
[Federal Register Volume 82, Number 17 (Friday, January 27, 2017)]
[Notices]
[Pages 8632-8636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01833]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79863; File No. SR-NASDAQ-2017-004]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Data Fees at Rule 7023

January 23, 2017.
    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 January 10, 2017, 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 the Exchange's data fees at Rule 
7023 to: (i) Increase the monthly Nasdaq Level 2 Non-Professional 
Subscriber fee (``Level 2 Non-Professional Fee'') from $9 to $14; and 
(ii) increase the monthly Nasdaq Level 2 Professional Subscriber fee 
(``Level 2 Professional Fee'') from

[[Page 8633]]

$60 to $70, and to make conforming changes.
    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: (i) Increase the 
monthly Level 2 Non-Professional Fee from $9 to $14; and (ii) increase 
the monthly Level 2 Professional Fee from $60 to $70 for any Display 
Usage, or for Non-Display Usage based upon Indirect Access. The fee 
increases will set the Level 2 Non-Professional Fee equal to the 
TotalView fee for Non-Professional Subscribers under Rule 
7023(b)(2)(A), and will set the Level 2 Professional Fee equal to the 
TotalView fee for Professional Subscribers set forth under Rule 
7023(b)(2)(B).
    The proposed change will equate the price of Level 2 with TotalView 
in anticipation of retiring Level 2 as a separate product, which will 
occur on a date to be determined by Nasdaq, based on an analysis of 
customer demand. Until Level 2 is retired, Nasdaq will continue to 
support this legacy product in tandem with its full-depth product, 
TotalView.
Level 2 and Depth-of-Book Data
    Nasdaq Level 2 provides best-price orders and quotes from each 
market participant in the Nasdaq Market Center for Nasdaq-listed 
securities. It was introduced in 1983 as the Nasdaq Quotation 
Dissemination Service, and was the first product to provide best-price 
orders and quotes for Nasdaq market participants. Level 2, like all of 
Nasdaq's depth-of-book data products, is entirely optional.
    As part of Nasdaq's continuing efforts to augment its depth-of-book 
products, Nasdaq created TotalView, a premier product designed to 
substantially enhance the amount of data available to the investor. 
TotalView provides all orders and quotes from all Nasdaq members 
displayed in the Nasdaq Market Center for Nasdaq-listed securities. 
This allows the user to view approximately 20 times more information 
about market liquidity than Level 2, which provides only the best-price 
orders and quotes for each market participant. In addition to a deeper 
view of orders and quotes, TotalView also provides other information 
not available on Level 2, such as the Net Order Imbalance Indicator, 
which supplies data on the daily auctions that take place at the open 
and close of the market.
    Along with Level 2 and TotalView, Nasdaq also offers OpenView, 
which provides the depth-of-book information available in TotalView, 
except that OpenView provides information for securities not listed on 
Nasdaq. OpenView is typically purchased as an add-on to TotalView or 
Level 2.
Proposed Changes
    Nasdaq intends to offer TotalView as its main depth-of-book 
product. The purpose of the proposed change is to equate the prices of 
Level 2 and TotalView in anticipation of retiring Level 2. In response 
to feedback from Distributors, the Exchange will continue to offer 
Level 2 for those Distributors that require time to transition their 
systems from Level 2 to TotalView, rather than retire Level 2 abruptly. 
The price increase will compensate Nasdaq for offering both the Level 2 
and TotalView data feeds during this transition period.
    Nasdaq anticipates retiring Level 2 for three reasons.
    First, demand for Level 2 has fallen over the last two years. 
Nasdaq incurs a cost to support multiple depth-of-book products, and 
maintaining such an expenditure is not viable in view of falling 
demand.
    Second, Level 2 has become less viable as a stand-alone product as 
industry standards have changed. While there was a market for Level 2 
when it was first introduced, the market has moved toward either high-
level products such as Nasdaq Basic (which offers best bid and offer 
and last sale information), or full depth-of-book data similar to 
TotalView. The market niche for intermediate products such as Level 2 
is disappearing.
    Third, the usefulness of Level 2 will continue to decrease over 
time as full depth-of-book products continue to add more features, such 
as the Net Order Imbalance Indicator in TotalView. Nasdaq plans to 
continue enhancing TotalView with additional features, which will 
further widen the gap in functionality between TotalView and Level 2.
    Level 2 will not be retired immediately. There may be customers 
who, because of special circumstances, continue to use Level 2 for the 
time being. Nasdaq will monitor customer demand to identify an 
appropriate retirement date. Until Level 2 is retired, Nasdaq will 
continue to support this legacy product in tandem with its full-depth 
product, TotalView.
    Because of the price increase for Level 2, the Exchange proposes 
three conforming changes to market data rules that reference Level 2.
    First, under Rule 7023(c)(1), a Distributor that is also a broker-
dealer may pay a monthly fee of $25,000 for the right to provide Nasdaq 
TotalView and Nasdaq OpenView for Display Usage for Internal 
Distribution, or for External Distribution to Non-Professional 
Subscribers with whom the firm has a brokerage relationship. Payment of 
this optional enterprise license fee allows the purchaser to obtain 
TotalView and OpenView at the previous Level 2 rate because, under Rule 
7023(c)(1), the Enterprise License shall not apply to relevant Level 1 
and Nasdaq Level 2 fees.\3\ In other words, because Distributors 
receiving TotalView also receive the information contained in Nasdaq 
Level 2, those Distributors must also pay per-subscriber fees at the 
same level as the Level 2 fees, in addition to the Enterprise License 
fee.
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    \3\ The language regarding Level 1 has no effect because Level 1 
has never been a product owned by Nasdaq. Level 1 is distributed 
under the UTP Plan.
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    Because the proposed language equates Level 2 fees with the price 
of TotalView, Distributors that purchase the $25,000 Enterprise License 
would be required to pay the monthly per-subscriber fees at the new, 
higher rate, unless the language is adjusted. To maintain the current 
price structure, the Exchange proposes to delete the reference to Level 
1 and Level 2 fees, and replace it with a set fee that reflects the 
current fee for Level 2. The proposal would require Distributors to pay 
a monthly fee of $9 for each Non-Professional Subscriber and a monthly 
fee of $60 for each Professional Subscriber for Display Usage based 
upon Direct or Indirect Access, in addition to the $25,000 monthly

