
[Federal Register Volume 78, Number 233 (Wednesday, December 4, 2013)]
[Notices]
[Pages 72932-72943]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28970]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70953; File No. S7-24-89]


Joint Industry Plan; Notice of Filing and Immediate Effectiveness 
of Amendment No. 31 to the 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 Privileges Basis Submitted by the BATS 
Exchange, Inc., BATS Y-Exchange, Inc., Chicago Board Options Exchange, 
Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX 
Exchange, Inc., Financial Industry Regulatory Authority, Inc., 
International Securities Exchange LLC, NASDAQ OMX BX, Inc., NASDAQ OMX 
PHLX LLC, Nasdaq Stock Market LLC, National Stock Exchange, Inc., New 
York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc.

November 27, 2013.
    Pursuant to Section 11A of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 608 thereunder,\2\ notice is hereby given that 
on November 20, 2013, the operating committee (``Operating Committee'' 
or ``Committee'') \3\ of the 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 Privilege Basis

[[Page 72933]]

(``Nasdaq/UTP Plan'' or ``Plan'') filed with the Securities and 
Exchange Commission (``Commission'') an amendment to the Plan.\4\ This 
amendment represents Amendment No. 31 (``Amendment No. 31'') to the 
Plan and modifies the Plan's fee schedule without the expectation of 
incremental revenue to the Participants. The Participants voted in 
accordance with the requirements of the Plan\5\ to make the following 
changes to the Plan's fee schedule: (1) Increase the Professional 
Subscriber Fee from $20 to $23 per month per interrogation device, the 
first such increase since 1997; (2) increase the Non-Professional 
Subscriber Enterprise Cap from $600,000 to $624,000 per month, and cap 
the maximum annual fee increase at four percent per year; (3) increase 
the Direct Access Charges from $1,500 per month to $2,500 per month; 
and, (4) establish a Redistribution Charge of $1,000 per month for 
redistributing Real-Time UTP Level 1 Service and $250 per month for 
redistributing Delayed UTP Level 1 Service (collectively, referred to 
herein as the ``Fee Changes''). Set forth below is a detailed 
description and analysis of each fee change. The Participants 
identified past attrition and anticipate continued attrition in the 
reporting and consumption of consolidated market data and anticipate 
that the Fee Changes will generate enough revenue to offset the revenue 
declines resulting from that attrition. The changes will be implemented 
on January 1, 2014.
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    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 242.608.
    \3\ The Plan Participants (collectively, ``Participants'') are 
the: BATS Exchange, Inc.; BATS Y-Exchange, Inc.; Chicago Board 
Options Exchange, Incorporated; Chicago Stock Exchange, Inc.; EDGA 
Exchange, Inc.; EDGX Exchange, Inc.; Financial Industry Regulatory 
Authority, Inc.; International Securities Exchange LLC; NASDAQ OMX 
BX, Inc.; NASDAQ OMX PHLX LLC; Nasdaq Stock Market LLC; National 
Stock Exchange, Inc.; New York Stock Exchange LLC; NYSE MKT LLC; and 
NYSE Arca, Inc.
    \4\ The Plan governs the collection, processing, and 
dissemination on a consolidated basis of quotation information and 
transaction reports in Eligible Securities for each of its 
Participants. This consolidated information informs investors of the 
current quotation and recent trade prices of Nasdaq securities. It 
enables investors to ascertain from one data source the current 
prices in all the markets trading Nasdaq securities. The Plan serves 
as the required transaction reporting plan for its Participants, 
which is a prerequisite for their trading Eligible Securities. See 
Securities Exchange Act Release No. 55647 (April 19, 2007), 72 FR 
20891 (April 26, 2007).
    \5\ Section IV(C)(2) of the Plan provides that ``the affirmative 
vote of two-thirds of the Participants entitled to vote shall be 
necessary to'' establish new fees or increase existing fees relating 
to Quotation Information and Transaction Reports in Eligible 
Securities. The affirmative vote of the Operating Committee 
conducted on August 7, 2013 and recorded in the official minutes of 
that meeting, was eleven in favor, two opposed, and two abstentions.
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    Pursuant to Rule 608(b)(3)(i) under the Act, the Participants 
designated the Amendment No. 31 as establishing or changing a fee or 
other charge collected on behalf of all of the Participants in 
connection with access to, or use of, the facilities contemplated by 
the Amendment. As a result, Amendment No. 31 has been put into effect 
upon filing with the Commission.
    At any time within 60 days of the filing of Amendment No. 31, the 
Commission may summarily abrogate Amendment No. 31 and require that the 
Amendment be refiled in accordance with paragraph (a)(1) of Rule 608 
and reviewed in accordance with paragraph (b)(2) of Rule 608, if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or the 
maintenance of fair and orderly markets, to remove impediments to, and 
perfect the mechanisms of, a national market system or otherwise in 
furtherance of the purposes of the Act. The Commission is publishing 
this notice to solicit comments from interested persons.

