
[Federal Register Volume 80, Number 153 (Monday, August 10, 2015)]
[Notices]
[Pages 47968-47974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-19537]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75600; File No. SR-NASDAQ-2015-088]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Regarding NASDAQ Last Sale Plus

August 4, 2015.
    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 July 24, 2015, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7039 (NASDAQ Last Sale and 
NASDAQ Last Sale Plus Data Feeds) with language indicating the fees for 
NASDAQ Last Sale Plus (``NLS Plus''), a comprehensive data feed offered 
by NASDAQ OMX Information LLC.\3\
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    \3\ NASDAQ OMX Information LLC is a subsidiary of The NASDAQ OMX 
Group, Inc. (``NASDAQ OMX'').
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    The text of the proposed rule change is available on the Exchange's 
Web site 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 with language 
indicating the fees for NLS Plus. NLS Plus allows data distributors to 
access the three last sale products offered by each of NASDAQ OMX's 
three U.S. equity markets.\4\ Thus, in offering NLS Plus, NASDAQ OMX 
Information LLC is acting as a redistributor of last sale products 
already offered by NASDAQ,

[[Page 47969]]

BX, and PSX and volume information provided by the securities 
information processors for Tape A, B, and C.\5\ This proposal is being 
filed by the Exchange to indicate the fees for the NLS Plus data feed 
offering and in light of the recent approval order regarding NLS 
Plus.\6\
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    \4\ The NASDAQ OMX U.S. equity markets include The NASDAQ Stock 
Market (``NASDAQ''), NASDAQ OMX BX (``BX''), and NASDAQ OMX PSX 
(``PSX'') (together known as the ``NASDAQ OMX equity markets''). PSX 
and BX will shortly file companion proposals regarding data feeds 
similar to NLS Plus. NASDAQ's last sale product, NASDAQ Last Sale, 
includes last sale information from the FINRA/NASDAQ Trade Reporting 
Facility (``FINRA/NASDAQ TRF''), which is jointly operated by NASDAQ 
and the Financial Industry Regulatory Authority (``FINRA''). See 
Securities Exchange Act Release No. 71350 (January 17, 2014), 79 FR 
4218 (January 24, 2014) (SR-FINRA-2014-002). For proposed rule 
changes submitted with respect to NASDAQ Last Sale, BX Last Sale, 
and PSX Last Sale, see, e.g., Securities Exchange Act Release Nos. 
57965 (June 16, 2008), 73 FR 35178, (June 20, 2008) (SR-NASDAQ-2006-
060) (order approving NASDAQ Last Sale data feeds pilot); 61112 
(December 4, 2009), 74 FR 65569, (December 10, 2009) (SR-BX-2009-
077) (notice of filing and immediate effectiveness regarding BX Last 
Sale data feeds); and 62876 (September 9, 2010), 75 FR 56624, 
(September 16, 2010) (SR-Phlx-2010-120) (notice of filing and 
immediate effectiveness regarding PSX Last Sale data feeds).
    \5\ Tape A and Tape B securities are disseminated pursuant to 
the Security Industry Automation Corporation's (``SIAC'') 
Consolidated Tape Association Plan/Consolidated Quotation System, or 
CTA/CQS (``CTA''). Tape C securities are disseminated pursuant to 
the NASDAQ Unlisted Trading Privileges (``UTP'') Plan.
    \6\ See Securities Exchange Act Release No. 75257 (June 22, 
2015), 80 FR 36862 (June 26, 2015) (SR-NASDAQ-2015-055) (order 
approving proposed rule change regarding NASDAQ Last Sale Plus); and 
Rule 7039(d). See also Securities Exchange Act Release No. 74972 
(May 15, 2015), 80 FR 29370 (May 21, 2015) (SR-NASDAQ-2015-055) 
(notice of filing of proposed rule change regarding NASDAQ Last Sale 
Plus). These filings are known as ``NLS Plus Approval Order'' and 
``NLS Plus notice'', respectively. NLS Plus, which is codified in 
Rule 7039(d), has been offered since 2010 via NASDAQ OMX Information 
LLC. NLS Plus is described online at http://nasdaqtrader.com/content/technicalsupport/specifications/dataproducts/NLSPlusSpecification.pdf; and the annual administrative and other 
fees for NLS Plus are noted at http://nasdaqtrader.com/Trader.aspx?id=DPUSdata#ls.
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    NLS Plus allows data distributors to access last sale products 
offered by each of NASDAQ OMX's three equity exchanges. NLS Plus 
includes all transactions from all of NASDAQ OMX's equity markets, as 
well as FINRA/NASDAQ TRF data that is included in the current NLS 
product. In addition, NLS Plus features total cross-market volume 
information at the issue level, thereby providing redistribution of 
consolidated volume information (``consolidated volume'') from the 
securities information processors (``SIPs'') for Tape A, B, and C 
securities.\7\ Thus, NLS Plus covers all securities listed on NASDAQ 
and New York Stock Exchange (``NYSE'') (now under the Intercontinental 
Exchange (``ICE'') umbrella), as well as US ``regional'' exchanges such 
as NYSE MKT, NYSE Arca, and BATS (also known as BATS/Direct Edge).\8\ 
As noted in the NLS Plus Approval Order, the Exchange is filing this 
separate proposal regarding the NLS Plus fee structure.
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    \7\ This reflects real-time trading activity for Tape C 
securities and 15-minute delayed information for Tape A and Tape B 
securities.
    \8\ Registered U.S. exchanges are listed at http://www.sec.gov/divisions/marketreg/mrexchanges.shtml.
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    NLS Plus is currently codified in Rule 7039(d) \9\ in a manner 
similar to products of other markets.\10\ NLS Plus is offered, as 
