[Federal Register Volume 85, Number 203 (Tuesday, October 20, 2020)]
[Notices]
[Pages 66620-66630]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-23148]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90177; File No. SR-NASDAQ-2020-065]


Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Lower the Enterprise License Fee for Broker-Dealers Distributing Nasdaq 
Basic to Internal Professional Subscribers as Set Forth in the Equity 7 
Pricing Schedule, Section 147, and the Enterprise License Fee for 
Broker-Dealers Distributing Nasdaq Last Sale to Professional 
Subscribers at Equity 7, Section 139

October 14, 2020.
    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 September 30, 2020, 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 lower the enterprise license fee for 
broker-dealers distributing Nasdaq Basic to internal Professional 
Subscribers as set forth in the Equity 7 Pricing Schedule, Section 147, 
and the enterprise license fee for broker-dealers distributing Nasdaq 
Last Sale (``NLS'') to Professional Subscribers at Equity 7, Section 
139.
    The text of the proposed rule change is available on the Exchange's 
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, 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
    Nasdaq proposes to lower the enterprise license fee for broker-
dealers distributing Nasdaq Basic to internal Professional Subscribers 
\3\ from a two-tiered fee of $365,000, plus $2 for any Professional 
Subscribers over 16,000, to a flat fee of $155,000. The license would 
otherwise remain unchanged.
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    \3\ A ``Professional Subscriber'' is any Subscriber other than a 
Non-Professional Subscriber. A ``Non-Professional Subscriber'' is 
``a natural person who is not (i) registered or qualified in any 
capacity with the Commission, the Commodity Futures Trading 
Commission, any state securities agency, any securities exchange or 
association, or (ii) any commodities or futures contract market or 
association; engaged as an `investment adviser' as that term is 
defined in Section 201(11) of the Investment Advisers Act of 1940 
(whether or not registered or qualified under that Act); or (iii) 
employed by a bank or other organization exempt from registration 
under federal or state securities laws to perform functions that 
would require registration or qualification if such functions were 
performed for an organization not so exempt.'' See Equity 7 Pricing 
Schedule, Section 147(d)(4).
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    The enterprise license fee for broker-dealers distributing NLS to 
internal Professional Subscribers would be changed in a similar 
fashion: the two-tiered fee of $365,000, plus $2 for any Professional 
Subscribers over 16,000, would be replaced with a flat fee of $155,000. 
Both fee reductions are designed to help Nasdaq compete against other 
exchanges selling top-of-book \4\ market data products.
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    \4\ ``Top-of-book'' market data products provide last sale 
information, or both last sale and best bid and offer information to 
the user, without additional ``depth of book'' data. Both Nasdaq 
Last Sale and Nasdaq Basic are examples of top-of-book products.
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Nasdaq Basic and Nasdaq Last Sale
    Nasdaq Basic is a real-time market data product that offers best 
bid and offer and last sale information for all U.S. exchange-listed 
securities based on liquidity within the Nasdaq market center and 
trades reported to the FINRA/Nasdaq Trade Reporting Facility (``TRF''). 
It is a subset of the ``core'' quotation and last sale data provided by 
securities information processors (``SIPs'') distributing consolidated 
data pursuant to the CTA/CQ Plan and the UTP Plan. Nasdaq Basic is 
separated into three components, which may be purchased individually or 
in combination: (i) Nasdaq Basic for Nasdaq, which contains the best 
bid and offer on the Nasdaq market center and last sale transaction 
reports for Nasdaq and the FINRA/Nasdaq TRF for Nasdaq-listed stocks; 
(ii) Nasdaq Basic for NYSE, which covers NYSE-listed stocks, and (iii) 
Nasdaq Basic for NYSE American, which provides data on stocks listed on 
NYSE American and other listing venues that disseminate quotes and 
trade reports on Tape B. The specific data elements available through 
Nasdaq Basic are: (i) Nasdaq Basic Quotes (``QBBO''), the best bid and 
offer and associated size available in the Nasdaq Market Center, as 
well as last sale transaction reports; (ii) Nasdaq opening and closing 
prices, as well as IPO and trading halt cross prices; and (iii) general 
exchange information, including systems status reports, trading halt 
information, and a stock directory.
    NLS provides real-time last sale information for executions 
occurring within the Nasdaq market center and trades reported to the 
jointly-operated FINRA/Nasdaq TRF.\5\ The NLS data

[[Page 66621]]