I. Rule 608(a)

A. Purpose of the Amendments

1. Background
    The Operating Committee is attempting for the second time this year 
to implement fee changes. On March 22, 2013, the Participants filed 
with the Commission Amendment No. 27.\6\ That amendment revised the 
metric by which the Participants calculate the annual increase in the 
Enterprise Maximum. On March 27, 2013, the Participants filed with the 
Commission Amendment No. 28.\7\ That amendment increased the 
Professional Subscriber device fee from $20 to $25 per month, 
introduced a new redistribution fee, and established a net reporting 
program.
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    \6\ See Securities Exchange Act Release No. 69215 (March 22, 
2013), 78 FR 19029 (March 28, 2013) (``Amendment 27'').
    \7\ See Securities Exchange Act Release No. 69361 (April 10, 
2013), 78 FR 22588 (April 16, 2013) (``Amendment 28'').
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    Shortly before and after Amendment Nos. 27 and 28 were filed, 
members of the industry and of the Advisory Committee to the Operating 
Committee expressed concerns about the proposed fee changes and the 
process by which they were adopted.\8\ The Thomson Reuters Letter 
voiced strong support for the Advisory Committee and Thomson Reuters' 
participation on the Advisory Committee, but commented that the 
Participants did not include input from the Advisory Committee in 
arriving at proposed fee changes set forth in Amendment 28. The SIFMA 
Letter made the same comment: ``We respectfully request that you 
require the Operating Committee to reconvene in open session with 
members of the Advisory Committee present to enable them to provide 
their views as industry representatives.'' \9\
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    \8\ See Letter to John Ramsay, Acting Director, Division of 
Trading and Markets, Commission, et al. from Ira D. Hammerman, 
Senior Managing Director & General Counsel, Securities Industry and 
Financial Markets Association, dated March 28, 2013 (the ``SIFMA 
Letter''); Letter to Chairperson White and Commissioners, 
Commission, from Gene L. Finn, Ph.D., dated April 24, 2013; Letter 
to the Commission, from Gene L. Finn, Ph.D., dated April 25, 2013; 
and Letter to Elizabeth M. Murphy, Secretary, Commission from Peter 
Moss, Managing Director, Thomson Reuters, dated May 7, 2013 (the 
``Thomson Reuters Letter'').
    \9\ See SIFMA Letter at p. 4.
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    In addition, the Thomson Reuters Letter and the SIFMA Letter 
commented that the Participants did not give the industry sufficient 
advance notice of the Amendment No. 28 fee changes to allow them to 
make the systems changes necessary to implement the changes. ``Thomson 
Reuters notes that 90 days advance notice of fee increases, rather than 
30 days, is commonly used in the market data industry, in order to 
provide sufficient time to communicate changes to clients and answer 
their questions.'' \10\
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    \10\ See Thomson Reuters Letter at p. 2.
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    In response, the Operating Committee determined to reverse the fee 
changes and to address the procedural deficiencies that the Thomson 
Reuters Letter and SIFMA Letter identified. On May 10, 2013, the 
Operating Committee filed Amendment No. 29 to the Plan, which reversed 
the changes that the Participants made in Amendment Nos. 27 and 28. 
Accordingly, the Participants did not implement the fee changes for the 
month of April 2013 or otherwise.
    Rather, the Participants met with the Advisory Committee in May 
2013 to receive the Advisory Committee's input. In addition, they 
discussed the proposed fee changes with Advisory Committee members and 
other industry representatives throughout the months of May, June and 
July of 2013.
    In August, after those discussions and lengthy debate over multiple 
meetings, the Operating Committee approved a set of fee changes 
designed to allow the Participants to recover the revenues that they 
anticipate losing as a result of their permitting distributors to 
report on a net basis. They anticipate that the net result will not 
increase total Plan revenue collected.
    Regarding the need for more advance notice of the changes, The 
Participants discussed the proposed Fee Changes with the industry 
throughout the summer and fall of 2013, and published a vendor notice 
on September 26, 2013, advising that the changes will become effective 
on January 1, 2014.\11\ In the Participants view, vendors have had 
substantial time to change their data administration systems to 
accommodate

[[Page 72934]]

the Fee Changes, as well as apply for net reporting.
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    \11\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=uva2013-10.
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    To recover revenues that they anticipate will be lost to attrition, 
the Participants voted to increase the Professional Subscriber device 
fee, the Enterprise Maximum for Nonprofessional Subscriber usage, and 
the Direct Access fee, and to establish Real-Time and Delayed 
Redistributor fees. The Plan last increased the Professional Subscriber 
device fees in 1997. Since then, significant change has characterized 
the industry, stemming in large measure from technological advances, 
the advent of trading algorithms and automated trading, new investment 
patterns, new securities products, unprecedented levels of trading, 
decimalization, internationalization and developments in portfolio 
analysis and securities research. Measures of Plan inputs and outputs 
have expanded dramatically, including the number of exchange 
participants, messages per period, message speed, and total shares and 
dollar volume of trading. Related measures of value to the industry 
have improved and related industry costs have fallen, including the 
cost per message, the cost per trade, and the cost per share and dollar 
volume traded.
    In addition, the Fee Changes also move towards harmonizing fees 
under the Plan with fees under three other national market system 
plans: The CTA Plan, the CQ Plan and the OPRA Plan.
2. The Proposed Changes
a. Professional Subscriber Charges
    Amendment 31 will increase the Professional Subscriber device fee 
to $23 per month. The current charge is $20 per month. The $20 fee has 
remained in place since 1997. Thus, the increase amounts to less than a 
two percent increase per year over a 16-year period. During that 
period, the amount of market data and the categories of information 
distributed through the UTP Level 1 Service have grown dramatically. 
The securities information processor under the Plan (the ``SIP'') has 
made hundreds of modifications to the UTP Trade Datafeed and the UTP 
Quotation Datafeed (``UQDF'') over the past fifteen years to keep up 
with changes in market structure, regulatory requirements and trading 
needs. These modifications have added such things as new messages, new 
fields, and new values within designated fields to the UTP Level 1 
Service. They have caused the UTP Level 1 Service to support such 
industry developments as Regulation NMS, decimalization, limit up/limit 
down, and many other changes.
    The growth in prices and quotes distributed over the UTP Level 1 
Service has also been dramatic. For instance, from February 2005 to 
February 2013, the UTP UQDF 5-second peak message rate has increased by 
a multiple of 15 from 3,789 messages per second to 57,685 messages per 
second. Over that period, the daily peak rate has increased more than 
3-fold to 136,500,547 messages.
    At the same time, Professional Subscribers' usage of Level 1 data 
has been declining:
[GRAPHIC] [TIFF OMITTED] TN04DE13.000

    Professional Subscriber fees collected have declined as well. For 
example, as of September 30, 2011, the Plan's 382,862 Professional 
Subscribers paid $7,657,240 per month.\12\ As of September 30, 2012, 
the Plan's 351,106 Professional Subscribers paid $7,022,120. As of 
September 30, 2013, the Plan's 295,192 Professional Subscribers paid 
$5,903,890. Assuming January 2014 Professional Subscriber usage stays 
constant at 295,192, net reporting would reduce total Professional 
Subscriber fees paid at $23 per Subscriber to approximately $6,789,416, 
over $860,000 below the level of Professional usage fees collected in 
September 2011.
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    \12\ Professional Subscriber counts are calculated and published 
quarterly and posted on utpplan.org. The latest quarterly figures 
reflect a 15 percent annual decline in Professional Subscribers. See 
http://www.utpplan.com/.
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    Fees for UTP Level 1 compare favorably to fees for comparable 
Network A and B data. Under the CT/CQ Network A tiered structure, a 
firm reports how many display devices the Professional Subscriber 
employs; that number then is used to determine the tier within which 
the firm falls. Until recently, the Network A fees for Professional 
Subscribers ranged from $18.75 per device for firms employing 
Professional Subscribers who use more than 10,000 devices to $127.25 
per device for an individual Professional Subscriber. In June of 2013, 
Network A lowered that range to $20 to $50 per device.\13\ Also in June 
of 2013, Network

[[Page 72935]]