noted, through NASDAQ OMX Information LLC, which is a subsidiary of The 
NASDAQ OMX Group, Inc. that is separate and apart from The NASDAQ Stock 
Market LLC. NASDAQ OMX Information LLC combines publicly available data 
from the three filed last sale products of the NASDAQ OMX equity 
markets and from the network processors for the ease and convenience of 
market data users and vendors, and ultimately the investing public. In 
that role, the function of NASDAQ OMX Information LLC is analogous to 
that of other market data vendors, and it has no competitive advantage 
over other market data vendors. NASDAQ OMX Information LLC distributes 
no data that is not equally available to all market data vendors. For 
example, NASDAQ OMX Information LLC receives data from the exchange 
that is available to other market data vendors, with the same 
information distributed to NASDAQ OMX Information LLC at the same time 
it is distributed to other vendors (that is, NASDAQ OMX Information LLC 
has neither a speed nor an information differential). Through this 
structure, NASDAQ OMX Information LLC performs precisely the same 
functions as Bloomberg, Thomson Reuters, and dozens of other market 
data vendors; and the contents of the NLS Plus data stream are similar 
in nature to what is distributed by other exchanges.
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    \9\ See supra note 6.
    \10\ See Securities Exchange Act Release No. 73918 (December 23, 
2014), 79 FR 78920 (December 31, 2014) (SR-BATS-2014-055; SR-BYX-
2014-030; SR-EDGA-2014-25; SR-EDGX-2014-25) (order approving market 
data product called BATS One Feed being offered by four affiliated 
exchanges). See also Securities Exchange Act Release No. 73553 
(November 6, 2014), 79 FR 67491 (November 13, 2014) (SR-NYSE-2014-
40) (order granting approval to establish the NYSE Best Quote & 
Trades (``BQT'') Data Feed). These exchanges have likewise 
instituted fees for their products.
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    The Exchange believes that market data distributors may use the NLS 
Plus data feed to feed stock tickers, portfolio trackers, trade alert 
programs, time and sale graphs, and other display systems. The contents 
of NLS Plus are set forth in NASDAQ Rule 7039(d).\11\ Specifically, 
subsection (d) states that NASDAQ Last Sale Plus is a comprehensive 
data feed produced by NASDAQ OMX Information LLC that provides last 
sale data as well as consolidated volume of NASDAQ OMX equity markets 
(NASDAQ, BX, and PSX) and the NASDAQ/FINRA Trade Reporting 
Facility(``TRF''). NASDAQ Last Sale Plus also reflects cumulative 
volume real-time trading activity across all U.S. exchanges for Tape C 
securities and 15-minute delayed information for Tape A and Tape B 
securities. NLS Plus also contains the following data elements: Trade 
Price, Trade Size, Sale Condition Modifiers, Cumulative Consolidated 
Market Volume, End of Day Trade Summary, Adjusted Closing Price, IPO 
Information, and Bloomberg ID. Additionally, pertinent regulatory 
information such as Market Wide Circuit Breaker, Reg SHO Short Sale 
Price Test Restricted Indicator, Trading Action, Symbol Directory, 
Adjusted Closing Price, and End of Day Trade Summary are included.\12\ 
NLS Plus may be received by itself or in combination with NASDAQ Basic. 
The Exchange now proposes to add into Rule 7039(d) the fees associated 
with NLS Plus.
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    \11\ The contents of NLS Plus in large part mimic those of NLS, 
which is set forth in NASDAQ Rule 7039(a)-(c). Similar to NLS, NLS 
Plus offers data for all U.S. equities via two separate data 
channels: The first data channel reflects NASDAQ, BX, and PSX trades 
with real-time consolidated volume for NASDAQ-listed securities; and 
the second data channel reflects NASDAQ, BX, and PSX trades with 
delayed consolidated volume for NYSE, NYSE MKT, NYSE Arca and BATS-
listed securities.
    \12\ The overwhelming majority of these data elements and 
messages are exactly the same as, and in fact are sourced from, NLS, 
BX Last Sale, and PSX Last Sale. Only two data elements 
(consolidated volume and Bloomberg ID) are sourced from other 
publicly accessible or obtainable resources. The Reg SHO Short Sale 
Price Test Restricted Indicator message is disseminated intra-day 
when a security has a price drop of 10% or more from the adjusted 
prior day's NASDAQ Official Closing Price. Trading Action indicates 
the current trading status of a security to the trading community, 
and indicates when a security is halted, paused, released for 
quotation, and released for trading. Symbol Directory is 
disseminated at the start of each trading day for all active NASDAQ 
and non-NASDAQ-listed security symbols. Adjusted Closing Price is 
disseminated at the start of each trading day for all active symbols 
in the NASDAQ system. End of Day Trade Summary is disseminated at 
the close of each trading day, as a summary for all active NASDAQ- 
and non-NASDAQ-listed securities. IPO Information reflects IPO 
general administrative messages from the UTP and CTA Level 1 feeds 
for Initial Public Offerings for all NASDAQ- and non-NASDAQ-listed 
securities. For additional information, see NLS Plus Approval Order.
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The Fees
    Firms that receive an NLS Plus feed today are liable for annual 
administration fees for applicable NASDAQ equity exchanges: $1,000 for 
NASDAQ, $1,000 for BX, and $1,000 for PSX.\13\ In addition, firms that 
receive NLS Plus are liable for NLS or NASDAQ Basic fees.\14\ Finally, 
firms will pay a

