pilot basis.\5\ On 
September 5, 2001, August 29, 2002, August 15, 2003, and August 20, 
2004, January 24, 2006, and April 25, 2007, NASDAQ, filed proposed rule 
changes to extend the pilot for additional one-year periods.\6\ Thus, 
NASDAQ has assessed the same non-professional user fee for NQDS for 
roughly 10 years.
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    \5\ See Securities Exchange Act Release No. 43190 (Aug. 22, 
2000); 65 FR 52460 (Aug. 29, 2000).
    \6\ See Securities Exchange Act Release No. 44788 (Sept. 13, 
2001); 66 FR 48303 (Sept. 19, 2001). Securities Exchange Act Release 
No. 46446 (Aug. 30, 2002); 67 FR 57260 (Sept. 9, 2002). Securities 
Exchange Act Release No. 48386 (Aug. 21, 2003); 68 FR 51618 (Aug. 
27, 2003). Securities Exchange Act Release No. 50318 (Aug. 3, 2004); 
69 FR 54821 (Sept. 10, 2004); Securities Exchange Act Release No. 
53531 (Mar. 21, 2006); 71 FR 15506 (Mar. 28, 2006); Securities 
Exchange Act Release No. 55668 (Apr. 25, 2007); 72 FR 24347 (May 2, 
2007). NASDAQ previously sought authority retroactively to assess 
the NQDS non-professional fee from December 31, 2007 going forward. 
See SR-NASDAQ-2009-055.
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    NASDAQ is proposing to establish the fee-reduction pilot 
retroactively to January 1, 2008 to avoid a lapse in the pilot and the 
need to collect additional fees from investors.\7\ NASDAQ has 
consistently supported broad, effective dissemination of market 
information to public investors. NASDAQ notes that the pilot reduced by 
80% the fees that non-professionals paid for NQDS data prior to August 
31, 2000. Continuing the reduction of NQDS for non-professional users 
demonstrates NASDAQ's continued commitment to individual investors and 
responds to the demand for real-time market data by non-professional 
market participants. In addition, NASDAQ member firms often supply 
real-time market data to their customers through automated means. Thus, 
NASDAQ member firms' customers will benefit from the continued fee 
reduction.
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    \7\ On July 27, 2010, NASDAQ filed a proposed rule change to 
make the pilot fee reduction permanent. See SR-NASDAQ-2010-093 (July 
27, 2010).
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2. Statutory Basis
    NASDAQ believes that its proposal is consistent with Section 6(b) 
of the Act \8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \9\ in particular, in that it is 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. 
The fee reduction enhances the public's access to market data that is 
relevant to investors when they make financial decisions and encourages 
increased public participation in the securities markets. NASDAQ's 
inability to extend the pilot fee reduction retroactively as requested 
would effectively result in an increase in fees that NASDAQ would be 
required to collect retroactively. This fee increase would harm 
investors and offer no benefit to the market.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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    NQDS is precisely the sort of market data product that the 
Commission envisioned when it adopted Regulation NMS. The Commission 
concluded that Regulation NMS--by lessening regulation of 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.\10\
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    \10\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496 (June 29, 2005).