B combined the fees payable for a Professional Subscriber's receipt of 
quotation information and last sale price information and set the 
combined monthly fee at $24 per month. The combined $24 rate reduced 
costs for most Professional Subscribers, with the exception of a small 
number of data recipients who receive last sale or quotation 
information, but not both. Under the OPRA Plan, the device fee is 
currently $26 per month, and will rise to $27 per month on January 1, 
2014.
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    \13\ Specifically, the Network A monthly fees for Professional 
Subscriber devices are $50 per month for users with 1 or 2 devices, 
$30 per month for users with 3 to 999 devices, $25 per month for 
users with 1,000 to 9,999 devices, and $20 per month for users with 
10,000 or more devices. As a result of the fee change, firms with 
Professional usage between 1 and 29 devices pay lower rates while 
firms using more than 750 devices pay higher rates.
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b. Broker-Dealer Enterprise Maximums
    The Participants do not require an entity that is registered as a 
broker/dealer under the Securities Exchange Act of 1934 to pay more 
than the ``Enterprise Maximum'' for any month for each entitlement 
system offering UTP Level 1 Service to Nonprofessional Subscribers. The 
``Enterprise Maximum'' equals the aggregate amount of fees payable for 
distribution of UTP Level 1 Service to Nonprofessional Subscribers that 
are brokerage account customers of the broker/dealer. The Participants 
adopted the Enterprise Maximum in 2010 and set it at $600,000 per month 
for that year. The Plan currently provides that the amount of the 
Enterprise Maximum shall increase annually by an amount equal to the 
percentage increase in the annual composite share volume for the 
preceding calendar year, subject to a maximum annual increase of five 
percent and to a determination by the Participants to waive the annual 
increase for any calendar year.
    For 2013, the Enterprise Maximum remains at $600,000 per month. The 
Participants now propose to increase the amount of the Enterprise 
Maximum by four percent to $624,000, effective January 1, 2014.\14\
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    \14\ The impact of increasing the Enterprise Maximum is minimal. 
Currently, only one (1) firm reaches the Enterprise Maximum. In the 
aggregate, the combination of the Fee Changes and the net reporting 
option could reduce the fees payable by this firm in the absence of 
an Enterprise Maximum by over 35 percent, based on its September 
2013 level of activity.
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    Simultaneously, the Plan Participants voted to change the potential 
for future growth of the Enterprise Maximum. Rather than basing the 
percentage increase in the annual composite share volume for the 
preceding calendar year, subject to an annual maximum increase of five 
percent, the Participants propose to permit such annual increases in 
the monthly Enterprise Maximum as to which they may agree by a majority 
vote, subject to a maximum increase in any calendar year of four 
percent. This proposed means for determining the increase in the 
broker-dealer Enterprise Maximum would reduce the amount of any one 
year's permissible increase from five percent to four percent and would 
better reflect inflation than does the current means. The maximum four 
percent increase is consistent with the average cost of living 
adjustment (``COLA'') as published by the Social Security 
Administration for the past 38 years. The reduction of the maximum 
annual increase from five percent to four percent, as well as the 
discretion given to the Participants to agree annually to a lower 
increase, or to no increase at all, should make the proposed change 
more palatable to the very small number of entities that take advantage 
of the Enterprise Maximum.
    The proposed fee increase and methodology regarding future 
increases is consistent with recent changes implemented for Networks A 
and B. As a result of recent amendments, the monthly Network A broker-
dealer enterprise maximum increased to $686,400 and the monthly Network 
B broker-dealer enterprise maximum increased to $520,000. Additionally, 
the methodology for determining future increases, if any, in the 
Enterprise Maximum is identical to the methodology that Networks A and 
B recently adopted.
c. Access Fees
    Access fees are charged to firms who receive UTP Level 1 datafeeds. 
The fee depends upon whether the vendor receives the feed directly from 
the SIP, in which case the monthly fee is $1,500, as opposed to 
indirect receipt, which triggers a monthly fee of $500. The Plan 
charges only one access fee per firm regardless of the number of 
datafeeds that the firm and its affiliates receive. The Participants 
propose to raise the monthly direct access fee from $1,500 to $2,500. 
They estimate that the revised access fees would increase total Plan 
revenues by $1.6 million.
    The Participants believe that increasing the Direct Access fee is 
fair and reasonable because today's datafeeds provide significant 
incremental value in comparison to the datafeeds that the Participants 
provided when they first set the access fees. For example, the 
datafeeds contain a vastly larger number of last sale prices and bids 
and offers. Since April 2006, the growth of quotes and trades per 
second has increased over 12,200 percent and 2500 percent, 
respectively. The datafeeds also contain far more information beyond 
prices and quotes, such as the national best bid and offer (``NBBO''), 
short sale restriction indications, circuit breaker tabs, retail price 
improvement indications, and, since April 2013, limit up/limit down 
information. In addition to the vast increase in content, there has 
been significant improvement in the latency of the datafeeds.
    Further, datafeeds have become more valuable, as datafeed 
recipients now use them to perform a far larger array of non-display 
functions. Some firms even base their business models on the 
incorporation of datafeeds into black boxes and application programming 
interfaces that apply trading algorithms to the data, but that do not 
require widespread data access by the firm's employees. As a result, 
these firms pay little for data usage beyond access fees, yet their 
data access and usage is critical to their businesses.
d. Redistribution Fee
    The Participants propose to establish a new monthly charge of 
$1,000 for redistribution of Real-Time UTP Level 1 data and $250 for 
redistribution of Delayed UTP Level 1 data. This will not necessitate 
any additional reporting obligations. The redistribution charges would 
apply to any firm that makes UTP Level 1 available to any other entity 
or to any person other than its own employees, irrespective of the 
means of transmission or access. That is, all firms that redistribute 
any of UTP Level 1 data outside of their organization would be required 
to pay a redistribution fee. The fee would not apply to a firm whose 
receipt, use and distribution of market data is limited to its own 
employees in a controlled environment.
    The proposed redistribution fee better harmonizes fees under the 
NASDAQ/UTP Plan with fees under the CTA, CQ and OPRA Plans. The CTA and 
CQ Plan Participants recently adopted redistribution charges of $1000 
for the redistribution of Network A data and $1000 for the distribution 
of Network B data.\15\ The OPRA Plan imposes a redistribution charge of 
$1,500 per month on every vendor that redistributes OPRA data to any 
person (or $650 for an internet-only service). Redistribution fees are 
also common for exchange proprietary data products.
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    \15\ See SR-CTA/CQ-2013-04, Securities Exchange Act Release No. 
34-70010 (July 19, 2013), 78 FR 44984 (July 25, 2013; the ``CTA 
Release'').
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    The Participants note that vendors base their business models on 
procuring data from exchanges and turning around and redistributing 
that data to their subscribers. The costs that market data vendors 
incur for acquiring their inventory (e.g., UTP Level 1) are very low, 
sometimes amounting only to their