feed, which provides price, volume and time of execution data for last 
sale transactions, includes transaction information for Nasdaq-listed 
stocks (``NLS for Nasdaq'') and for stocks listed on NYSE, NYSE 
American, and other Tape B listing venues (``NLS for NYSE/NYSE 
American'').\6\ This is also a non-core product that provides a subset 
of the core last sale data distributed by the SIPs under the CTA/CQ 
Plan and the UTP Plan.\7\
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    \5\ See Securities Exchange Act Release No. 57965 (June 16, 
2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-060) (proposing 
NLS); see also Securities Exchange Act Release No. 57965 (June 16, 
2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-060) (approving 
SR-NASDAQ-2006-060, as amended by Amendment Nos. 1 and 2, to 
implement NLS on a pilot basis).
    \6\ See Securities Exchange Act Release No. 57965 (June 16, 
2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-060).
    \7\ See Securities Exchange Act Release No. 34-82723 (February 
15, 2018), 83 FR 7812 (February 22, 2018) (SR-NASDAQ-2018-010).
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Current Top-of-Book Enterprise Licenses for Internal Professional 
Subscribers
    Broker-dealers may purchase Nasdaq Basic, or Derived Data \8\ 
therefrom, for internal professional use for a monthly per-Subscriber 
fee of $26,\9\ or, in lieu of a per-Subscriber fee, purchase an 
enterprise license for the internal distribution of Nasdaq Basic to 
Professional Subscribers for $365,000, plus $2 for any Professional 
Subscribers over 16,000 if an external Distributor \10\ controls the 
display of the product.\11\ The license also allows the broker-dealer 
to display NLS data for its own stock price and that of up to ten of 
its competitors or peers on its internal website. Separate licenses 
must be purchased if more than one external Distributor controls 
display of the product. The license excludes Distributor fees, which 
are $1,500 per month for internal distribution.\12\
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    \8\ ``Derived Data'' is ``pricing data or other information that 
is created in whole or in part from Nasdaq information; it cannot be 
reverse engineered to recreate Nasdaq information, or be used to 
create other data that is recognizable as a reasonable substitute 
for Nasdaq information.'' See Equity 7, Section 147(d)(6).
    \9\ See Equity 7 Pricing Schedule, Section 147(b)(1). The $26 
monthly per-Subscriber fee consists of monthly charges of $13 for 
Nasdaq Basic for Nasdaq, $6.50 for Nasdaq Basic for NYSE, and $6.50 
for Nasdaq Basic for NYSE MKT.
    \10\ ``Distributor'' refers to ``any entity that receives Nasdaq 
Basic data directly from Nasdaq or indirectly through another entity 
and then distributes it to one or more Subscribers. (A) ``Internal 
Distributors'' are Distributors that receive Nasdaq Basic data and 
then distribute that data to one or more Subscribers within the 
Distributor's own entity. (B) ``External Distributors'' are 
Distributors that receive Nasdaq Basic data and then distribute that 
data to one or more Subscribers outside the Distributor's own 
entity. See Equity 7, Section 147(d)(1).
    \11\ The additional $2 fee was introduced to defray additional 
costs incurred by Nasdaq when distributing Nasdaq Basic through an 
External Distributor that controls display of the product. See 
Securities Exchange Act Release No. 71507 (February 7, 2014), 79 FR 
8763 (February 13, 2014) (SR-NASDAQ-2014-011).
    \12\ See Equity 7 Pricing Schedule, Section 147(c)(1).
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    Although NLS was initially designed for general distribution to 
individual investors,\13\ a broker-dealer may elect to distribute this 
data to its registered representatives through an employer-provided 
workstation or software application. To allow for such usage, Nasdaq 
adopted a fee schedule for ``specialized usage'' of NLS not associated 
with distribution of data to the general investing public. In general, 
broker-dealers paying for specialized usage track either the number of 
Subscribers receiving data or the number of queries for the data, and 
pay the corresponding fee.
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    \13\ See Securities Exchange Act Release No. 82723 (February 15, 
2018), 83 FR 7812 (February 22, 2018) (SR-Nasdaq-2018-010) 
(explaining that ``NLS was designed to enable market-data 
`distributors to provide free access to the data contained in NLS to 
millions of individual investors via the internet and television' 
and was expected to `increase the availability of Nasdaq proprietary 
market data to individual investors.' '').
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    As an alternative to per-Subscriber or per-query fees, however, a 
broker-dealer may purchase an enterprise license for internal 
Subscribers to receive NLS, or Derived Data therefrom, through an 
external Distributor that controls display of the product. The fee is 
$365,000 per month for up to 16,000 internal Subscribers, plus $2 for 
each additional internal Subscriber over 16,000, the same fee structure 
as the enterprise license for the internal distribution of Nasdaq Basic 
to Professionals. A separate enterprise license must be purchased for 
each external Distributor that controls the display of the product. The 
enterprise license does not include distributor fees.
Proposed Fee Reduction for Nasdaq Basic and NLS Enterprise Licenses
    Nasdaq proposes to reduce its enterprise license fees for Nasdaq 
Basic and NLS to bolster its ability to compete effectively against 
other exchanges selling top-of-book market data products. Nasdaq faces 
fierce competition in the multi-sided market for exchange services, 
including the sale of all market data products. In addition, top-of-
book data products--those that provide last sale information such as 
NLS, or last sale and best bid and offer information like Nasdaq 
Basic--face vigorous direct competition from the top-of-book data 
products offered by other equities exchanges, which are substitutes.
    The value of a top-of-book product depends on the quality of the 
data and how well it approximates the consolidated National Best Bid 
and Offer (``NBBO'') disseminated by the SIPs--the better the 
approximation, in terms of time and number of stocks, the more useful 
the product.\14\ This usefulness is determined by the amount of order 
flow attracted by the exchange--the more order flow, the more quotes 
and trades, and the better the exchange data will be able to match the 
NBBO. Nasdaq faces vigorous competition for the sale of this data, 
including from the ``Best Quote and Trade'' (``BQT'') product sold by 
the NYSE-affiliated exchanges, and the Cboe One Summary Feed.\15\
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    \14\ Nasdaq understands that many customers that purchase SIP 
data do not also purchase Nasdaq Basic because they are closely-
related products. Where customers do buy both products, they may 
shift the extent to which they purchase one or the other based on 
price changes, by, for example, reducing the number of queries 
submitted for either product. The SIP constrains the price of Nasdaq 
Basic because no purchaser would pay an excessive price for Nasdaq 
Basic when similar data is also available from the SIP.
    \15\ Nasdaq Basic is not a substitute for the SIP in all use 
cases because Rule 603(c) of Regulation NMS (the ``Vendor Display 
Rule'') prohibits a broker-dealer from ``provid[ing], in a context 
in which a trading or order-routing decision can be implemented, a 
display of any information with respect to quotations for or 
transactions in an NMS stock without also providing, in an 
equivalent manner, a consolidated display for such stock.''
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    Nasdaq received customer feedback requesting that it lower the 
price of the professional licenses for its top-of-book products. This 
feedback prompted a reexamination of Nasdaq's four enterprise licenses 
for top-of-book data: (i) The license for internal Professional 
distribution of Nasdaq Basic to Professionals for $365,000 per month 
(the subject of this proposal); (ii) the license for external 
distribution of Nasdaq Basic to Professionals and Non-Professionals in 
the context of the brokerage relationship for $100,000 per month; \16\ 
(iii) the license for external distribution of NLS data to the General 
Investing Public for Display Usage for $41,500; \17\ and (iv) the 
license for internal and external distribution of top-of-book \18\ and 
depth-of-book \19\ products for $500,000 with a twelve-month 
commitment, or a month-to-month fee of $600,000.\20\
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    \16\ See Equity 7 Pricing Schedule, Section 147(b)(5).
    \17\ See Equity 7 Pricing Schedule, Section 139(b)(4).
    \18\ The top-of-book products distributed under this license are 
Nasdaq Basic, NLS and NLS Plus.
    \19\ The depth-of-book products distributed under this license 
are TotalView and Level 2.
    \20\ See Equity 7 Pricing Schedule, Section 132.
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    Fees for three of these four licenses have been reduced in the last 
several years. In 2016, Nasdaq lowered the fee for external 
distribution of Nasdaq Basic in the context of the brokerage