[[Page 47970]]

data consolidation fee of $350 per month.
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    \13\ For current fees, see http://nasdaqtrader.com/Trader.aspx?id=DPUSdata#ls. Annual administrative fees are in BX 
Rule 7035, NASDAQ Rule 7035, and NASDAQ OMX PSX Fees Chapter VIII.
    \14\ User fees for NLS and NASDAQ Basic are in NASDAQ Rules 7039 
and 7047. User fees for BX Last Sale are in BX Rule 7039 (currently 
there is no fee liability), and for PSX Last Sale are in NASDAQ OMX 
PSX Fees Chapter VIII (currently there is no fee liability). As 
currently described in NASDAQ Rule 7047, NASDAQ Basic provides two 
sets of data elements: (1) the best bid and offer on the NASDAQ 
Stock Market for each U.S. equity security; and (2) the last sale 
information currently provided by NLS.
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    Accordingly, proposed Rule 7039 states the following at sections 
(d)(1) through (d)(3):
    (1) Firms that receive NLS Plus shall pay the annual administration 
fees for NLS, BX Last Sale, and PSX Last Sale, and a data consolidation 
fee of $350 per month.
    (2) Firms that receive NLS Plus are in addition liable for NLS or 
NASDAQ Basic fees, as applicable.
    (3) In the event that NASDAQ OMX BX and/or NASDAQ OMX PHLX adopt 
user fees for BX Last Sale and/or PSX Last Sale, firms that receive NLS 
Plus would also be liable for such fees.\15\
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    \15\ BX Last Sale and PSX Last Sale currently are not fee 
liable, as noted in BX Rule 7039 and NASDAQ OMX PSX Fees Chapter 
VIII, respectively.
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    The Exchange notes that the proposed fee structure is designed to 
ensure that vendors could compete with the Exchange by creating a 
product similar to NLS Plus.\16\ The proposed fee structure reflects 
the current annual administrative cost as well as the incremental cost 
of the aggregation and consolidation function (generally known as the 
``consolidation function'') for NLS Plus, and would not be lower than 
the cost to a vendor creating a competing product, including the cost 
of receiving the underlying data feeds. The proposed fee structure for 
NLS Plus would enable a vendor to receive the underlying data feeds and 
offer a similar product on a competitive basis and with no greater cost 
than the Exchange.\17\
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    \16\ For discussion in addition to this proposal, see NLS Plus 
Approval Order.
    \17\ See also footnote 24 in the NLS Plus notice, wherein the 
Exchange indicated that it expects that the fee structure for NLS 
Plus will reflect an amount that is no less than the cost to a 
market data vendor to obtain all the underlying feeds, plus an 
amount to be determined that would reflect the value of the 
aggregation and consolidation function.
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    The proposed fee structure is reasonable and proper. First, the 
proposed administration fee is essentially a codification of the 
current administration fee vis a vis NASDAQ, BX and PSX. Second, NLS 
Plus recipients would also be liable for fees if the Exchange adopts 
user fees for BX Last Sale and/or PSX Last Sale. To that end, the 
Exchange notes that it will file separate proposals to adopt NLS Plus 
in the BX Last Sale and PSX Last Sale provisions,\18\ as well as 
separate fee proposals that would each, like this filing, be expected 
to have an administrative fee component and a consolidation component. 
Third, firms receive NLS Plus by itself or in conjunction with NASDAQ 
Basic.\19\ Accordingly, firms would either be liable for NLS fees or 
NASDAQ Basic fees. Fourth, the Exchange proposes that NLS Plus includes 
a specific monthly $350 data consolidation fee. This fee is designed to 
recoup the monthly consolidation costs emanating from the aggregation 
and consolidation of the data and data streams that make up the NLS 
Plus data feed. Such consolidated costs include, for example, the costs 
of combining the feeds, adding the Bloomberg ID, and combining the 
consolidated sale info. The Exchange believes that this consolidation 
fee, while in addition to the current NLS Plus fees in place, would not 
be material to firms.
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    \18\ BX Rule 7039 and NASDAQ OMX PSX Fees Chapter VIII.