[[Page 72936]]

payment of access fees. The proposed redistribution charges would 
require them to contribute somewhat more, relative to the end-user 
community.
3. Impact of the Proposed Fee Changes
    As with any reorganization of a fee schedule, these changes may 
result in some data feed recipients paying higher total market data 
fees and in others paying lower total market data fees. The 
Participants anticipate that the Fee Changes will not generate enough 
revenue to offset attrition in reported consolidated market data 
activity data that they expect to take place subsequent to the Fee 
Changes. They anticipate that attrition will take three forms 
(``Anticipated Attrition'').
    First, they anticipate that the increases in Professional 
Subscriber device fees will result in cancellations and a reduction in 
the number of devices that some firms use.
    Second, several customer-usage trends have declined year-over-year 
since 2008, particularly declines in Professional Subscriber's 
consumption of consolidated market data. (More information on these 
declines can be found in the Participants' Consolidated Data Quarterly 
Operating Metrics Reports. Those reports can be found at http://www.utpplan.com). The decline in Professional Subscriber data usage has 
resulted from a challenging financial environment, and corporate 
downsizing, as well as a liberalization of the SEC's Vendor Display 
Rule that has permitted substitution of lower-cost and lower-value 
proprietary data product offerings.
    As a result of these declines, revenues generated under the Plans 
have declined significantly. Furthermore, the rise in off-exchange 
trading has meant that a smaller portion of those revenues are [sic] 
allocated to exchanges. Since 2008, CTA/UTP market data revenue has 
declined 21 percent from approximately $483 million in 2008 to $382 
million annualized through March of 2013, of which about $321 million 
was allocated to exchanges and $61 million to the Financial Industry 
Regulatory Authority, Inc. (``FINRA''). The significant portion of 
consolidated revenue allocated to FINRA ($61 million) reflects the 
growing share of off-exchange trading by brokers, which is largely 
rebated back to broker-dealers and significantly reduces the 
consolidated market data revenue allocated to exchanges.
    Third, in response to industry requests, the Operating Committee 
has determined to permit distributors to report on a ``net'' basis. 
This administrative change would allow customers that elect to report 
on a net basis to eliminate duplicate billing of an individual 
user.\16\ It will allow the distributor to directly report 
Professional, internal Subscribers of UTP Level 1 data on a net 
basis.\17\ Net reporting better harmonizes reporting and administration 
under the Plan with reporting and administration under the CTA and CQ 
Plans, which offer net reporting in the form of the ``Multiple 
Instance, Single User'' (``MISU'') program.\18\
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    \16\ Duplicate billing can occur when an individual user such as 
a trader uses multiple devices and/or accesses to view market data 
in multiple applications in an undifferentiated manner. Distributors 
report to the Plan administrator the number of Subscribers to which 
it [sic] distributes data. If a trader receives UTP Level 1 data 
from both a Thomson Reuters datafeed access and a firm-generated 
datafeed access, both the firm and Thomson Reuters are currently 
required to report that trader as a Subscriber, and each would have 
to pay for the trader's use of UTP Level 1 data.
    \17\ To report on a net basis, distributors must apply for and 
receive approval, based on their demonstration of adequate internal 
controls for identifying, monitoring, and reporting all internal 
Professional UTP Level 1 Subscribers directly. The burden will be on 
Vendors to demonstrate that the particular unit should be netted. 
The net-reporting option is described in further detail at: http://www.nasdaqtrader.com/content/AdministrationSupport/AgreementsData/utpdatapolicies.pdf.
    \18\ MISU is similar to the Plan's proposed net-reporting 
program except in one key respect: Vendors under the Plan bill their 
customers on behalf of the Plan Participants. Under the CTA and CQ 
Plans, the Network A and Network B administrators bill end-users 
directly. The CTA MISU program is described in greater detail at 
www.nyxdata.com.
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    Based on a careful review of historical usage, it is anticipated 
that twelve to fifteen percent of Professional Subscribers will qualify 
to report on a net basis, causing a proportional decline in aggregate 
assessed fees. Those broker-dealers and other internal market datafeed 
recipients that take advantage of net reporting are likely to see a 
reduction in their market data costs. The Participants note that the 
rate of adoption of the net reporting option is uncertain and the 
Plan's indirect billing method adds variability to both forecasting and 
tracking
    On balance, the Participants estimate that the Fee Changes will not 
offset revenue losses emanating from Anticipated Attrition and that the 
market data revenue pool under the Plan will not increase.

B. Governing or Constituent Documents

    Not applicable.

C. Implementation of Amendment

    Rule 608(b)(3)(i) of Regulation NMS (the ``Rule'') permits the 
Participants to designate a proposed plan amendment as establishing or 
changing fees and other charges, and to place such an amendment into 
effect upon filing with the Commission. As mentioned above, the 
Participants have made that designation. The Rule does not place any 
limitations on which particular fee changes qualify for immediate 
effectiveness. Rather, if the Commission believes that a longer comment 
period is appropriate for a particular filing, it may extend the 
comment period or abrogate the filing. Ample precedents exist for the 
filing of multiple or even complex fee changes to NMS Plans on an 
immediately effective basis over the past thirty years.\19\
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    \19\ See, e.g., Fifth Charges Amendment to the First Restatement 
of the CTA Plan, File No. S7-433, Release No. 34-19342, 47 FR 57369-
03 (December, 23, 1982); Fourteenth Charges Amendment to the First 
Restatement of the CTA Plan and Fifth Charges Amendment to the 
original CQ Plan, File No. S7-30-91, Release No. 34-29863, 56 FR 
56429-01 (November 4, 1991); Second Charges Amendment to the CTA 
Plan and First Charges Amendment to the CQ Plan, SR-CTA/CQ-97-2, 
Release No. 34-39235, 62 FR 54886-01 (October 14, 1997); OPRA Plan 
amendment SR-OPRA-2004-01, Release No. 34-49382, 69 FR 12377-01 
(March 16, 2004); OPRA Plan amendment SR-OPRA-2007-04, Release No. 
34-56950, 72 FR 71722-01 (December 18, 2007); OPRA Plan amendment 
SR-OPRA-2012-02, Release No. 34-66564, 77 FR 15833-01 (March 16, 
2012).
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    Pursuant to the Rule, the Participants have designated Amendment 31 
as establishing or changing fees, and have notified the industry of the 
proposed Fee Changes well in advance of Amendment 31's effective date. 
The Participants anticipate implementing the proposed Fee Changes on 
January 1, 2014, and intend to give further notice to data recipients 
and end-users of the Fee Changes.
    Finally, the Participants intend to make the Fee Changes effective 
at the same time as they permit net reporting. The administrative 
decision to permit net reporting responds to requests from industry 
representatives on the Plan's Advisory Committee. The sooner firms are 
permitted to report on a net basis, the sooner the industry may enjoy 
the attendant benefits. As a result, the Participants believe that 
immediate effectiveness of the Fee Changes is warranted.

D. Development and Implementation Phases

    See Item I(C) above.