[[Page 66622]]

relationship from $350,000 to $100,000.\21\ Also in 2016, the Exchange 
reduced the monthly fee for the external distribution of NLS data from 
$50,000 to $41,500.\22\ In 2018, Nasdaq introduced an enterprise 
license that substantially lowered the cost of purchasing top-of-book 
and depth-of-book data together by replacing three separate enterprise 
licenses--$365,000 for internal distribution of Nasdaq Basic, $100,000 
for external distribution in a brokerage relationship, and $500,000 for 
distribution of depth-of-book products--with a single license for a 
monthly fee of $500,000, with a twelve-month service commitment.\23\
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    \21\ See Securities Exchange Act Release No. 79456 (December 2, 
2016), 81 FR 88716 (December 8, 2016) (SR-NASDAQ-2016-162) (noting 
that the ``price of data derived from Nasdaq Basic is constrained by 
the existence of multiple substitutes offered by numerous entities, 
including both proprietary data offered by other SROs or other 
entities, and non-proprietary data disseminated by Securities 
Information Processors (`SIPs').'').
    \22\ See Securities Exchange Act Release No. 77578 (April 11, 
2016), 81 FR 22344 (April 15, 2016) (SR-NASDAQ-2016-048).
    \23\ See Securities Exchange Act Release No. 83751 (July 31, 
2018), 83 FR 38428 (August 6, 2018) (SR-Nasdaq-2018-058).
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    In light of customer feedback and Nasdaq's history of lowering fees 
for top-of-book products, Nasdaq determined that the proposed fee will 
better position it to operate in the current competitive environment. 
Fees for the other three enterprise licenses have been lowered over the 
course of the last four years, while the license fee for internal 
professionals has not changed since the enterprise license was 
introduced in 2014.\24\ Nasdaq believes that this fourth fee reduction 
will allow it to continue to compete in the market for top-of-book 
products.
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    \24\ See Securities Exchange Act Release No. 71507 (February 7, 
2014), 79 FR 8763 (February 13, 2014) (SR-NASDAQ-2014-011).
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    The new enterprise license fee will substantially lower total and 
per-Subscriber costs for broker-dealers with approximately 5,962 or 
more internal Professional Subscribers. All current enterprise license 
purchasers will save the difference between the current base fee of 
$365,000 and the proposed fee of $155,000 (which is $210,000 per 
month), plus $2 times the number of internal Professional Subscribers 
over 16,000. A broker-dealer with 17,000 internal Professional 
Subscribers, for example, would save a total of $212,000 per month as 
compared to the current license,\25\ reducing average per-Subscriber 
monthly charges from $21.60 \26\ to $9.12.\27\
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    \25\ The broker-dealer would save the difference between 
$365,000 and $155,000 ($210,000), plus an additional $2,000 for the 
1,000 Professional Subscribers over 16,000.
    \26\ The hypothetical current average per-Subscriber monthly 
charge is estimated as the current fee of $365,000 plus $2,000 for 
the 1,000 Professional Subscribers over 16,000 divided by 17,000 
internal Professional Subscribers.
    \27\ The hypothetical per-Subscriber monthly charge for the 
Proposal is estimated as the flat fee of $155,000 divided by 17,000 
internal Professional Subscribers.
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    In addition, a number of the mid-size broker-dealers that currently 
have too few professional subscribers to benefit from the license would 
be able to achieve substantial savings at the new, lower rate. The 
``break even'' point--i.e., the point at which the average per-
Subscriber rate of a licensee falls below the per-Subscriber rate of 
$26--is currently 14,038 internal Professional Subscribers.\28\ Under 
the new fee schedule, broker-dealers with as few as 5,962 internal 
Professional Subscribers would be able to save money.\29\ A 
hypothetical broker-dealer with 10,000 internal Professional 
Subscribers would be able to save $105,000 per month,\30\ reducing per-
Subscriber fees from $26 \31\ to $15.50.\32\
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    \28\ See Securities Exchange Act Release No. 71507 (February 7, 
2014), 79 FR 8763 (February 13, 2014) (SR-NASDAQ-2014-011) 
(explaining that the $365,000 monthly fee for all internal 
subscribers, divided by $26 monthly fee for each internal 
Subscriber, is equal to 14,038).
    \29\ This estimated cutoff point is calculated as the Proposed 
license fee of $155,000 divided by the per-Subscriber rate of $26 
per month.
    \30\ Savings are calculated as follows: 10,000 internal 
Professional Subscribers multiplied by $26 per-Subscriber equals 
$260,000. The difference between $260,000 and $155,000 is $105,000.
    \31\ See Equity 7 Pricing Schedule, Section 147(b)(1).
    \32\ This figure is calculated as the proposed flat fee of 
$155,000 divided by 10,000 internal Professional Subscribers.
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    In addition to lowering Nasdaq's fees, the proposed rule change 
will allow users to lower internal administrative costs by eliminating 
the need to report monthly usage. Nasdaq does not have sufficient 
information about broker-dealer operations and costs to accurately 
estimate these savings, but believes that monthly savings in 
administrative expenditures--as well as the improved ability to project 
future expenditures achieved by eliminating audit liability for errors 
in reporting usage--to be substantial.
    Staff of the Commission's Division of Trading and Markets have 
indicated that self-regulatory organizations (``SROs'') proposing fee 
changes should provide ``the projected number of purchasers (including 
members, as well as non-members) of any new or modified product or 
service . . . .'' \33\ While any broker-dealer with approximately 5,962 
or more internal Subscribers will be able to benefit from the proposed 
license, Nasdaq does not know, and is unable to ascertain with 
precision, the number of internal Professional Subscribers utilized by 
various broker-dealers, nor can it anticipate the actions of its 
competitors in response to the lower enterprise license fee, and 
therefore cannot project precisely the number of expected purchasers. 
Nevertheless, judging from expressions of interest and Nasdaq's 
experience in the financial services industry, Nasdaq estimates that 
between fifteen and twenty broker-dealers worldwide may elect to 
purchase the license.\34\
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    \33\ See Division of Trading and Markets, U.S. Securities and 
Exchange Commission, ``Staff Guidance on SRO Filings Related to Fees 
(May 21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
    \34\ This estimate is based on customer conversations and the 
experience and judgment of Nasdaq staff.
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2. Statutory Basis

