
[Federal Register Volume 81, Number 186 (Monday, September 26, 2016)]
[Notices]
[Pages 66113-66114]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-23045]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78886; File No. SR-NASDAQ-2016-101]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2, To Add Nasdaq Rule 7046 (Nasdaq Trading Insights)

September 20, 2016.

I. Introduction

    On July 26, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to add Nasdaq Trading Insights, an optional market 
data service composed of four market data components. The proposed rule 
change was published for comment in the Federal Register on August 8, 
2016.\3\ On August 15, 2016, the Exchange filed Amendment No. 1 to the 
proposed rule change.\4\ On September 19, 2016, the Exchange filed 
Amendment No. 2 to the proposed rule change.\5\ The Commission received 
no comment letters on the proposed rule change. This order approves the 
proposed rule change, as modified by Amendment Nos. 1 and 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 78462 (August 2, 
2016), 81 FR 52486 (``Notice'').
    \4\ In Amendment No. 1, the Exchange revised the proposal to 
specify that a subscribing market participant would receive all four 
components of the Nasdaq Trading Insights product and would not be 
able to elect to subscribe to fewer than all four components of the 
product, as originally proposed. The Exchange also specified that 
the fee for the product, to be implemented in a separate proposed 
rule change, would be applicable to the full service and would not 
be assessed per individual component, as originally proposed. 
Because Amendment No. 1 does not materially alter the substance of 
the proposed rule change or raise unique or novel regulatory issues, 
Amendment No. 1 is not subject to notice and comment. Amendment No. 
1 is available on the Commission's Web site at: https://www.sec.gov/comments/sr-nasdaq-2016-101/nasdaq2016101.shtml.
    \5\ In Amendment No. 2, the Exchange made a technical correction 
to the proposed rule text to reflect the change it made in Amendment 
No. 1 that eliminated the ability of market participants to elect to 
subscribe to fewer than all four components of the Nasdaq Trading 
Insights product. Because Amendment No. 2 is technical in nature, 
Amendment No. 2 is not subject to notice and comment. Amendment No. 
2 is available on the Commission's Web site at: https://www.sec.gov/comments/sr-nasdaq-2016-101/nasdaq2016101.shtml.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2