By removing ``unnecessary regulatory restrictions'' on the ability of 
exchanges to sell their own data, Regulation NMS advanced 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 
broker-dealers at all, it follows that the price at which such data is 
sold should be set by the market as well.
    NASDAQ's ability to price NQDS is constrained by (1) Competition 
between exchanges and other trading platforms that compete with each 
other in a variety of dimensions; (2) the existence of inexpensive 
real-time consolidated data and free delayed consolidated data, and (3) 
the inherent contestability of the market for proprietary last sale 
data.
    The market for proprietary quotation data products 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.
    Broker-dealers currently have numerous alternative venues for their 
order flow, including ten self-regulatory organization (``SRO'') 
markets, as well as internalizing broker-dealers (``BDs'') and various 
forms of alternative trading systems (``ATSs''), including dark pools 
and electronic communication networks (``ECNs''). Each SRO market 
competes to produce transaction reports via trade executions, and two 
FINRA-regulated Trade Reporting Facilities (``TRFs'') compete to 
attract internalized transaction reports. 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 Amex, NYSEArca, and BATS.
    Any ATS or BD can combine with any other ATS, BD, or multiple ATSs 
or BDs to produce joint proprietary data products. Additionally, order 
routers and market data vendors can facilitate single or multiple 
broker-dealers' production of proprietary data products. The potential 
sources of proprietary products are virtually limitless.
    The fact that proprietary data from ATSs, BDs, and vendors can by-
pass SROs is significant in two respects. First, non-SROs can compete 
directly with SROs for the production and sale of proprietary data 
products, as BATS and Arca did before registering as exchanges by 
publishing proprietary book data on the Internet. Second, because a 
single order can appear in an SRO proprietary product, a non-SRO 
proprietary product, or both, the data available in proprietary 
products is exponentially greater than the actual number of orders that 
exist in the marketplace.
    Consolidated data provides two additional measures of pricing 
discipline for proprietary data products that are a subset of the 
consolidated data stream. First, the consolidated quotation data is 
widely available in real-time at $1 per month for non-professional 
users. Second, consolidated data is also available at no cost with a 
15- or 20- minute delay. Because consolidated data contains marketwide 
information, it constrains the fees assessed for

[[Page 47873]]

proprietary data (such as NQDS data). The mere availability of low-cost 
or free consolidated data provides a powerful form of pricing 
discipline for proprietary data products that contain data elements 
that are included in the consolidated data, by highlighting the 
optional nature of proprietary products.
    Market data vendors provide another form of 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 broker-dealers, such as 
Schwab and Fidelity, offer their 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. NASDAQ 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.
    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid, inexpensive, and profitable. 
The history of electronic trading is replete with examples entrants 
that swiftly grew into some of the largest electronic trading platforms 
and proprietary data producers: Archipelago, Bloomberg Tradebook, 
Island, RediBook, Attain, TracECN, BATS Trading and Direct Edge. Today, 
BATS publishes certain data at no charge on its website and via data 
feeds in order to attract order flow, and it uses market data revenue 
rebates from the resulting executions to maintain low execution charges 
for its users.\11\ A proliferation of dark pools and other ATSs operate 
profitably with fragmentary shares of consolidated market volume.
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    \11\ However, BATS recently received approval to begin offering 
and charging for three new data products, which include BATS Last 
Sale Feed, BATS Historical Data Products, and a data product called 
BATS Market Insight. See Securities Exchange Act Release No. 61885 
(April 9, 2010), 75 FR 20018 (April 16, 2010) (SR-BATS-2010-002).
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    Regulation NMS, by deregulating the market for proprietary data, 
has increased the contestability of that market. While broker-dealers 
have previously published their proprietary data individually, 
Regulation NMS encourages market data vendors and broker-dealers to 
produce proprietary products cooperatively in a manner never before 
possible. Multiple market data vendors already have the capability to 
aggregate data and disseminate it on a profitable scale, including 
Bloomberg, Reuters and Thomson.
    In continuing the current price for NQDS, NASDAQ considered the 
competitiveness of the market for quotation data and all of the 
implications of that competition. NASDAQ believes that it has 
considered all relevant factors and has not considered irrelevant 
factors in order to establish a fair, reasonable, and not unreasonably 
discriminatory fee and an equitable allocation of fees among all users. 
The existence of numerous alternatives to NQDS, including real-time 
consolidated data, free delayed consolidated data, and proprietary data 
from other sources ensures that NASDAQ cannot set unreasonable fees, or 
fees that are unreasonably discriminatory, without losing business to 
these alternatives. Accordingly, NASDAQ believes that the acceptance of 
the NQDS product in the marketplace demonstrates the consistency of 
these fees with applicable statutory standards.

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

    NASDAQ does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve or disapprove the proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2010-096 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2010-096. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, on 
official business days between the hours of 10 a.m. and 3 p.m. Copies 
of the filing also will be available for inspection and copying at the 
principal office of NASDAQ. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NASDAQ-2010-096 and should be submitted on or before 
August 30, 2010.


[[Page 47874]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Florence E. Harmon,
Deputy Secretary.
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    \12\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2010-19606 Filed 8-6-10; 8:45 am]
BILLING CODE 8010-01-P

