
[Federal Register Volume 81, Number 249 (Wednesday, December 28, 2016)]
[Notices]
[Pages 95666-95669]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-31309]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79649; File No. SR-NASDAQ-2016-172]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Modify Administrative Charges for Distributors of Proprietary Data Feed 
Products

December 21, 2016.
    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 14, 2016, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's data fees at Rule 
7035 to change the billing cycle for administrative fees paid by 
distributors of Nasdaq market data from annual to monthly, and to: (1) 
Replace the current $500 annual administrative fee assessed to 
distributors of delayed market data with a $50 monthly administrative 
fee, and (2) replace the current $1,000 annual administrative fee 
assessed to distributors of real-time market data with a $100 monthly 
administrative fee. The proposal is described further below.\3\
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    \3\ NASDAQ BX, Inc. and NASDAQ PHLX LLC are filing companion 
proposals similar to this one. All three proposals will change the 
billing cycle for administrative fees paid by distributors of market 
data from annual to monthly, and will: (1) replace the current $500 
annual administrative fee assessed to distributors of delayed market 
data with a $50 monthly administrative fee, and (2) replace the 
current $1,000 annual administrative fee assessed to distributors of 
real-time market data with a $100 monthly administrative fee.
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    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on January 1, 2017.
    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 the proposed rule change is to change the billing 
cycle for administrative fees paid by distributors of Nasdaq market 
data from annual to monthly, and to: (1) Replace the current $500 
annual administrative fee assessed to distributors of delayed market 
data with a $50 monthly administrative fee, and (2) replace the current 
$1,000 annual administrative fee assessed to distributors of real-time 
market data with a $100 monthly administrative fee.
Annual Administrative Fee
    Nasdaq assesses an annual administrative fee to any market data 
distributor that receives a proprietary market data product. The amount 
of that fee is $500 for delayed market data and $1,000 for real-time 
market data. Distributors of both delayed and real-time market data are 
not required to pay both fees; they are charged only the higher fee. 
The time difference between ``delayed'' and ``real-time'' data varies 
by product. Nasdaq Basic data, for example, is considered delayed after 
15 minutes, while data from the Nasdaq Market Pathfinders Service is 
considered delayed after 24 hours. The specific delay interval 
applicable to each product is published on the Nasdaq Trader Web site. 
The fee is not prorated if the distributor receives the data feed for 
less than a year.
Proposed Changes
    The Exchange proposes to change the billing cycle for 
administrative fees paid by distributors of Nasdaq market data from 
annual to monthly, and to: (1) replace the current $500 annual 
administrative fee assessed to distributors of delayed market data with

[[Page 95667]]

a $50 monthly administrative fee, and (2) replace the current $1,000 
annual administrative fee assessed to distributors of real-time market 
data with a $100 monthly administrative fee.
    The purposes of the proposal are to: (1) facilitate billing by 
aligning the current annual administrative fee billing cycle with 
Nasdaq's standard monthly billing cycle; (2) allocate the fee more 
equitably by charging distributors that receive less than a year of 
market data an administrative fee only for those months that they 
receive market data; (3) bring the Exchange's administrative fee into 
alignment with the PSX and BX market data administrative fees, which, 
after current proposals take effect, will be charged the same 
administrative fees on the same billing cycle; and (4) offset cost 
increases caused by general price inflation.
    The complexity of administering Nasdaq's market data program has 
increased significantly since the current fee was set in July of 2006. 
New, more complex products and services require Nasdaq to expend more 
resources in administration and monitoring. For example, the 
introduction of Enhanced Display Solutions--which allow subscribers to 
view Nasdaq market data on computer monitors and export it to 
applications--required Nasdaq to create new reporting systems and 
review mechanisms for the use of market data. New reporting and review 
mechanisms also had to be created to implement Managed Data Solutions, 
which allow electronic systems access to Nasdaq market data without 
human intervention. The Nasdaq Basic Net Reporting Program--a service 
that allows distributors to lower the cost of Nasdaq Basic by reporting 
the number of natural persons using the data rather than the number of 
electronic devices able to display that data--also required Nasdaq to 
develop new reporting systems. All of these programs were created in 
response to customer demand, and all require administrative 
expenditures that had not been necessary when the amount of the 
administrative fee was set in 2006.
    The administrative fee is entirely optional in that it applies only 
to firms that elect to distribute Nasdaq proprietary data.
    The proposed changes do not raise the cost of any other Nasdaq 
product, except to the extent that they increase the total cost of 
purchasing market data.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\4\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\5\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the national market 
system, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \6\
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    \6\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission \7\ 
(``NetCoalition'') the D.C. Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\8\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \9\
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    \7\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \8\ See NetCoalition, at 534-535.
    \9\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers' . . . .'' \10\
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    \10\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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    The Exchange believes that the proposal to replace the current $500 
annual administrative fee assessed to distributors of delayed market 
data with a $50 monthly administrative fee, and the current $1,000 
annual administrative fee assessed to distributors of real-time data 
with a $100 monthly administrative 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 change is reasonable and necessary to 
facilitate billing, allocate fees more equitably, align administrative 
fees with those of the PSX and BX exchanges, and to offset general 
price inflation. Moreover, administrative fees are constrained by the 
Exchange's need to compete for order flow.
    The Exchange believes that the proposed change is an equitable 
allocation and is not unfairly discriminatory because the Exchange will 
apply the same fee to all similarly-situated distributors.