    The Exchange believes that its Proposal is consistent with Section 
6(b) of the Act,\35\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\36\ 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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    \35\ See 15 U.S.C. 78f(b).
    \36\ See 15 U.S.C. 78f(b)(4) and (5).
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    As a preliminary manner, the statutory basis for the current Nasdaq 
Basic and NLS enterprise licenses have already been explained in prior 
filings.\37\ The Proposal lowers fees for enterprise licenses that have 
already been shown to be consistent with Section 6(b) of the Act, and 
this analysis therefore focuses on the new, lower fees.\38\
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    \37\ See, e.g., Securities Exchange Act Release No. 81697 
(September 25, 2017), 82 FR 45639 (September 29, 2017) (SR-NASDAQ-
2017-095); Securities Exchange Act Release No. 72620 (July 16, 
2014), 79 FR 42572 (July 22, 2014) (SR-NASDAQ-2014-070); Securities 
Exchange Act Release No. 72153 (May 12, 2014), 79 FR 28575 (May 16, 
2014) (SR-NASDAQ-2014-045); Securities Exchange Act Release No. 
71507 (February 7, 2014), 79 FR 8763 (February 13, 2014) (SR-NASDAQ-
2014-011); see Securities Exchange Act Release No. 82723 (February 
15, 2018), 83 FR 7812 (February 22, 2018) (SR-Nasdaq-2018-010).
    \38\ The statutory bases for both the Nasdaq Basic and NLS 
enterprise licenses are identical. Both are top-of-book products 
sold to broker-dealers for internal distribution to Professionals. 
The fee structure and use requirements are currently the same for 
both, and will continue to be the same under the Proposal. The 
discussion contained herein therefore applies to both licenses.

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[[Page 66623]]

The Proposal Is an Equitable Allocation of Reasonable Dues, Fees and 
Other Charges
    As the Commission and courts \39\ have recognized, ``[i]f 
competitive forces are operative, the self-interest of the exchanges 
themselves will work powerfully to constrain unreasonable or unfair 
behavior.'' \40\ Accordingly, ``the existence of significant 
competition provides a substantial basis for finding that the terms of 
an exchange's fee proposal are equitable, fair, reasonable, and not 
unreasonably or unfairly discriminatory.'' \41\
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    \39\ 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) 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) (internal quotation 
marks omitted). 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.'' Id. (quoting Securities 
Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 
74,771 (December 9, 2008) (SR-NYSEArca-2006-21)).
    \40\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \41\ Id.
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    Nasdaq believes that competitive forces constrain the price of top-
of-book products on two independent and equally-sufficient grounds: (i) 
Competition among exchanges and the SIP for top-of-book data; and (ii) 
competition among trading platforms. The proposed fee change is a 
direct competitive response to this intense, multi-sided competition. 
We shall discuss each major aspect of this competition in turn.
Competition Over Top-of-Book Data Sales
    Nasdaq competes directly with other exchanges in the sale of top-
of-book products, which provide best bid and offer and last sale 
information for U.S. exchange-listed securities.
    Nasdaq Basic and NLS provide choices to broker-dealers and other 
data consumers by providing less than the quantum of data provided 
through the consolidated tape feeds, but at a lower price. Thus, these 
products provide broker-dealers and others with an option to use a 
lesser amount of data in circumstances where SEC Rule 603(c) does not 
require a broker-dealer to provide a consolidated display.\42\ All of 
the top-of-book proprietary products offered by the exchanges are 
readily substitutable for each other and, in most cases, with the 
consolidated information offered by the SIPs.
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    \42\ See 17 CFR 242.603(c).
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    All major exchange groups compete to sell top-of-book data. Nasdaq 
Basic provides data derived from liquidity within the Nasdaq market 
center and trades reported to the FINRA/Nasdaq TRF. The NYSE BQT feed 
disseminates top-of-book information from the NYSE, NYSE American, NYSE 
Arca and NYSE National exchanges.\43\ The Cboe One Summary Feed 
provides data from the four Cboe equities exchanges: BZX Exchange, BYX 
Exchange, EDGX Exchange and EDGA Exchange.\44\
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    \43\ See https://www.nyse.com/market-data/real-time/nyse-bqt.
    \44\ See https://markets.cboe.com/us/equities/
market_data_services/
#:~:text=Cboe%20Top%20is%20a%20real,time%20on%20a%20Cboe%20book.&text
=It%20is%20a%20real%2Dtime,time%20on%20a%20Cboe%20book. We note that 
Cboe recently proposed a fee reduction for top-of-book data as well. 
See Securities Exchange Act Release No. 86670 (August 14, 2019), 84 
FR 43207 (August 20, 2019) (SR-CboeBYX-2019-012).
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    Nasdaq, NYSE and Cboe compete on price and quality. Like Nasdaq, 
both NYSE \45\ and Cboe \46\ offer enterprise licenses for their top-of 
book feeds. Cboe touts its price in promotional literature,\47\ and 
reduced its fee for certain top-of-book customers just this year.\48\ 
All of these top-of-book data feeds, along with consolidated SIP data 
(outside of the time of execution, in which the use of consolidated SIP 
data is mandated by the Vendor Display Rule), are substitutes.\49\
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    \45\ See https://www.nyse.com/market-data/real-time/nyse-bqt.
    \46\ See https://markets.cboe.com/us/equities/market_data_services/cboe_one/.
    \47\ See https://markets.cboe.com/us/equities/
market_data_services/
#:~:text=Cboe%20Top%20is%20a%20real,time%20on%20a%20Cboe%20book.&text
=It%20is%20a%20real%2Dtime,time%20on%20a%20Cboe%20book (``The Cboe 
One Feed is 60% less expensive per professional user and more than 
85% less expensive for an enterprise license for professional users 
and non-professional users when compared to a similar competitor 
exchange product.'').
    \48\ See Securities Exchange Act Release No. 88221 (February 14, 
2020), 85 FR 9904 (February 20, 2020) (SR-CboeBYX-2020-007) (stating 
that ``the Exchange's top of book market data products are among the 
most competitively priced in the industry due to modest subscriber 
fees, and a lower Enterprise cap . . . .''). The filing included a 
table comparing its pricing to Nasdaq Basic.
    \49\ The exchange-based top-of-book feeds are not a full 
substitute for the consolidated data disseminated by the Securities 
Information Processors because the Vendor Display Rule prohibits a 
broker-dealer from ``provid[ing], in a context in which a trading or 
order-routing decision can be implemented, a display of any 
information with respect to quotations for or transactions in an NMS 
stock without also providing, in an equivalent manner, a 
consolidated display for such stock.'' Nevertheless, the SIP and 
exchange products are substitutes for most other use cases, as the 
exchange products closely follow the SIP.
---------------------------------------------------------------------------