E. Analysis of Impact on Competition

    The proposed amendments do not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Exchange Act. In key respects, the proposed Fee Changes and net 
reporting directly respond to the suggestions and

[[Page 72937]]

requests of industry representatives and reflect the Participants' own 
views that it is appropriate to maintain a pricing structure that is 
consistent with current technology, that rationalizes administrative 
burdens and that promotes the use of real-time market data. The 
combination of the Fee Changes and net reporting would re-balance 
amounts that firms pay for the Plan's market data in a manner that 
fairly allocates market data costs among market data users.
    In addition, in respect of firms that cannot take advantage of net 
reporting, the Participants have not significantly revised usage fees 
in many years. Numerous technological advances, the advent of trading 
algorithms and automated trading, different investment patterns, a 
plethora of new securities products, unprecedented levels of trading, 
decimalization, internationalization and developments in portfolio 
analysis and securities research warrant this revision.
    In general, the proposed Fee Changes would cause NASDAQ/UTP Plan 
fees to sync more closely with fees payable under the CTA, CQ and OPRA 
Plans. The proposed fees would compare favorably with the fees payable 
under those other plans and with the fees charged for market data by 
the largest stock exchanges around the world. As a result, the Fee 
Changes promote consistency in price structures among the national 
market system plans, as well as consistency with the preponderance of 
other market data providers. This would make market data fees easier to 
administer. It would enable datafeed recipients to compare their 
charges under the respective national market system plans more easily. 
It also would make for a more straightforward and streamlined 
administrative process for market data end-users, as the reporting 
rules and fee arrangements under the national market system plans 
become more homogenous.
    In the Participants' view, the proposed fee schedule would allow 
each category of datafeed recipient and end-user to contribute an 
appropriate amount for their receipt and use of market data under the 
Plan. The proposed fee schedule would provide for an equitable 
allocation of dues, fees, and other charges among broker-dealers, 
datafeed recipients, vendors, end-users and others receiving and using 
market data made available under the Plans by recalibrating the fees to 
more closely correspond to the different benefits different categories 
of users derive from their different uses of the market data made 
available under the Plans.
    The Participants propose to apply the revised fee schedule 
uniformly to all constituents (including members of the Participant 
markets and non-members). The Participants do not believe that the 
proposed Fee Changes introduce terms that are unreasonably 
discriminatory.

F. Written Understanding or Agreements Relating to Interpretation of, 
or Participation in, Plan

    Not applicable.

G. Approval by Sponsors in Accordance With Plan

    In accordance with Section IV(C)(2) of the Plan, more than two-
thirds of the Participants have approved the Fee Change.

H. Description of Operation of Facility Contemplated by the Proposed 
Amendment

    Not applicable.

I. Terms and Conditions of Access

    See Item I(A) above.

J. Method of Determination and Imposition, and Amount of, Fees and 
Charges

1. In General
    The Participants took a number of factors into account in deciding 
to propose the Fee Changes. To begin, the Participants' market data 
staff communicates on an on-going basis with all sectors of the 
Participants' constituencies and assesses and analyzes the different 
broker/dealer and investor business models. The staff has expertise in 
the information needs of the Participants' constituents and used their 
experience and judgment to form recommendations regarding the Fee 
Changes, vetted those recommendations with constituents and revised 
those recommendations based on the vetting process.
    Most significantly, after an initial misstep, the Participants went 
back and carefully listened to the recommendations of their Advisory 
Committee. The Plan requires the Advisory Committee to include, at a 
minimum, a broker-dealer with a substantial retail investor customer 
base, a broker-dealer with a substantial institutional investor 
customer base, an alternative trading system, a data vendor, and an 
investor. Advisory Committee members attend and participate in meetings 
of the Participants and receive meeting materials. Members of the 
Advisory Committee gave valuable input that the Participants used in 
crafting the proposed Fee Changes. At several meetings of the Plan's 
Operating Committee, Advisory Committee members spoke at length about 
the Fee Changes, net reporting and their overall impact.
    In reassessing and rebalancing market data fees as proposed in the 
amendments, the Participants took a number of factors into account in 
addition to the views of its constituents, including:
    (a) Examining the impact that they expect Anticipated Attrition to 
have on revenues;
    (b) crafting fee changes that will not have a significant impact on 
total revenues generated under the Plans;
    (c) setting fees that compare favorably with fees that the biggest 
exchanges around the globe and the CT/CQ Plan and the OPRA Plan charge 
for similar services;
    (d) setting fees that allow each category of market datafeed 
recipient and end-user to contribute market data revenues that the 
Participants believe are appropriate for that category;
    (e) crafting fee changes that appropriately differentiate between 
constituents in today's environment (e.g., recipients of a single 
service vs. recipients of multiple services; large firms vs. small 
firms; redistributors vs. end-users).
2. An Overview of the Fairness and Reasonableness of Market Data Fees 
and Revenues Under the Plans
a. The Fee Changes Will Have No Impact on Most Individual Investors
    The vast majority of Nonprofessional Subscribers (i.e., individual 
investors) receive market data from their brokers and vendors. The 
Participants impose their Nonprofessional Subscriber fees on the 
brokers and vendors (rather than the investors) and set those fees so 
low that most brokers and vendors absorb the fees, meaning that the 
vast majority of individual investors do not pay for market data. The 
Fee Changes will thus have no impact on nonprofessional investors.
b. The Fee Changes Respond to Customer Wishes
    The Fee Changes are fair and reasonable because they are designed 
to offset net reporting, something that industry participants have 
requested and that industry representatives on the Plans' Advisory 
Committee have embraced. The Fee Changes do so in a manner that is not 
estimated to increase UTP Plan revenues after taking Anticipated 
Attrition into account. Failure of the Fee Changes to take effect would 
cause the Participants to eliminate the net reporting option, to

[[Page 72938]]

the detriment of many data product customers.
c. Long-Term Trend of Rate Reduction
    The existing constraints on fees for core market data under the 
Plans have generally succeeded in reducing market data rates over time. 
For example, when the effects of inflation are taken into account, the 
average monthly rate payable for Professional Subscriber device has 
consistently and dramatically fallen in real terms over the past 16 
years. When inflation is taken into account, the real monthly cost of a 
Professional Subscriber device was $20 in 1997; $17.84 in 2002; $15.48 
in 2007 and $13.98 in 2012. Put differently, had price increases kept 
pace with inflation, the cost of Professional usage of Level 1 data 
would have increased from $20 in 1997 to $21.94 in 2001; $23.94 in 
2005; $27.86 in 2009; and $29.36 in 2013.\20\
---------------------------------------------------------------------------