    \19\ As provided in Rule 7047, NASDAQ Basic provides the 
information contained in NLS, together with NASDAQ's best bid and 
best offer.
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    The Exchange believes that the proposed NLS Plus fee is a simple 
codification of the existing NLS PLS [sic] fee into Rule 7039, as 
discussed, with the addition of a monthly data consolidation fee, and 
as such meets the requirements of the Act.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\20\ in general, and with 
Sections 6(b)(4) and (5) of the Act,\21\ 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. The Exchange is codifying the fees 
regarding the NLS Plus data offering and the consolidation fee, as 
discussed, into sections (d)(1) through (d)(3) of Rule 7039.
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    \20\ 15 U.S.C. 78f.
    \21\ 15 U.S.C. 78f(b)(4) and (5).
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    NASDAQ believes that the proposed fees offered to firms that elect 
to receive NLS Plus are reasonable, equitable and not unfairly 
discriminatory. These fees are reasonable because they are, as 
discussed, simply a codification of the existing fee structure, with an 
addition of the above-discussed consolidation fee, into existing Rule 
7039. The proposed fee structure would apply equally to all firms that 
choose to avail themselves of the NLS Plus data feed, and no firm is 
required to use NLS Plus. Moreover, the Exchange believes that the 
consolidation fee, while in addition to the current NLS Plus fee, would 
not be material to firms. The consolidation fee would, however, enable 
the Exchange to recoup the monthly consolidation cost emanating from 
the aggregation and consolidation of the data and data streams that 
make up the NLS Plus data feed. Such consolidated costs include, for 
example, the monthly the costs of combining the feeds, adding the 
Bloomberg ID, and creating the consolidated sale info. The proposed fee 
structure would not be unfairly discriminatory because it would apply 
equally to all firms that choose to use NLS Plus.
    NASDAQ believes that the proposed fees are also consistent with the 
investor protection objectives of Section 6(b)(5) of the Act \22\ in 
that they are designed to promote just and equitable principles of 
trade, to remove impediments to a free and open market and national 
market system, and in general to protect investors and the public 
interest. Specifically, the proposed fee structure will codify the fees 
regarding the NLS Plus data offering into sections (d)(1) through 
(d)(3) of Rule 7039, which helps to assure proper enforcement of the 
rule and investor protection. NASDAQ believes also that the proposal 
facilitates transactions in securities, removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system, and, in general, protects investors and the public interest by 
codifying into a rule the fee liability for an additional means by 
which investors may access information about securities transactions, 
namely NLS Plus, thereby providing investors with additional options 
for accessing information that may help to inform their trading 
decisions.
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    \22\ 15 U.S.C. 78f(b)(5).
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    NASDAQ notes that the Commission has recently approved data 
products on several exchanges that are similar to NLS Plus, and 
specifically determined that the fee-liable approved data products were 
consistent with the Act.\23\ NLS Plus simply provides market 
participants with an additional option for receiving market data that 
has already been the subject of a proposed rule change and that is 
available from myriad market data vendors.
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    \23\ See supra note 10 regarding BATS One and NYSE BQT.
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    In adopting Regulation NMS, the Commission granted SROs and broker-
dealers (``BDs'') increased authority and flexibility to offer new and 
unique market data to the public. It was believed that this authority 
would expand the amount of data available to consumers, and also spur 
innovation and competition for the provision of market data. NASDAQ 
believes that its NLS Plus market data product is