    Top-of-book data can be used for many purposes--from a retail 
investor casually surveying the market to sophisticated market 
participants using it for a variety of applications, such as investment 
analysis, risk management, or portfolio valuation.
    The value of that data depends on its quality and how well it 
approximates the NBBO, which is determined by the amount of order flow 
attracted by the exchange--the more order flow, the more quotes and 
trades, and the better the exchange data will be able to match the 
NBBO.
    The fact that top-of-book products exist at all shows that they are 
substitutes for SIP data--it would be far easier for any consumer who 
requires data from all of the exchanges to purchase SIP data alone 
rather than consolidate multiple exchange feeds. It has been suggested, 
however, that market data products are complementary products \50\--
i.e., that a consumer who buys one product must buy the other, like a 
video game and a gaming console, to obtain a more useful product. The 
evidence, however, shows quite the opposite.\51\ If data products were 
complementary, all customers would be buying all direct feeds, with no 
substitutes or substitution. In fact, publically available data 
demonstrates that 45% of alternative trading systems (``ATSs'') \52\ do 
not buy any direct feeds, but rather use the SIP--some even reject free 
data. The 18% of ATSs that buy some direct feeds decide not to purchase 
others.\53\ Exchanges charge less for less valuable data, demonstrating 
price elasticity, to the point that some broker-dealers will not accept 
data from smaller exchanges with less order flow (even when that data 
is offered for no fee) due to the fixed developmental and systems costs 
incurred by firms to enable them to

[[Page 66624]]

receive and process data.\54\ Indeed, Nasdaq's own experience with 
sales of top-of-book feeds underscores their substitutability, as the 
customers whose feedback has motivated this price change inform Nasdaq 
that they will drop Nasdaq Basic in favor of a competing product unless 
a change is made. The top-of-book data feeds sold by the U.S. exchanges 
are therefore substitutes, and exchanges compete to sell them (as 
Nasdaq is attempting to do with this proposed fee reduction).
---------------------------------------------------------------------------

    \50\ See Letter from Ellen Greene, Managing Director, SIFMA, to 
Vanessa Counterman, Secretary, SEC at 5, n.14 (May 26, 2020), 
available at https://www.sec.gov/comments/s7-03-20/s70320-7235189-217109.pdf.
    \51\ See Phil Mackintosh, ``Dispelling the Complementary Product 
Theory for Market Data,'' (August 20, 2020), available at https://www.nasdaq.com/articles/dispelling-the-complementary-product-theory-for-market-data-2020-08-20.
    \52\ ATSs are venues which are not regulated as exchanges but 
nevertheless match buy and sell orders for customers.
    \53\ See Phil Mackintosh, ``Dispelling the Complementary Product 
Theory for Market Data,'' (August 20, 2020), available at https://www.nasdaq.com/articles/dispelling-the-complementary-product-theory-for-market-data-2020-08-20.
    \54\ A broker-dealer may decide not to accept ``free'' data 
because there is a cost to accepting such data and integrating it 
into its trading systems.
---------------------------------------------------------------------------

    Nasdaq's experience is consistent with findings by the Department 
of Justice (``DOJ'') that exchanges compete with each other for the 
sale of market data. In 2011, the DOJ analyzed a proposed transaction 
that would have resulted in a combination of Nasdaq and NYSE and found 
that it ``would have substantially eliminated competition for . . . 
real-time proprietary equity data products.'' \55\ Later that same 
year, in suing to block a possible combination between Deutsche 
B[ouml]rse and NYSE Euronext that would have brought Direct Edge within 
the same exchange group as NYSE, the DOJ cited a threat to competition 
in the market for real-time equity market data as one of the bases for 
its action.\56\
---------------------------------------------------------------------------

    \55\ See ``NASDAQ OMX Group Inc. and Intercontinental Exchange 
Inc. Abandon Their Proposed Acquisition of NYSE Euronext After 
Justice Department Threatens Lawsuit'' (May 16, 2011) (available at 
https://www.justice.gov/opa/pr/nasdaq-omx-group-inc-and-intercontinentalexchange-inc-abandon-their-proposed-acquisition-nyse).
    \56\ See Complaint, United States v. Deutsche B[ouml]rse AG and 
NYSE Euronext (Dec. 22, 2011) (available at https://www.justice.gov/atr/case-document/file/494146/download).
---------------------------------------------------------------------------

Platform Competition
    The evidence shows that total returns earned by the Exchange are 
constrained by competition from other exchanges and trading platforms. 
Nasdaq competes against other exchanges to attract order flow and 
trading activity, based on the prices, incentives, product quality, and 
other attributes that Nasdaq offers to traders. This competition 
powerfully constrains Nasdaq's competitive behavior, which is 
manifested through rebates to traders, innovation, and price decreases, 
among other things. Economic efficiency is therefore fostered by 
allowing Nasdaq the flexibility to determine its optimal prices across 
its portfolio of products, including market data, connectivity and 
trading services. Depending on a variety of factors, including the 
reasons for the change in market conditions, Nasdaq's optimal response 
to such changes can entail price reductions for some products or 
services, price increases for other products or services, and no price 
change for still others. Artificial regulatory constraints on Nasdaq's 
pricing can dampen competition and harm customers by constraining 
Nasdaq's ability to earn a predictable and reasonable return on its 
investments in products and technology, thus diminishing the incentive 
to invest in innovations and product enhancements that will benefit 
consumers.
    The fact that this market is competitive has long been recognized 
by the courts. As the D.C. Circuit stated in NetCoalition v. Securities 
and Exchange Commission, ``[n]o one disputes that competition for order 
flow is `fierce.' . . . `In 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' . . . .'' \57\ Within this environment, market participants 
can freely and often do shift their order flow among the Exchange and 
competing venues in response to changes in their respective pricing 
schedules.
---------------------------------------------------------------------------

    \57\ See NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) 
(quoting Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------