    \20\ Based on COLA changes, as found at www.ssa.gov.
---------------------------------------------------------------------------

d. Explosion of Data
    Although the device fees have fallen after taking inflation into 
account, the amount of data message traffic that end-users receive by 
subscribing has skyrocketed, as has the speed at which the data is 
transmitted.
i. New Data Added to Consolidated Feeds
    The Participants have continually enhanced the consolidated feeds. 
The enhancements provide significant value. They are critical to the 
industry in that they permit end-users to do such things as view new 
markets and implement new regulation. Below is a list of the more 
significant recent enhancements, including the addition of new 
Participants, new indicators, new sales conditions, new reason codes 
and dedicated test symbols.
2013--Milestones
January--Implemented January 2013 bid rate changes:
     Quotes: 227,701mps
     Trades: 38,300mps
Reconfigured UQDF, UTDF, and OMDF servers to restore network switch 
diversity for primary and backup services
Implemented Limit Up/Limit Down Software (no stocks eligible)
Implemented secure FTP server for SRA
Implemented UTP data feed bandwidth increase
     UQDF 256Mb--400,000 MPS
     UTDF 101 Mb--150,000 MPS
     OMDF 2 MB--2,800 MPS
February--Implemented reference price calculator/price band 
dissemination
Enabled test stocks for limit up/limit down
March--Implemented reference price calculator changes
Implemented software fix for rejected `A4' quote inputs
Submitted as-of trade reports for January 3rd issue
Implemented new front end software version (fixes & enhancements)
Implemented enhanced reference price calculator module
Implemented patch for memory growth issue on one server
Implemented patch for memory growth issue on three servers
Implemented new front end software version (memory growth issue)
Implemented fix for LULD indicator value during trading pause
Changed UTP feed start of day time from 4:00am to 3:58am
April--Implemented Market Wide Circuit Breaker interface
Retired legacy Emergency Market Conditions Halt/Resume functions
Enabled limit up/limit down for 10 NASDAQ-listed tier 1 securities
Submitted additional as-of trade reports for January 3rd issue
Enabled limit up/limit down for 19 NASDAQ-listed tier 1 securities
Implemented information security recommendations for internal browser-
based applications (monitoring and console)
Enabled limit up/limit down for 65 NASDAQ-listed tier 1 securities
Enabled limit up/limit down for 77 NASDAQ-listed tier 1 securities
May--Enabled limit up/limit down for 97 NASDAQ-listed tier 1 securities
Implemented reference price calculator disaster recovery handling
Changed time source for servers running reference price calculators
Resized ISG column to handle full UQDF session close recap message
Disabled ``Auto-run'' feature on all SIP servers
June--Disabled hyper-threading on servers running reference price 
calculators
Implemented software fix for incorrect high price calculation resulting 
from trade correction
Manually failed over primary UQDF5 dissemination component to its 
backup after market close (to service pending retransmission requests)
Updated multicast port restriction range on all SIP servers
Implemented LULD limit state release
July--Implemented July 2013 bid rate changes:
     Quotes: 194,102mps
     Trades: 36,102mps
Completed a participant connectivity request
Implemented throttling statistics collection changes
August--Enabled limit up/limit down for 50 NASDAQ-listed tier 2 
securities
Extended the price band calculation and dissemination period (9:30am-
3:45pm); double-wide bands calculated from 9:30am-9:45am and 3:35pm-
3:45pm
2012--Milestones
February--Implemented UQDF bandwidth increase to 175 Mbps
Implemented a connectivity request for BATS and BATS-Y
April--Implemented UTDF Capacity Phase III changes on UTDF channel 1
Implemented a connectivity request for NASDAQ
May--Implemented UTDF Capacity Phase III changes on UTDF channels 2-6
October--Implemented significant UQDF, UTDF, and OMDF message format 
changes in preparation for the Limit Up/Limit Down and Market-Wide 
Circuit Breaker initiatives
Implemented support for participants' Retail Liquidity programs
2011
January--UQDF bandwidth increased to 96 Mbps, approximately 175,000 
messages per second (MPS)
UTDF bandwidth increased to 33.5 Mbps, approximately 60,000 mps
May--Installed quote processing improvements for UQDF channel 1
June--Installed quote processing improvements for UQDF channel 2-6
October--Implemented UQDF Capacity Phase III changes (throughput and 
latency improvements)
Implemented a network-based end-to-end latency measurement solution
November--Implemented UQDF and UTDF symbol redistribution
2010
January--Updated quote and trade capacity thresholds based on capacity 
study
February--Modified As Of trade processing for instruments trading in a 
round lot of less than 100 (e.g. preferred stock, convertible notes)
March--Implemented dynamic throttling communication improvements.
Implemented quote Front End enhancements to reduce CPU usage and 
increased throughput
Retired unused participant input lines.
April--Facilitated a request from NASDAQ OMX PHLX for input 
connectivity.

[[Page 72939]]

Facilitated a request from Bats-Y for input connectivity.
May--Implemented UTDF improvements to increase throughput and reduce 
latency.
June--Implemented single-stock circuit breaker halt reason codes.
Activated participants EDGA Exchange, Inc. and EDGX Exchange, Inc.
July--Updated quote and trade capacity thresholds based on capacity 
study
August--Implemented short sale trading restriction messaging.
Enhanced market center-specific non-regulatory halts to support 
liquidity imbalances.
Increased UTDF bandwidth to 12.5 Mbps in order to accommodate 
approximately 22,500 peak messages per second.
Implemented daily peak traffic rate .CSV files on SRA FTP site.
September--Implemented daily peak traffic rate spreadsheet on SRA FTP 
site.
Upgraded quote input servers in the primary production environment.
October--Activated BATS-Y Exchange.
Upgraded trade input servers in the primary production environment.
Upgraded participant input servers in the disaster recovery 
environment.
November--Implemented performance improvements in preparation for 
bandwidth increases in January 2011
December--Implemented ``Consolidator'' model performance improvements 
for UTDF.
2009
January--Expanded bandwidth for UQDF to handle 53,600 messages per 
second and UTDF to handle 8400 mps.
Modified quarterly statistics report to include date and time of 5 
minute peak messaging
February--Implemented aberrant/erroneous trade tool to allow the SIP 
operator to cancel or error large quantities of trades at a 
participant's request.
March--Enabled dynamic throttling for quotes
Started beta phase for penalty reports.
May--Implemented a latency reduction enhancement for quotes and trades
June--Implemented SRA and ISG changes in preparation for expansion of 
UQDF and UTDF multicast channels.
August--Expanded UQDF and UTDF from three to six multicast channels.
Increased UQDF bandwidth to 56 Mbps in order to accommodate 
approximately 100,000 peak messages per second
Increased UTDF bandwidth to 8 Mbps in order to accommodate 
approximately 15,000 peak messages per second.
September--Implemented three new participants (EDGA, EDGX, and BYX) 
with test quote and trade ports.
Implemented metrics-collection software to improve performance 
monitoring.
October--Implemented Front End performance enhancements to reduce CPU 
usage
November--Facilitated requests from EDGA and EDGX for input 
connectivity.
December--Implemented further performance enhancements to reduce CPU 
usage.
Completed setup of a NASDAQ-hosted Web site for the UTP Plan 
Administrator: http://www.utpplan.com/
2008
January--Support for new stock option ``V'' Trade modifier.
February--Expanded UQDF bandwidth from 7.8 to 12.5 megabits per second 
(mbps) to support approximately 23,300 messages per second (mps).
March--Increased the field size for participant inbound sequence number 
from 7 to 8 digits to support increasing messaging rates.
April--Facilitated a request from BSX for input connectivity.
June--Implemented change to support a new Emergency Market Condition 
quote resume message.
July--Expanded UQDF bandwidth from 12.5 to 28.0 mbps to support 
approximately 48,000 mps.
UTDF bandwidth was expanded from 3.0 to 4.0 mbps to support 
approximately 7,200 mps.
September--Facilitated a request from BATS Exchange Inc. for input 
connectivity.
October--Activation of the BATS Exchange as a new participant in UQDF 
and UTDF
November--Implemented a participant quote throttling mechanism to 
protect the system against instability and high latency during periods 
of heavy traffic, while guaranteeing each participant full access to 
its projected peak rate.
December--Upgraded SQL database servers to SQL Server 2008 to enhance 
database performance
2007
January--Support one, two, and three character stock symbols for NASDAQ 
listed issuers, in addition to the currently used four- and five-
character symbols.
February--Regulation NMS compliance for quotes and trades
Quotes: Replace existing NASD quote message with new message that adds 
a new 1 byte FINRA appendage indicator. Supports a new appendage that 
identifies FINRA best bid Market Participant ID (MPID) and FINRA best 
offer MPID.
Trades: Support new trade through exempt flag and new 4 byte sale 
condition field. This resulted in new message formats for long form 
trade reports, trade cancellations, and trade corrections.
Introduce new Prior Day As-Of Trade message to allow reporting a trade 
that occurred prior to the current business day or to cancel an 
erroneously reported trade from a previous day.
April--Facilitated a request from NSX for input connectivity.
June--Facilitated a request from NSX for input connectivity.
July--Implemented changes to allow Cash Settlement (C), Next Day (N), 
and Seller Sale Days Settlement (R) sale conditions for trade reports 
that are not exempt from the trade-through rule.
August--Facilitated a request from ISE for input connectivity.
September--Support for new Price Variation (H) and Cross (X) trade 
modifiers.
Dissemination of the bid tick indicator is now inhibited.
December--Enhancement to Quote Wipeout processing to improve processing 
times.