[[Page 47971]]

precisely the sort of market data product that the Commission 
envisioned when it adopted Regulation NMS. The Commission concluded 
that Regulation NMS--by deregulating the market in proprietary data--
would itself further the Act's goals of facilitating efficiency and 
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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.\24\
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    \24\ See 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 BDs at 
all, it follows that the price at which such data is sold should be set 
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by the market as well.

    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 
2010) (``NetCoalition I''), upheld the Commission's reliance upon 
competitive markets to set reasonable and equitably allocated fees for 
market data. ``In fact, the legislative history indicates that the 
Congress intended that the market system `evolve through the interplay 
of competitive forces as unnecessary regulatory restrictions are 
removed' and that the SEC wield its regulatory power `in those 
situations where competition may not be sufficient,' such as in the 
creation of a `consolidated transactional reporting system.' '' 
NetCoalition I, at 535 (quoting H.R. Rep. No. 94-229, at 92 (1975), as 
reprinted in 1975 U.S.C.C.A.N. 321, 323). The court agreed with the 
Commission's conclusion that ``Congress intended that `competitive 
forces should dictate the services and practices that constitute the 
U.S. national market system for trading equity securities.' '' \25\
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    \25\ NetCoalition I, at 535.
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    The Court in NetCoalition I, while upholding the Commission's 
conclusion that competitive forces may be relied upon to establish the 
fairness of prices, nevertheless concluded that the record in that case 
did not adequately support the Commission's conclusions as to the 
competitive nature of the market for NYSE Arca's data product at issue 
in that case. As explained below in NASDAQ's Statement on Burden on 
Competition, however, NASDAQ believes that there is substantial 
evidence of competition in the marketplace for data that was not in the 
record in the NetCoalition I case, and that the Commission is entitled 
to rely upon such evidence in concluding fees are the product of 
competition, and therefore in accordance with the relevant statutory 
standards.\26\ Accordingly, any findings of the court with respect to 
that product may not be relevant to the product at issue in this 
filing.
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    \26\ It should also be noted that Section 916 of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank 
Act'') has amended paragraph (A) of Section 19(b)(3) of the Act, 15 
U.S.C. 78s(b)(3), to make it clear that all exchange fees, including 
fees for market data, may be filed by exchanges on an immediately 
effective basis. See also NetCoalition v. SEC, 715 F.3d 342 (D.C. 
Cir. 2013) (``NetCoalition II'') (finding no jurisdiction to review 
Commission's non-suspension of immediately effective fee changes).
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    Moreover, fee liable data products such as NLS Plus are a means by 
which exchanges compete to attract order flow, and this proposal simply 
codifies the relevant fee structure into an Exchange rule. To the 
extent that exchanges are successful in such competition, they earn 
trading revenues and also enhance the value of their data products by 
increasing the amount of data they are able to provide. Conversely, to 
the extent that exchanges are unsuccessful, the inputs needed to add 
value to data products are diminished. Accordingly, the need to compete 
for order flow places substantial pressure upon exchanges to keep their 
fees for both executions and data reasonable.