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. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    The proposal is to replace the current $500 annual administrative 
fee assessed to distributors of delayed market data with a $50 monthly 
administrative fee, and the current $1,000 annual administrative fee 
assessed to distributors of real-time market data with a $100 monthly 
administrative fee. If the changes proposed herein are unattractive to 
market participants, it is likely that the Exchange will lose market 
share as a result.
    Specifically, market forces constrain administrative fees in three 
respects. First, all fees associated with

[[Page 95668]]

proprietary data are constrained by competition among exchanges and 
other entities attracting order flow. Second, administrative fees 
impact the total cost of market data, and are constrained by the total 
cost of the market data offered by other entities. Third, competition 
among distributors constrains the total cost of market data, including 
administrative fees.
Competition for Order Flow
    Administrative fees are constrained by competition among exchanges 
and other entities seeking to attract order flow. Order flow is the 
``life blood'' of the exchanges. Broker-dealers currently have numerous 
alternative venues for their order flow, including self-regulatory 
organization (``SRO'') markets, as well as internalizing broker-dealers 
(``BDs'') and various forms of alternative trading systems (``ATSs''), 
including dark pools and electronic communication networks (``ECNs''). 
Each SRO market competes to produce transaction reports via trade 
executions, and two FINRA-regulated Trade Reporting Facilities 
(``TRFs'') compete to attract internalized transaction reports. The 
existence of fierce competition for order flow implies a high degree of 
price sensitivity on the part of BDs, which may readily reduce costs by 
directing orders toward the lowest-cost trading venues.
    The level of competition and contestability in the market for order 
flow is demonstrated by the numerous 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. For a variety of 
reasons, competition from new entrants, especially for order execution, 
has increased dramatically over the last decade.
    Each SRO, TRF, ATS, and BD that competes for order flow is 
permitted to produce proprietary data products. Many currently do or 
have announced plans to do so, including NYSE, NYSE Amex, NYSE Arca, 
BATS, and IEX. This is because Regulation NMS deregulated the market 
for proprietary data. While BDs had previously published their 
proprietary data individually, Regulation NMS encourages market data 
vendors and BDs to produce market data products cooperatively in a 
manner never before possible. Order routers and market data vendors can 
facilitate production of proprietary data products for single or 
multiple BDs. The potential sources of proprietary products are 
virtually limitless.
    The markets for order flow and market data are inextricably linked: 
a trading platform cannot generate market information unless it 
receives trade orders. As a result, the competition for order flow 
constrains the prices that platforms can charge for proprietary data 
products. Firms make decisions on how much and what types of data to 
consume based on the total cost of interacting with Nasdaq and other 
exchanges. Administrative fees are part of the total cost of 
proprietary data. A supracompetitive increase in the fees charged for 
either transactions or market data has the potential to impair revenues 
from both products.
Competition From Market Data Providers
    Administrative fees are constrained by competition from other 
exchanges that sell market data, such as NYSE and BATS. If 
administrative fees were to become excessive, distributors may elect to 
discontinue one or two products or services purchased from Nasdaq, or 
reduce the level of their purchases, to signal that the overall cost of 
market data had become excessive. Such a reduction in purchases would 
act as a discipline to Nasdaq's administrative fees, and would 
constrain the Exchange in its pricing decisions.
Competition Among Distributors
    Distributors provide another form of price discipline for market 
data products. Distributors are in competition for users, and can 
curtail their purchases of market data if the total price of market 
data, including administrative fees, were set above competitive levels.
    In summary, market forces constrain the level of administrative 
fees through competition for order flow, competition from other sources 
of proprietary data, and in the competition among distributors for 
customers. For these reasons, the Exchange has provided a substantial 
basis demonstrating that the fee is equitable, fair, reasonable, and 
not unreasonably discriminatory, and therefore consistent with and in 
furtherance of the purposes of the Exchange Act.

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.\11\
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    \11\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) 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.

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-2016-172 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-2016-172. 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

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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 
such filing also will 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-2016-172, and should be submitted on or before 
January 18, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2016-31309 Filed 12-27-16; 8:45 am]
 BILLING CODE 8011-01-P