    Market data fees, including connectivity fees and other exchange 
fees, are constrained by competition among trading platforms. Firms 
like Nasdaq, NYSE, and Cboe are platform businesses that compete on a 
variety of interrelated dimensions, including the provision of trading 
services, market data, and connectivity services. Exchanges owned by 
these firms compete with each other to provide trading services, and 
with a variety of alternate trading platforms that host over-the-
counter trading. Such over-the-counter trading services are provided by 
a large number of variegated entities, including ``dark pools,'' 
multilateral organizations that ``pool'' the orders of traders and 
match them internally without displaying quotations.
    Guidance issued by Staff of the Commission's Division of Trading 
and Markets states that an assertion that ``an SRO's aggregate return 
across multiple product lines, such as transactions, market data, 
connectivity, and access, is constrained by competition at the platform 
level is insufficient unless substantiated with evidence demonstrating 
that the theory applies in fact to the fee at issue.'' \58\ Thus, Staff 
appears to be asserting that even if competition between trading 
platforms constrains the costs incurred by market participants, it is 
irrelevant unless it can be shown to constrain the particular fee at 
issue in the filing. As detailed above, the fee at issue in this filing 
is directly constrained by competition to sell top-of-book products, 
which is the impetus behind this filing. Moreover, because exchanges 
compete on the basis of both price and quality, the competition to 
attract orders to a trading platform is another aspect of the 
competition to sell top-of-book products, which can exist only as a 
byproduct of that competition. The quality of a top-of-book product 
reflects the liquidity of the exchange and time on the inside--i.e., 
order flow. The more order flow, the more quotes and trades, and the 
better the exchange data will be able to match the NBBO. However, 
because these products are substitutes, a customer can readily switch 
to a different exchange's product, even one of a lower quality, if fees 
are raised. They can also shift order flow toward a different product, 
and such increases in order flow in turn have the potential to boost 
the quality of the competing product that they select.
---------------------------------------------------------------------------

    \58\ See Division of Trading and Markets, U.S. Securities and 
Exchange Commission, ``Staff Guidance on SRO Filings Related to 
Fees'' (May 21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees.
---------------------------------------------------------------------------

    Nasdaq believes, however, that the narrow focus on the analysis of 
platform competition reflected in the Staff fee guidance misapprehends 
the analytical insights offered by that theory: The vast majority of 
market data consumers also provide the raw materials that are combined 
by an exchange into market data, and therefore stand on both sides of 
the platform. As a result, their overall cost of doing business with an 
exchange platform is a critical dimension on which exchanges compete 
with one another for those customers' trades, and imposing a 
governmental constraint on the revenues associated with one aspect of 
this competition will distort this competition by impairing the ability 
of exchanges to operate profitably, reducing their incentives to invest 
in innovations and other product improvements, among other things. 
Moreover, exchanges compete with one another, in part, based on the mix 
of products and services they offer, including the various prices and 
incentives they each offer to customers. Government regulations that 
artificially

[[Page 66625]]

constrain exchanges' ability to price their services will diminish 
competitive variation, reduce customer choice, and lead to 
anticompetitive effects that harm customers. For all of these reasons, 
Nasdaq believes that the analysis of the all-in costs of doing business 
with Nasdaq is highly relevant to an appropriate competitive analysis 
of the exchange marketplace. That said, Nasdaq believes that evidence 
of constraint upon the prices of market data in general, and top-of-
book products specifically, abounds, as described above and further 
described below.
    Figure 1 presents the trading shares by platform operator at the 
end of 2019, and shows that no single platform or platform operator 
accounts for even 25 percent of trading in U.S. equities, and that 
over-the-counter trading accounts for a larger share of all trades than 
any platform operator.
[GRAPHIC] [TIFF OMITTED] TN20OC20.001

    Many customers that purchase trading and other services from an 
exchange are sensitive to and concerned with the all-in price of 
trading.\59\ For such customers, what matters to their purchasing 
decisions is the total outlay relative to the quality of the various 
services obtained from an exchange, as compared to rival exchanges. 
Hence, a customer's willingness to interact with an exchange is 
sensitive to the all-in price of the various services purchased on that 
exchange compared to the all-in price available at other exchanges (as 
well as the relative quality of exchange services). Thus, the price and 
quality of any service, such as market data, should not be analyzed in 
isolation (i.e., separate from the price and quality of other services 
that a customer purchases from the exchange).
---------------------------------------------------------------------------

    \59\ See Statement of J. Ordover and G. Bamberger filed with the 
U.S. Securities and Exchange Commission, File No. SR-NASDAQ-2010-
174, on behalf of NASDAQ Stock Market, (Dec. 30, 2010), ] 38 (``Even 
if a trading platform had some unique information that is 
potentially valuable to (some) consumers, the total price of trading 
on that platform--which includes the price of market data available 
from the platform that the trader elects to purchase--is constrained 
by the total price of trading on rival platforms.''), available at 
https://www.sec.gov/rules/sro/nasdaq/2012/34-66724-ex3a.pdf.
---------------------------------------------------------------------------

    Because many customers are sensitive to the all-in price of 
trading, competition among trading platforms, including dark pools, can 
be expected to constrain the aggregate return each platform earns from 
the sale of the array of its products, including market data and 
connectivity services.\60\ Thus, for example, if an exchange increases 
the price of one service, thereby increasing the all-in price, 
competition from other platforms would be expected to force it to 
reduce the price (or increase the rebate) of another service (all else 
equal) to enable it to compete successfully with other trading 
platforms. Moreover, the low barriers to entry that exist in the market 
for trading platform services exert a further competitive constraint: 
This year alone, three new exchange

[[Page 66626]]

platforms have commenced operations or are expected to do so 
imminently.\61\
---------------------------------------------------------------------------

    \60\ See Phil Mackintosh, Who Pays for Price Discovery? 
(November 21, 2019), available at https://www.nasdaq.com/articles/who-pays-for-price-discovery-2019-11-21 (providing an analysis of 
the all-in cost per trade at Chart 3).
    \61\ The three new exchanges are the Long Term Stock Exchange 
(LTSE), the Members Exchange (MEMX) and the MIAX Pearl Equities 
exchange.
---------------------------------------------------------------------------

    A recent study described the inverse relationship between market 
data and the price of trading services, commenting that ``[e]xchanges 
have [an] incentive to cut their trading fees even below the perfectly 
competitive (i.e., zero profit) level in order to win market share and 
increase revenues from market data and co-location [and] 
connectivity,'' \62\ concluding that ``regular-hours trading revenues 
do not nearly cover exchange operating expenses.\63\ The study reported 
that exchange trading fees for high-volume traders are often slightly 
negative on a per-share per-side basis, which is consistent with 
exchanges competing intensely with one another based on the total cost 
of services in order to attract order flow.\64\
---------------------------------------------------------------------------

    \62\ See Eric Budish, et al., Will the Market Fix the Market? A 
Theory of Stock Exchange Competition and Innovation, University of 
Chicago, Becker Friedman Institute for Economics Working Paper No. 
2019-72, at 31 (May 2019), available at https://ssrn.com/abstract=3391461 (``Budish et al.'').
    \63\ Id. at 32.
    \64\ Id. at 34.
---------------------------------------------------------------------------