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.
    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, which continues to offer 
alternative data products and, like the Exchange, set fees,\27\ but 
rather reflects the competition between data feed vendors and will 
further enhance such competition. As described, NLS Plus competes 
directly with existing similar products and potential products of 
market data vendors. NASDAQ OMX Information LLC was constructed 
specifically to establish a level playing field with market data 
vendors and to preserve fair competition between them. Therefore, 
NASDAQ OMX Information LLC receives NLS, BX Last Sale, and PSX Last 
Sale from each NASDAQ-operated exchange in the same manner, at the same 
speed, and reflecting the same fees as for all market data vendors. 
Therefore, NASDAQ Information LLC has no competitive advantage with 
respect to these last sale products and NASDAQ commits to maintaining 
this level playing field in the future. In other words, NASDAQ will 
continue to disseminate separately the underlying last sale products to 
avoid creating a latency differential between NASDAQ OMX Information 
LLC and other market data vendors, and to avoid creating a pricing 
advantage for NASDAQ OMX Information LLC.
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    \27\ See, e.g., supra note 10.
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    NLS Plus joins 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 NLS and NLS Plus, 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

[[Page 47972]]

an order will depend on the attributes of the platform where the order 
can be posted, including the execution fees, data quality and price, 
and distribution of its data products. Without trade executions, 
exchange data products cannot exist. Moreover, data products are 
valuable to many end users only insofar as they provide information 
that end users expect will assist them or their customers in making 
trading decisions.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. The total return that a 
trading platform earns reflects the revenues it receives from both 
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).\28\ 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,\29\ 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.
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    \28\ 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).
    \29\ It should be noted that the costs of operating the FINRA/
NASDAQ TRF borne by NASDAQ include regulatory charges paid by NASDAQ 
to FINRA.
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    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 direct orders to a particular exchange only if the expected 
revenues from executing trades on the exchange 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 
orders will become correspondingly more valuable.
    Similarly, in the case of products such as NLS Plus that are 
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 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 Plus 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.
    The level of competition and contestability in the market is 
evident in the numerous alternative venues that compete for order flow, 
including eleven SRO markets, as well as internalizing BDs and various 
forms of alternative trading systems (``ATSs''), including dark pools 
and electronic communication networks (``ECNs''). Each SRO market 
competes to produce transaction reports via trade executions,

[[Page 47973]]