[[Page 72940]]

ii. Significant Improvements in Latency and Capacity
    The Participants have made numerous investments to improve system 
speed and capacity, investments that are often overlooked by the 
industry. The Participants regularly monitor and review the performance 
of their SIP and make performance statistics available publicly on a 
quarterly basis. They make investments to upgrade technology, upgrades 
that enable the SIP to collect and disseminate the data ever more 
quickly, even as the number of quotes and trades continues to rise. The 
Participants will make future investments to handle the expected 
continued rise in message traffic, and at even faster data 
dissemination speeds.
    The information below shows that customers are getting the quote 
and trade data feeds faster, as the latency of consolidated tape quote 
and trade feeds has improved significantly in recent years. Average 
quote feed latency declined from over 5 milliseconds at the end of 2009 
to 1.24 milliseconds in August 2013 and average trade feed latency 
declined from over 6 milliseconds at the end of 2009 to 1.21 
milliseconds in August 2013, as shown below. Latency is measured from 
the time a message received from a Participant is time-stamped by the 
system, to the time that processing the message is completed.

 
----------------------------------------------------------------------------------------------------------------
                                                          Average quote latency         Average trade latency
                        Month                                (milliseconds)                (milliseconds)
----------------------------------------------------------------------------------------------------------------
Dec 2009............................................                        5.2497                        6.2685
Dec 2010............................................                        4.3267                        5.6796
Dec 2011............................................                        2.5378                        7.8491
Dec 2012............................................                        1.6837                        1.6328
Aug 2013............................................                        1.2492                        1.2114
----------------------------------------------------------------------------------------------------------------

iii. Significant Improvements in System Throughput, Measured by 
Messages Per Second
    Investments in hardware and software have increased processing 
power and enabled the systems to handle increasing throughput levels. 
This is measured by peak capacity messages per second and is monitored 
by looking at actual peak messages per second. SIP throughput continues 
to increase in order to push out the increasing amounts of real-time 
quote and trade data.
    Given the constant rise in peak messages, the SIP significantly 
increased system capacity. As shown below, the system could handle peak 
quotes per second of 10,000 in 2007 and 300,000 million in 2012, an 
increase of more than 3,000 percent. The capacity for trades per second 
increased from 4,500 in 2007 to 50,000 in 2012, an increase of more 
than 1,100 percent. To better manage the rise in message traffic, the 
Participants anticipate that capacity planning will move from measuring 
messages per second to measuring messages per millisecond.

[[Page 72941]]

[GRAPHIC] [TIFF OMITTED] TN04DE13.001

e. Vendor Fees
    Fees imposed by data vendors, whom the Commission does not 
regulate, account for a vast majority of the global market data fees 
incurred by the financial industry, according to Burton Taylor 
Associates, cited in a research study by Atradia.\21\ In addition to 
charging monthly subscription fees for end-users, market data vendors 
may apply significant administration mark-up fees on top of exchange 
market data fees. These mark-ups are not regulated and there is limited 
transparency into how the rates are applied. These mark-ups do not 
result in any additional revenues for the Participants; the vendors 
alone profit from them.
---------------------------------------------------------------------------

    \21\ Atradia, The Cost of Access to Real Time Pre and Post Trade 
Order Book Data in Europe, August 2010 (available at www.siia.net).
---------------------------------------------------------------------------

f. Declining Unit Purchase Costs for Customers
    Despite consolidated tape investments in new data items, additional 
capacity demands and latency improvements, users' unit purchase costs 
for trade and quote data have declined significantly, increasing the 
value of the data they receive from their subscriptions. The amount of 
quote and trade data messages has increased significantly while fees 
have remained unchanged, as shown below for the 2000 to 2012 timeframe.
    The average purchase cost of Plan quotes has steadily declined 
since 2000. During that period, the average number of quotes per day 
increased over 2,500 percent between 2000 and 2012, rising from 4.3 
million in 2000 to 114.1 million in 2012. As a result, the average unit 
purchase cost per one million quote

[[Page 72942]]

messages for a customer incurring a monthly professional subscriber fee 
of $20 declined over 95 percent during this period, falling from $4.61 
in 2000 to $0.17 in 2012.
[GRAPHIC] [TIFF OMITTED] TN04DE13.002

    The average cost of last sale transaction reports also declined 
over that period. For instance, in 1998, the Plan Processor received 
reports for 155 million trades. By 2012, those numbers had increased to 
1.75 billion trades. Similarly, in 1998, the Processor received total 
volume of 184 billion shares, increasing to 437 billion shares in 2012. 
At the same time, professional subscriber fees remained constant and 
the introduction of a nonprofessional subscriber fee and an enterprise 
maximum reduced fees dramatically for whole categories of users and 
expanded data distribution to thousands of other users.
    Of course, these calculations exclude entirely the high indirect 
costs of producing consolidated [sic] represented by the costs of each 
exchange collecting and contributing data to create the consolidated 
feeds. With respect to indirect costs, the Commission has previously 
noted that ``any attempt to calculate the precise cost of market 
information presents severe practical difficulties.'' \22\ In 
commenting on the 1999 Concept Release, NYSE summarized many of the 
``severe practical difficulties'' attendant to each Participant's 
calculation of its data production and collection costs and we 
incorporate that discussion here.\23\ In 1997, the indirect costs of 
the Participants would have included the data production and collection 
costs of eight national securities exchanges and one national 
securities association. In 2013, that calculation would have to include 
the data production and collection costs of the 15 Participants, 
including 14 national securities exchanges and the Alternative Display 
Facility and two Trade Reporting Facilities that FINRA, the lone 
national securities association, maintains.
---------------------------------------------------------------------------