    The inverse relationship between market data and connectivity 
services and the all-in price of trading is demonstrated by an 
examination of trends in Nasdaq's revenue over an eight-year period. 
Between 2010 and 2018, Nasdaq revenue from market data (which includes 
both exchange data and other market non-exchange data products) 
increased from $85.4 million to $152.3 million, an increase of 78.4 
percent in dollar terms, and 54.9 percent in inflation-adjusted 
terms.\65\ Moreover, the growth in revenues from market data reflects 
the addition of revenue from the sale of new products, sales to new 
customers, incremental sales to existing customers, and price 
increases. Between 2010 and 2018, price increases accounted for only 
about 35 percent of the total increase in market data revenue. That is, 
about 65 percent of the increase in market data revenue reflects sales 
of new products, or increased sales to new and existing customers. 
Similarly, Nasdaq revenue from connectivity services increased from 
$103.2 million in 2010 to $167.6 million in 2018, an increase of 62.4 
percent in dollar terms, and 41.0 percent in inflation-adjusted terms.
---------------------------------------------------------------------------

    \65\ Based on internal Nasdaq data (inflation adjustment based 
on the All-Items Consumer Price Index).
---------------------------------------------------------------------------

    As revenue from market data and connectivity services increased, 
the all-in price of trading on Nasdaq fell. In inflation-adjusted 
terms, the increase in Nasdaq's market data and connectivity revenues 
almost exactly offset the decline in its trading revenues, which fell 
from $251.1 million in 2010 to $189.6 million in 2018, a decline of 
24.5 percent in dollar terms; adjusting for inflation, trading revenues 
fell by 34.4 percent. Nasdaq's total inflation-adjusted revenues from 
market data, connectivity, and trading services were $506.4 million in 
2010 and $509.5 million in 2018 (in 2018 dollars), an increase of less 
than one-tenth of one percent per year. Over the same period, trading 
dollar volume on Nasdaq's equity exchanges increased by over 50 
percent--from about $30.6 trillion in 2010 to $47.3 trillion in 2018. 
As a result, the average all-in cost of trading--that is, total Nasdaq 
revenues divided by total Nasdaq trading volume--fell by 24.9 percent 
between 2010 and 2018.\66\ In particular, the all-in cost per $100,000 
of trading volume fell from $1.44 in 2010 to $1.08 in 2018.\67\ As 
shown in Figure 2, despite the growth of market data and connectivity 
revenue between 2010 and 2018, the all-in cost of trading on Nasdaq's 
exchanges (measured per $100,000 of trading volume) declined 
substantially between 2010 and 2018.
---------------------------------------------------------------------------

    \66\ The all-in cost of trading relative to trading volume is 
the relevant metric because, in general, stock purchasers are 
indifferent to the number of shares they purchase, and thus the all-
in cost per share traded is not a relevant ``price.'' For example, 
an investor who wants to purchase $100,000 in stock will generally 
be indifferent as to whether the purchase represents 1,000 shares at 
$100 or 2,000 shares at $50.
    \67\ In 2010, Nasdaq revenue equaled 0.00144 percent of trading 
volume on the Nasdaq equity exchanges; in 2018, Nasdaq revenue 
equaled 0.00108 percent of trading volume on the Nasdaq equity 
exchanges (i.e., a decline of 24.9 percent). To make the figures 
easier to read, they are reported as cost per $100,000 of trading 
volume.

---------------------------------------------------------------------------

[[Page 66627]]

[GRAPHIC] [TIFF OMITTED] TN20OC20.002

This demonstrates that Nasdaq's revenues are constrained by competition 
from a variety of exchanges and other trading platforms, and that this 
competition reduced Nasdaq's all-in cost of trading between 2010 and 
2018.
    The constraint on price increases imposed by platform competition 
is also shown through an examination of revenue growth in U.S. equity 
market data. As shown in Figure 3, approximately two-thirds of this 
revenue growth reflects new customers, new products, and new sales to 
previous customers, not fee increases. Customers who had not purchased 
additional products or expanded existing services had seen costs 
increase by a compound annual growth rate (``CAGR'') of only 2.4%, not 
much more than the rate of inflation. Over that same time period, the 
capacity of Nasdaq's matching engine more than doubled, and latency 
fell drastically. A greater portion of Nasdaq's success in increasing 
revenue is therefore attributable to selling better products to more 
customers--the cornerstones of competition--rather than increasing 
fees. Thus, the portion of market data revenues associated with price 
increases shows an increase in the cost per $100,000 of trading volume 
of only 0.631% per year, powerful evidence that platform competition 
exerts a restraint not only of all-in prices, but also of this specific 
element of prices.\68\
---------------------------------------------------------------------------

    \68\ We noted above that Nasdaq's total inflation-adjusted 
revenues from market data, connectivity, and trading services 
together increased by less than one-tenth of one percent per year. 
The increase of 0.632% per year pertains only to that portion of 
market data revenues associated with price increases.

---------------------------------------------------------------------------

[[Page 66628]]

[GRAPHIC] [TIFF OMITTED] TN20OC20.003

    The evidence therefore shows that the trading platforms operated by 
the securities exchanges compete on the basis of price (as well as 
innovation and quality of service), and that competition constrains the 
ability of any platform to charge excessive fees across its platform 
offerings, including their market data products.
* * * * *
    Competition--both competition among trading platforms and in the 
sale of top-of-book market data products--constrains the price of top-
of-book market data, and provides a substantial basis for finding that 
the terms of an exchange's fee proposal are equitable, fair, 
reasonable, and not unreasonably or unfairly discriminatory. 
Competition among platforms constrains the price of market data through 
the interrelated competition for order flow. The price of top-of-book 
data is further constrained by direct competition among exchanges to 
sell top-of-book data, as illustrated by proposals to reduce fees for 
three of the four top-of-book enterprise licenses in the past several 
years: (i) The enterprise license for external distribution of Nasdaq 
Basic; \69\ (ii) the enterprise license for the external distribution 
of NLS; \70\ and (iii) the combined enterprise license for distribution 
of top-of-book and depth-of-book data.\71\ Nasdaq is not alone in 
lowering fees to compete against the other exchanges. Just this year, 
Cboe proposed a fee reduction for its top-of-book data.\72\ Competition 
among platforms and competition in the sale of specific market data 
products provide independent and equally-sufficient grounds for a 
finding that the price of top-of-book data products are constrained by 
competition.
---------------------------------------------------------------------------