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 MKT, NYSE Arca, and BATS/Direct Edge.
    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 BDs' 
production of proprietary data products. The potential sources of 
proprietary products are virtually limitless. Notably, the potential 
sources of data include the BDs that submit trade reports to TRFs and 
that have the ability to consolidate and distribute their data without 
the involvement of FINRA or an exchange-operated TRF.
    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 NYSE Arca did before registering as exchanges by 
publishing proprietary book data on the internet. Second, because a 
single order or transaction report can appear in a core data product, 
an SRO proprietary product, and/or a non-SRO proprietary product, the 
data available in proprietary products is exponentially greater than 
the actual number of orders and transaction reports that exist in the 
marketplace. Indeed, in the case of NLS Plus, the data provided through 
that product appears both in (i) real-time core data products offered 
by the SIPs for a fee, (ii) free SIP data products with a 15-minute 
time delay, and (iii) individual exchange data products, and finds a 
close substitute in last-sale products of competing venues.
    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 of entrants 
that swiftly grew into some of the largest electronic trading platforms 
and proprietary data producers: Archipelago, Bloomberg Tradebook, 
Island, RediBook, Attain, TracECN, BATS Trading and BATS/Direct Edge. A 
proliferation of dark pools and other ATSs operate profitably with 
fragmentary shares of consolidated market volume.
    Regulation NMS, by deregulating the market for proprietary data, 
has increased the contestability of that market. While BDs have 
previously published their proprietary data individually, Regulation 
NMS encourages market data vendors and BDs to produce proprietary 
products cooperatively in a manner never before possible. Multiple 
market data vendors already have the capability to aggregate data and 
disseminate it on a profitable scale, including Bloomberg and Thomson 
Reuters. In Europe, Cinnober aggregates and disseminates data from over 
40 brokers and multilateral trading facilities.\30\
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    \30\ See http://www.cinnober.com/boat-trade-reporting.
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    In the case of TRFs, the rapid entry of several exchanges into this 
space in 2006-2007 following the development and Commission approval of 
the TRF structure demonstrates the contestability of this aspect of the 
market.\31\ Given the demand for trade reporting services that is 
itself a by-product of the fierce competition for transaction 
executions--characterized notably by a proliferation of ATSs and BDs 
offering internalization--any supra-competitive increase in the fees 
associated with trade reporting or TRF data would shift trade report 
volumes from one of the existing TRFs to the other \32\ and create 
incentives for other TRF operators to enter the space. Alternatively, 
because BDs reporting to TRFs are themselves free to consolidate the 
market data that they report, the market for over-the-counter data 
itself, separate and apart from the markets for execution and trade 
reporting services--is fully contestable.
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    \31\ The low cost exit of two TRFs from the market is also 
evidence of a contestable market, because new entrants are reluctant 
to enter a market where exit may involve substantial shut-down 
costs.
    \32\ It should be noted that the FINRA/NYSE TRF has, in recent 
weeks, received reports for almost 10% of all over-the-counter 
volume in NMS stocks.
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    Moreover, 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 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 effectively places a cap on the fees assessed for 
proprietary data (such as last sale data) that is simply a subset of 
the consolidated 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 a subset 
of the consolidated data, by highlighting the optional nature of 
proprietary products.
    In this environment, a super-competitive increase in the fees 
charged for either transactions or data has the potential to impair 
revenues from both products. ``No one disputes that competition for 
order flow is `fierce'.'' NetCoalition I at 539. The existence of 
fierce competition for order flow implies a high degree of price 
sensitivity on the part of BDs with order flow, since they may readily 
reduce costs by directing orders toward the lowest-cost trading venues. 
A BD that shifted its order flow from one platform to another in 
response to order execution price differentials would both reduce the 
value of that platform's market data and reduce its own need to consume 
data from the disfavored platform. If a platform increases its market 
data fees, the change will affect the overall cost of doing business 
with the platform, and affected BDs will assess whether they can lower 
their trading costs by directing orders elsewhere and thereby lessening 
the need for the more expensive data. Similarly, increases in the cost 
of NLS Plus would impair the willingness of distributors to take a 
product for which there are numerous alternatives, impacting NLS Plus 
data revenues, the value of NLS Plus as a tool for attracting order 
flow, and ultimately, the volume of orders routed to NASDAQ and the 
value of its other data products.

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\33\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend

[[Page 47974]]

such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or 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.
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    \33\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2015-088 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-2015-088. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml).
    Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing will also be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly.
    All submissions should refer to File Number SR-NASDAQ-2015-088 and 
should be submitted on or before August 31, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
Robert W. Errett,
Deputy Secretary.
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    \34\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-19537 Filed 8-7-15; 8:45 am]
 BILLING CODE 8011-01-P