[[Page 8634]]

enterprise license. This change preserves the current per-subscriber 
fees associated with the $25,000 enterprise license. Deleting the 
reference to Level 1 has no effect because Level 1 is not a Nasdaq 
product.
    Second, under Rule 7023(c)(2), a Distributor that is also a broker-
dealer may pay a monthly fee of $100,000 for the right to provide 
Nasdaq TotalView and Nasdaq OpenView for Display Usage for Internal 
Distribution, or for External Distribution to both Professional and 
Non-Professional Subscribers with whom the firm has a brokerage 
relationship. Payment of this optional enterprise license fee allows 
the purchaser to obtain TotalView and OpenView at the previous Level 2 
rate because, under Rule 7023(c)(2), the Enterprise License shall not 
apply to relevant Level 1 and Nasdaq Level 2 fees.
    As was the case for the $25,000 Enterprise License under Rule 
7023(c)(1), the proposed increase in the price of Level 2 would require 
Distributors that purchase the $100,000 Enterprise License to pay the 
monthly per-subscriber fees at the new, higher rate, unless the 
language is adjusted. To maintain the prior price structure, the 
Exchange proposes to delete the reference to Level 1 and Level 2, and 
replace it with a set fee for Professional and Non-Professional 
Subscribers. The proposal would require Distributors to pay a monthly 
fee of $9 for each Non-Professional Subscriber and a monthly fee of $60 
for each Professional Subscriber for Display Usage based upon Direct or 
Indirect Access, in addition to the $100,000 monthly enterprise 
license. This change preserves the current per-subscriber fees 
associated with the $100,000 enterprise license. As previously noted, 
deleting the reference to Level 1 has no effect because it is not a 
Nasdaq product.
    Third, the Exchange proposes to remove a sentence from Rule 7023(e) 
that has been rendered meaningless. That rule currently provides a 30-
day fee waiver for a trial offer of TotalView, provided that the waiver 
does not include incremental fees for the Nasdaq Level 2-only service. 
Because the proposal removes the price differential between Level 2 and 
TotalView, no incremental fees will exist, and the Exchange therefore 
proposes deleting that sentence.
    The Level 2 Professional and Non-Professional fees are entirely 
optional, in that they apply only to Subscribers that opt to purchase 
Level 2. They do not impact or raise the cost of any other Nasdaq 
product, except for those subscribers who opt to purchase OpenView 
together with Level 2, for whom the price of the combined product will 
rise by the same amount as Level 2.
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 current market 
model, 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 proposals to increase the monthly 
Level 2 Non-Professional Fee and the Level 2 Professional Fee--which 
will be implemented in anticipation of retiring Level 2 as a separate 
product--are reasonable. The Exchange is providing time for 
Distributors to transition from Level 2 to TotalView feeds, and the 
price increase compensates Nasdaq for providing both feeds during that 
transition period. The fees for Level 2, like all proprietary data 
fees, are constrained by the Exchange's need to compete for order flow, 
and are subject to competition from other products and among broker-
dealers for customers. If Nasdaq is incorrect in its assessment of the 
Level 2 market, there are no barriers to entry for competitors with 
substantially similar products.
    The Exchange believes that the proposed fee changes are an 
equitable allocation and not unfairly discriminatory because the 
Exchange will apply the same fee to all similarly-situated subscribers.