    The Exchange proposes to offer Nasdaq Trading Insights, a new 
optional market data product that would be available to all of the 
Exchange's participants for subscription.\6\ Nasdaq Trading Insights 
would be composed of four market data components: (a) Missed 
Opportunity--Liquidity; (b) Missed Opportunity--Latency; (c) Peer 
Benchmarking; and (d) Liquidity Dynamics Analysis.\7\ All components of 
Nasdaq Trading Insights would be offered on a T+1 basis.\8\
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    \6\ See Notice, supra note 3, at 52489.
    \7\ See proposed Rule 7046. See also Amendment No. 1, supra note 
4 and Amendment No. 2, supra note 5. The Exchange will submit a 
separate filing to address pricing for Nasdaq Trading Insights. See 
Notice, supra note 3, at 52487 n.3.
    \8\ See Notice, supra note 3, at 52487-88.
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    The Missed Opportunity--Liquidity component would identify when an 
order from a market participant could have been increased in size and 
thus executed more shares.\9\ The data included in this component would 
be unique for each subscribing market participant's port, and only that 
market participant would be eligible to receive this data (i.e., a 
market participant would not be able to obtain any other market 
participant's data).\10\ According to the Exchange, the Missed 
Opportunity--Liquidity component would provide greater visibility into 
what was missed in trading so subscribing market participants may 
improve their trading performance.\11\
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    \9\ See proposed Rule 7046(a)(1). The data elements for this 
component, in summary, are: (i) Issue (Nasdaq symbol for the issue); 
(ii) Buy/Sell Indicator (side of the market at which the market 
participants are quoting); (iii) Price (the price (inclusive of 
decimal point) at which Nasdaq Market Center market participants had 
order interest for the given security at the given time); (iv) Order 
Reference Number (the unique reference number assigned to the new 
order at the time of receipt); (v) Order Entry Time Stamp (the time 
order was received in the system); (vi) Share Quantity (total number 
of shares submitted on original order); and (vii) Missed Opportunity 
Quantity (total number of shares missed). See Notice, supra note 3, 
at 52487 n.4.
    \10\ See Notice, supra note 3, at 52487.
    \11\ See id.
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    The Missed Opportunity--Latency component would identify by how 
much time a marketable order missed executing a resting order that was 
cancelled or executed.\12\ The data included in this component would be 
based only on the data of the subscribing market participant, and a 
market participant would not be able to receive another market 
participant's data.\13\ According to the Exchange, as with the Missed 
Opportunity--Liquidity component, this component would provide greater 
visibility into what was missed in trading so subscribing market 
participants may improve their trading performance.\14\
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    \12\ See proposed Rule 7046(a)(2). The data elements for this 
component, in summary, are: (i) Issue (Nasdaq symbol for the issue); 
(ii) Buy/Sell Indicator (side of the market at which the market 
participants are quoting); (iii) Price (the price (inclusive of 
decimal point) at which Nasdaq Market Center market participants had 
order interest for the given security at the given time); (iv) Order 
Reference Number (the unique reference number assigned to the new 
order at the time of receipt); (v) Order Size; (vi) Matching Engine 
times for incoming orders; (vii) Missed Opportunity times; and 
(viii) Reasons for not getting fills. See Notice, supra note 3, at 
52487 n.5. The Missed Opportunity--Latency component would not 
provide specific information about resting orders on the Exchange 
order book. See id. at 52487.
    \13\ See Notice, supra note 3, at 52487.
    \14\ See id.
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    The Peer Benchmarking component would rank the quality of a market 
participant's trading performance against its peers trading on 
Nasdaq.\15\ Market participants would be able to view their own trading 
activity broken out by port with each being ranked independently for 
each metric against their peers.\16\ The data included in this

[[Page 66114]]

component would be specific to a subscribing market participant's port 
and a market participant would not be able to receive another market 
participant's data.\17\ According to the Exchange, this component would 
help subscribing market participants to have a better idea of how their 
competitors are performing vis-[agrave]-vis their own trading.\18\ 
Moreover, according to the Exchange, this component would help 
subscribing market participants to better understand trending over 
time, their ranking, and whether their behavioral changes translate 
into expected results.\19\
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    \15\ See proposed Rule 7046(a)(3). The data elements for this 
component, in summary, include: (i) Total Dollar Volume; (ii) Total 
Share Volume, Share Volume of Liquidity Provision and Accessible for 
Tape A, Tape B and Tape C; (iii) Number of Trades, including Hidden 
Orders and Number of Hidden Trades; (iv) Mean/Median Trade Size; (v) 
Mean/Median Size of Hidden Orders; (vi) Number of Buy/Sell Orders 
Received; (vii) Number of Aggressive Orders, Mean Size of Aggressive 
Buy/Sell Orders; (viii) Number of Passive Orders, Mean Size of 
Displayed Passive Order, Hidden Passive for Buy and Sell Orders; 
(ix) Number of Orders at Best Bid/Ask Level; (x) Mean Cost to 
Execute for Buy and Sell for 1000, 5000, 10000 Shares; (xi) Number 
of Modified/Cancelled Buy/Sell Orders; (xii) Mean Buy/Sell Price 
Range; (xiii) Total Number of Buy/Sell Price; (xiv) Number, Mean--
Resting Buy/Sell Price Points; (xv) Missed Opportunities--Liquidity, 
Latency; (xvi) Mean Share Volume Against Hidden, Mean Quote Rotation 
Time. See Notice, supra note 3, at 52487 n.6.
    \16\ See Notice, supra note 3, at 52487-88. Each port would be 
categorized into a peer grouping that would be based upon a given 
set of metrics that would share similar trading behavior 
characteristics, and there would be at least ten peers within a 
security. See id. at 52488.
    \17\ See id. at 52488.
    \18\ See id.
    \19\ See id.
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    The Liquidity Dynamics Analysis component would contain historical 
aggregated metrics and statistics regarding displayed and hidden 
liquidity on the Exchange for NMS securities listed on Nasdaq, the New 
York Stock Exchange, and other U.S. equity exchanges.\20\ The data 
would be analyzed every 30 seconds, starting at 10 minutes prior to the 
market open to 10 minutes after the market close, and it would include 
all orders that are visible, anonymous, or non-displayed for each 
security.\21\ According to the Exchange, subscribing market 
participants may use this component to better understand when 
accessible liquidity exists, which may help these market participants 
improve their trading performance.\22\
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    \20\ See proposed Rule 7046(a)(4) and Notice, supra note 3, at 
52488. The data elements for this component, in summary, are: (i) 
Issue (Nasdaq symbol for the issue); (ii) Start Time; (iii) End 
Time; (iv) Side (identifies buy vs. sell side); (v) Level (level 
associated with the price); (vi) Average Depth (average depth of the 
book); (vii) Minimum Depth (minimum depth of the book); (viii) 
Maximum Depth (maximum depth of the book); (ix) Standard Deviation 
Depth; (x) Average Price; (xi) Minimum Price (minimum price in the 
book); (xii) Maximum Price (maximum price in the book); (xiii) 
Median Price (median price in the book); (xiv) Standard Deviation--
Price; (xv) Minimum Distance from the QBBO; (xvi) Maximum Distance 
from the QBBO; (xvii) Mean Distance from the QBBO; (xviii) Median 
Distance from the QBBO; and (xix) Standard Deviation-Distance from 
QBBO. See Notice, supra note 3, at 52488 n.7. This component would 
include statistics regarding quantity and price at each of the top 
five price levels per buy/sell side and per stated time period. See 
proposed Rule 7046(a)(4).
    \21\ See Notice, supra note 3, at 52488.
    \22\ See id. For a more detailed description of the proposed 
rule change, see Notice, supra note 3; Amendment No. 1, supra note 
4; and Amendment No. 2, supra note 5.
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III. Discussion and Commission Findings