    \22\ See SEC 1999 Concept Release on ``Regulation of Market 
Information Fees and Revenues'' (the ``1999 Concept Release'') 
located at http://www.sec.gov/rules/concept/34-42208.htm.
    \23\ See footnote 11 of letter from James E. Buck, Senior Vice 
President and Secretary, NYSE, April 10, 2000, located at http://www.sec.gov/rules/concept/s72899/buck1.htm.
---------------------------------------------------------------------------

    In addition to those indirect costs, the costs of administering 
market data distribution under the Plan have increased dramatically, as 
the administrator has rolled out new and enhanced tracking, data 
management, and invoice management systems to accommodate vendors and 
the industry and has enhanced its compliance-review capabilities.
3. Adequate Constraints on Fees
    Constituent boards, customer control and regulatory mechanisms 
constrain fees for core market data now just as they have since 
Congress established the fair-and-reasonable standard in 1975. Under 
the Plan, NASDAQ, the listing market, typically takes the lead on 
pricing and administrative proposals, vetting new proposals with the 
other Participants, various datafeed and end-users, and trade and 
industry groups, and making modifications which improve or reevaluate 
the original concept. Proposals are then taken to each Participant for 
approval. However, significant market data user and regulatory 
requirements constrain the Participant's ability to simply impose price 
changes, as demonstrated by the failed attempts earlier this year.
    The governing body of each Participant consists of representatives 
of constituent firms and a large quotient of independent directors. The 
Participants' constituent board members have the ultimate say on 
whether the UTP Plan Operating Committee should submit fee proposals to 
the Commission and whether the costs of operating the markets and the 
costs of the market data function are fairly allocated among market 
data users. That is, the users of market data and non-industry

[[Page 72943]]

representatives who sit on Participant boards get to determine whether 
to support market data fee proposals. They also get to determine how 
the various types of data users should pay their fair share and they 
make decisions about funding technical infrastructure investments 
needed to receive, process and safe-store the orders, quotations and 
trade reports that give rise to the data. This cost allocation by 
consensus is buttressed by Commission review and is superior to cost-
based rate-making.
    Indeed, in recent decades, Congress and federal agencies, including 
the Commission, have increasingly moved away from intrusive, cost-based 
ratemaking in favor of more market-oriented approaches to pricing. For 
example, it was the intent of Congress in creating the national market 
system to rely on competitive forces, where possible, to set the price 
of market information.\24\ Consistent with this intent, an Advisory 
Committee appointed by the Commission in 2001 to review market data 
issues concluded that ``the `public utility' cost-based ratemaking 
approach is resource-intensive, involves arbitrary judgments on 
appropriate costs, and creates distortive economic incentives.'' \25\ 
In response, and consistent with the purposes of the Exchange Act, the 
Commission has increasingly permitted competitive forces to determine 
the prices of market data fees.\26\ This conclusion mirrors the 
experience of other federal agencies that have come to reject cost-of-
service ratemaking as a cumbersome and impractical process that 
stifled, rather than fostered, competition and innovation.\27\
---------------------------------------------------------------------------

    \24\ See Conference Report, H.R. Rep. No. 94-229, 94th Cong., 
1st Sess. 92 (1975), at 92 (``It is the intent of the conferees that 
the national market system evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed.'').
    \25\ Report of the Advisory Committee on Market Information: A 
Blueprint for Responsible Change, at Sec.  VII.D.3 (SEC Sept. 14, 
2001); see also Stephen G. Breyer, Analyzing Regulatory Failure: 
Mismatches, Less Restrictive Alternatives, and Reforms, 92 Harv. L. 
Rev. 547, 565 (1979) (``[I]nsofar as one advocates price regulation 
. . . as a `cure' for market failure, one must believe the market is 
working very badly before advocating regulation as a cure. Given the 
inability of regulation to reproduce the competitive market's price 
signals, only severe market failure would make the regulatory game 
worth the candle.'').
    \26\ See generally NetCoalition v. SEC, 615 F.3d 525, 533-35 
(D.C. Cir. 2010).
    \27\ See, e.g., Elizabethtown Gas Co. v. FERC, 10 F.3d 866, 870 
(D.C. Cir. 1993).
---------------------------------------------------------------------------

    Market forces are plainly adequate to constrain the prices for 
market data proposed herein by the Plan and its Participants. 
Constituent Board members are the Participants' market data customers. 
When a critical mass of them voices a point of view, they can direct 
the Participants how to act. This is exactly what motivated the 
Participants to propose the Fee Changes. The Commission's process, 
including public comment as appropriate and when permitted by the 
statutory language, then acts as an additional constraint on pricing. 
Also, developments in technology make possible another important 
constraint on market data prices for core data: There is nothing to 
prevent one or more vendors, broker-dealers or other entities from 
gathering prices and quotes across all Participants and creating a 
consolidated data stream that would compete with the Plans' data 
streams. The technology to consolidate multiple, disparate data streams 
is readily available, and multiple markets have already introduced 
products that compete with core data.

K. Method and Frequency of Processor Evaluation

    Not applicable.

L. Dispute Resolution

    Not applicable.

II. Rule 601(a)

A. Equity Securities for Which Transaction Reports Shall Be Required by 
the Plan

    No Change.

B. Reporting Requirements

    No Change.

C. Manner of Collecting, Processing, Sequencing, Making Available and 
Disseminating Last Sale Information

    No Change.

D. Manner of Consolidation

    No Change.

E. Standards and Methods Ensuring Promptness, Accuracy and Completeness 
of Transaction Reports

    No Change.

F. Rules and Procedures Addressed to Fraudulent or Manipulative 
Dissemination

    No Change.

G. Terms of Access to Transaction Reports

    See Item I(A).

H. Identification of Marketplace of Execution

    No Change.

III. Solicitation of Comments

    The Commission seeks general comments on Amendment No. 31. 
Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal is 
consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number S7-24-89 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 S7-24-89. 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 Web site (http://www.sec.gov/rules/sro.shtml). Copies of 
the submission, all written statements with respect to the proposed 
Plan Amendment that are filed with the Commission, and all written 
communications relating to the proposed Plan Amendment 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 10:00 
a.m. and 3:00 p.m. Copies of the Amendments 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 S7-24-89 and should be 
submitted on or before December 26, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(27).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28970 Filed 12-3-13; 8:45 am]
BILLING CODE 8011-01-P