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 proposed fees will: (i) Increase the monthly Level 2 Non-
Professional Fee from $9 to $14; and (ii) increase the monthly Level 2 
Professional Fee from $60 to $70. If the changes proposed herein are 
unattractive to market

[[Page 8635]]

participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.
    Specifically, market forces constrain fees for Level 2 in three 
respects. First, all fees related to Level 2 are constrained by 
competition among exchanges and other entities attracting order flow. 
Firms make decisions regarding Level 2 and other proprietary data based 
on the total cost of interacting with the Exchange, and order flow 
would be harmed by the supracompetitive pricing of any proprietary data 
product. Second, the price of Level 2 is constrained by the existence 
of substitutes that are offered, or may be offered, by entities that 
offer proprietary data. Third, competition among Distributors for 
customers will further constrain the cost of Level 2. An example of the 
impact of market forces on the price of proprietary data is the 
decrease in the Nasdaq Basic enterprise license fee for broker-dealers 
distributing such information to subscribers in the context of a 
brokerage relationship, which was recently decreased from $350,000 to 
$100,000.
Competition for Order Flow
    Fees related to Level 2 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 proprietary 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 proprietary 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. Data fees are but one factor in a total platform analysis. 
If the cost of the product exceeds its expected value, the broker-
dealer will choose not to buy it. A supracompetitive increase in the 
fees charged for either transactions or proprietary data has the 
potential to impair revenues from both products. In this manner, the 
competition for order flow will constrain prices for proprietary data 
products.
Substitute Products
    The price of depth-of-book data is constrained by the existence of 
competition from other exchanges, such as NYSE and BATS, which sell 
proprietary depth-of-book data. While a small number of highly 
sophisticated traders purchase depth-of-book products from multiple 
exchanges, most customers do not. Because most customers would not pay 
an excessive price for Level 2 when substitute data is available from 
other proprietary sources, the Exchange is constrained in its pricing 
decisions.
Competition Among Distributors
    Competition among Distributors provides another form of price 
discipline for proprietary data products. If the price of Level 2 were 
set above competitive levels, Distributors purchasing Level 2 would be 
at a disadvantage relative to their competitors, and would therefore 
either purchase a substitute or forego the product altogether.
    In summary, market forces constrain the price of depth-of-book data 
such as Level 2 through competition for order flow, competition from 
substitute products, and in the competition among vendors 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

[[Page 8636]]

     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2017-004 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-2017-004. 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 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-2017-004 and should 
be submitted on or before February 17, 2017.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01833 Filed 1-26-17; 8:45 am]
BILLING CODE 8011-01-P