    The Commission finds that the proposed rule change, as modified by 
Amendment Nos. 1 and 2, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\23\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\24\ which 
requires, among other things, that the rules of a national securities 
exchange be designed to promote just and equitable principles of trade, 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system and, in general, to protect 
investors and the public interest.
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    \23\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \24\ 15 U.S.C. 78f(b)(5).
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    As noted above, Nasdaq Trading Insights would be an optional market 
data product available to all of the Exchange's participants for 
subscription, and would be designed to provide additional information 
and insight to subscribing market participants regarding their trading 
activity on the Exchange.\25\ Also, as noted above, Nasdaq Trading 
Insights would not be a real-time market data product and would be 
provided to subscribers on a T+1 basis.\26\ Moreover, where Nasdaq 
Trading Insights data is specific to one market participant, only that 
market participant would receive such data.\27\ According to the 
Exchange, some market participants may already be able to derive the 
same data that is provided by some of the Nasdaq Trading Insights 
components based on executions and algorithms that those market 
participants have created.\28\ As the Exchange noted, Nasdaq Trading 
Insights would increase transparency, particularly for market 
participants who may not have the expertise to generate the same 
information.\29\
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    \25\ See supra notes 6, 11, 14, 18, 19, and 22, and accompanying 
text. See also Notice, supra note 3, at 52487.
    \26\ See supra note 8 and accompanying text.
    \27\ See supra notes 10, 13, and 17, and accompanying text.
    \28\ See Notice, supra note 3, at 52489.
    \29\ See id. at 52487.
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    Based on the Exchange's representations with respect to the Nasdaq 
Trading Insights product and for the foregoing reasons, the Commission 
finds that the proposed rule change, as modified by Amendment Nos. 1 
and 2, is consistent with the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\30\ that the proposed rule change (SR-NASDAQ-2016-101), as 
modified by Amendment Nos. 1 and 2, be, and hereby is, approved.
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    \30\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-23045 Filed 9-23-16; 8:45 am]
 BILLING CODE 8011-01-P


