
[Federal Register Volume 81, Number 3 (Wednesday, January 6, 2016)]
[Notices]
[Pages 555-559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-33209]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76796; File No. SR-BX-2015-084)]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Modify 
the Fees for Managed Data Solutions

December 30, 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 December 18, 2015, The NASDAQ OMX BX, Inc (``BX'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by BX. 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 the 
Substance of the Proposed Rule Change

    BX proposes to modify the charges to be paid for Managed Data 
Solutions (``MDS''). While the changes proposed herein are effective 
upon filing, the Exchange has designated that the amendments be 
operative on January 1, 2016.
    The text of the proposed rule change is below. Proposed new 
language is italicized; proposed deletions are bracketed.

Rules of NASDAQ OMX BX

Equity Rules

* * * * *

7026. Distribution Models

    (a) Managed Data Solutions.
    Distributors and Subscribers of Managed Data Solutions products 
containing BX TotalView data (non-display use only) shall pay the 
following fees:

                                          Fee Schedule for Managed Data
----------------------------------------------------------------------------------------------------------------
                    Solutions                                                  Price
----------------------------------------------------------------------------------------------------------------
Managed Data Solutions Administration Fee (for    $[750]1,500/mo Per Distributor.
 the right to offer Managed Data Solutions to
 client organizations).
BX Depth Data Professional Managed Data           $1[0]50/mo Per Subscriber.
 Solutions Subscriber Fee (Internal Use Only and
 includes BX TotalView).
BX Depth Data Managed Data Solutions Non-         $20/mo Per Subscriber.
 Professional Subscriber Fee (Internal Use Only
 and includes BX TotalView).
----------------------------------------------------------------------------------------------------------------


[[Page 556]]

    (b) No change.
* * * * *

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

    In its filing with the Commission, BX 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. BX 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 the proposed rule change is to increase the charges 
to be paid by distributors and subscribers of Managed Data Solutions 
products containing BX TotalView data (non-display use only). 
Specifically, the Exchange proposes to increase the fee charged to 
distributors for the right to offer Managed Data Solutions to client 
organizations to $1,500 per month per distributor (``MDS Administration 
Fee''), and the fee charged to professional subscribers to $150 per 
month per subscriber (``MDS Subscriber Fee''). This proposed rule 
change will not affect the pricing for non-professional subscribers.
    MDS is a data delivery option available to distributors of BX 
TotalView. Under the MDS fee structure, distributors may provide data 
feeds, Application Programming Interfaces (APIs) or similar automated 
delivery solutions to client organizations with only limited 
entitlement controls. Through this program, BX offers a much simpler 
administration process for MDS distributors and subscribers, reducing 
the burden and cost of administration.
    Subscribers of MDS may use the information for internal purposes 
only and may not distribute the information outside of their 
organization. MDS presents opportunities for small and mid-size firms 
to achieve significant cost savings over the cost of data feeds.
    Both the MDS Administration Fee and MDS Subscriber Fee have not 
changed since their introduction in 2013. Nevertheless, both 
distributors and subscribers reap the benefits of BX's constant focus 
on the performance and enhancements to these offerings. As such, BX 
recently completed a technology refresh to ensure that its data feeds 
continue to achieve a high level of performance and resiliency. The 
Exchange has also upgraded and refreshed its disaster recovery 
capabilities, adding to the increased focus on redundancy and 
resiliency.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of section 6 of the Act,\3\ in general, and with 
sections 6(b)(4) and 6(b)(5) of the Act,\4\ in particular, in that it 
provides an equitable allocation of reasonable fees among Subscribers 
and recipients of BX data and is not designed to permit unfair 
discrimination between them. BX's proposal to increase the MDS 
Administration Fee and MDS Subscriber Fee is also consistent with the 
Act in that it reflects an equitable allocation of reasonable fees. The 
Commission has long recognized the fair and equitable and not 
unreasonably discriminatory nature of assessing different fees for 
distributors and professional and non-professional users of the same 
data. BX also believes it is equitable to assess a higher fee per 
professional user than to an ordinary non-professional user due to the 
enhanced flexibility, lower overall costs and value that it offers 
distributors.
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    \3\ 15 U.S.C. 78f.
    \4\ 15 U.S.C. 78f(b)(4) and (5).
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    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations and broker-dealers increased authority and flexibility to 
offer new and unique market data to the public.
    The Commission concluded that Regulation NMS--by deregulating the 
market in proprietary data--would itself further the Act's goals of 
facilitating efficiency and competition:

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data. The Commission also believes that 
efficiency is promoted when broker-dealers may choose to receive 
(and pay for) additional market data based on their own internal 
analysis of the need for such data.\5\
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    \5\ 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 
broker-dealers at all, it follows that the price at which such data is 
sold should be set by the market as well. BX TotalView is precisely the 
sort of market data products that the Commission envisioned when it 
adopted Regulation NMS.
    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.' '' \6\
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    \6\ 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 BX's Statement on Burden on 
Competition, however, BX 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.\7\ 
Accordingly, any findings of the court with respect to that product may 
not be

[[Page 557]]

relevant to the product at issue in this filing.
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    \7\ 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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    BX believes that the allocation of the proposed fee is fair and 
equitable in accordance with section 6(b)(4) of the Act, and not 
unreasonably discriminatory in accordance with section 6(b)(5) of the 
Act. As described above, the proposed fee is based on pricing 
conventions and distinctions that exist in BX's current fee schedule. 
These distinctions are each based on principles of fairness and equity 
that have helped for many years to maintain fair, equitable, and not 
unreasonably discriminatory fees, and that apply with equal or greater 
force to the current proposal.
    As described in greater detail below, if BX has calculated 
improperly and the market deems the proposed fees to be unfair, 
inequitable, or unreasonably discriminatory, firms can discontinue the 
use of their data because the proposed product is entirely optional to 
all parties. Firms are not required to purchase data and BX is not 
required to make data available or to offer specific pricing 
alternatives for potential purchases. BX can discontinue offering a 
pricing alternative (as it has in the past) and firms can discontinue 
their use at any time and for any reason (as they often do), including 
due to their assessment of the reasonableness of fees charged. BX 
continues to establish and revise pricing policies aimed at increasing 
fairness and equitable allocation of fees among Subscribers.
    BX believes that periodically it must adjust the Subscriber fees to 
reflect market forces. BX believes it is an appropriate time to adjust 
this fee to more accurately reflect the investments made to enhance 
this product through capacity upgrades. This also reflects that the 
market for this information is highly competitive and continually 
evolves as products develop and change.

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 
Notwithstanding its determination that the Commission may rely upon 
competition to establish fair and equitably allocated fees for market 
data, the NetCoalition court found that the Commission had not, in that 
case, compiled a record that adequately supported its conclusion that 
the market for the data at issue in the case was competitive. BX 
believes that a record may readily be established to demonstrate the 
competitive nature of the market in question.
    There is intense competition between trading platforms that provide 
transaction execution and routing services and proprietary data 
products. 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. Data products 
are valuable to many end Subscribers only insofar as they provide 
information that end Subscribers 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, an exchange's 
customers view the costs of transaction executions and of data as a 
unified cost of doing business with the exchange. A broker-dealer 
(``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 orders 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.
    Thus, an 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 at 
24. However, 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. Similarly, 
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.
    Analyzing the cost of market data distribution in isolation from 
the cost of all of the inputs supporting the creation of market data 
will inevitably underestimate the cost of the data. Thus, because it is 
impossible to create data without a fast, technologically robust, and 
well-regulated execution system, system costs and regulatory costs 
affect the price of market data. It would be equally misleading, 
however, to attribute all of the exchange's costs to the market data 
portion of an exchange's joint product. Rather, all of the exchange's 
costs are incurred for the unified purposes of attracting order flow, 
executing and/or routing orders, and generating and selling data about 
market activity. The total return that an exchange earns reflects the 
revenues it receives from the joint products and the total costs of the 
joint products.
    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. BX 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

[[Page 558]]

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, 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 BX, 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.
    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.\8\
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    \8\ See http://www.cinnober.com/boat-trade-reporting.
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    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.

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)(ii) of the Act.\9\ At any time within 60 days of the filing 
of the proposed rule change, the Commission summarily may temporarily 
suspend such rule change if it appears to the Commission that such 
action is 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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    \9\ 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, as amended, 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-BX-2015-084 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-BX-2015-084. 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

[[Page 559]]

amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for Web site viewing and printing in the Commission's Public 
Reference Room on official business days between the hours of 10:00 
a.m. and 3:00 p.m. Copies of such filing also will be available for 
inspection and copying at the principal offices 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-BX-2015-084, and should be 
submitted on or before January 27, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-33209 Filed 1-5-16; 8:45 am]
 BILLING CODE 8011-01-P