    \69\ See Securities Exchange Act Release No. 79456 (December 2, 
2016), 81 FR 88716 (December 8, 2016) (SR-NASDAQ-2016-162) (noting 
that the ``price of data derived from Nasdaq Basic is constrained by 
the existence of multiple substitutes offered by numerous entities, 
including both proprietary data offered by other SROs or other 
entities, and non-proprietary data disseminated by Securities 
Information Processors (`SIPs').'').
    \70\ See Securities Exchange Act Release No. 77578 (April 11, 
2016), 81 FR 22344 (April 15, 2016) (SR-NASDAQ-2016-048).
    \71\ See Securities Exchange Act Release No. 83751 (July 31, 
2018), 83 FR 38428 (August 6, 2018) (SR-Nasdaq-2018-058).
    \72\ See Securities Exchange Act Release No. 86670 (August 14, 
2019), 84 FR 43207 (August 20, 2019) (SR-CboeBYX-2019-012).
---------------------------------------------------------------------------

The Proposal Does Not Permit Unfair Discrimination
    The Proposal is not unfairly discriminatory. As previously noted, 
the Nasdaq Basic enterprise license subject to this Proposal was shown 
to be non-discriminatory and otherwise consistent with the Act over six 
years ago.\73\ The only difference between that initial proposal and 
the change under consideration today is that the new license costs less 
and more broker-dealers will be able to benefit from the lower prices. 
Enterprise licenses in general have been widely recognized as an 
effective and not unfairly discriminatory method of distributing market 
data. This applies to Nasdaq's enterprise licenses as well as those 
offered by the NYSE and Cboe exchanges.\74\
---------------------------------------------------------------------------

    \73\ See Securities Exchange Act Release No. 71507 (February 7, 
2014), 79 FR 8763 (February 13, 2014) (SR-NASDAQ-2014-011) 
(initially adopting the current enterprise license).
    \74\ See, e.g., Sections 123(c) and 147(b); Securities Exchange 
Act Release No. 82182 (November 30, 2017), 82 FR 57627 (December 6, 
2017) (SR-NYSE-2017-60) (changing an enterprise fee for NYSE BBO and 
NYSE Trades).
---------------------------------------------------------------------------

    The Act does not prohibit all distinctions among customers; only 
discrimination that is unfair. It is not unfair discrimination to 
charge those Distributors that are able to reach the largest audiences 
of retail investors a lower fee for incremental investors in order to 
encourage the widespread distribution of market data. The instant 
Proposal, like other enterprise licenses, will cause top-of-book data 
to become more widely available to investors. It

[[Page 66629]]

will save current enterprise license purchasers the $210,000 per month 
difference between the current base fee of $365,000 and $155,000, plus 
$2 times the number of internal Professional Subscribers over 16,000. 
Broker-dealers that do not currently purchase the license will 
nevertheless benefit because the ``break even'' point--i.e., the point 
where the average per-Subscriber rate of a licensee falls below per-
Subscriber rate of $26--will fall from 14,038 to 5,962 internal 
Professional Subscribers.\75\ All purchasers of the proposed license 
will also be able to save in administrative expenditures by eliminating 
monthly reporting requirements and periodic review of such reports by 
compliance staff.
---------------------------------------------------------------------------

    \75\ See Securities Exchange Act Release No. 71507 (February 7, 
2014), 79 FR 8763 (February 13, 2014) (SR-NASDAQ-2014-011) 
(explaining that the $365,000 monthly fee for all internal 
subscribers, divided by $26 monthly fee for each internal 
Subscriber, is equal to 14,038).
---------------------------------------------------------------------------

    It is of particular importance now to expand the availability of 
top-of-book data. In recent months, retail investors have become 
increasingly interested in equities markets. Many of these retail 
investors will require advice and assistance from equity market 
professionals, and this license will enable broker-dealers that serve 
such clients to do so at a lower cost.
    Moreover, the proposed enterprise license will be subject to 
significant competition, and that competition will ensure that there is 
no unfair discrimination. Each Distributor will be able to accept or 
reject the license depending on whether it will or will not lower costs 
for that particular Distributor, and, if the license is not 
sufficiently competitive, the Exchange may lose market share.
    For all of these reasons, the Proposal is not unreasonably 
discriminatory.

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. With respect to inter-market 
competition--the competition among SROs--the Exchange's ability to 
price market data products is constrained by (i) competition among 
exchanges for top-of-book data; and (ii) platform competition. With 
respect to intra-market competition--the competition among consumers of 
exchange data--the Exchange expects the Proposal to promote competition 
through lower-cost data.
Intermarket Competition
    As discussed in detail under Statutory Basis, Nasdaq competes with 
other exchanges in the sale of top-of-book products. Because top-of-
book products provide less than the quantum of data provided through 
the consolidated tape feeds at a lower price, consumers have the option 
to use a lesser amount of data when SEC Rule 603(c) does not require a 
broker-dealer to provide a consolidated display.\76\
---------------------------------------------------------------------------

    \76\ See 17 CFR 242.603(c).
---------------------------------------------------------------------------

    Market data fees are also constrained by competition among trading 
platforms, which compete on a variety of dimensions, including the 
provision of trading services, market data, and connectivity services, 
and also with a variety of alternate trading platforms that host over-
the-counter trading. Because many customers are sensitive to the all-in 
price of trading, competition among trading platforms, including dark 
pools, can be expected to constrain the aggregate return each platform 
earns from the sale of the array of its products, including market data 
and connectivity services. This can be shown empirically by the inverse 
relationship between revenue from market data and connectivity 
services, the fall in the all-in cost of trading over an eight-year 
period, and other evidence discussed under Statutory Basis.
    In order to better compete for this segment of the market, the 
Exchange is proposing to reduce the cost of top-of-book data by 
lowering the enterprise license fee for internal Professional 
Subscribers. The proposed price reduction will not cause any 
unnecessary or inappropriate burden on intermarket competition, as 
other exchanges and data vendors are free to lower their prices to 
better compete with the Exchange's offering. Nasdaq's main competitors, 
in particular, offer directly competing enterprise licenses for their 
top-of-book products, and are readily able to lower enterprise license 
fees in response to Nasdaq. Indeed, the Exchange's decision to lower 
its enterprise license fee was itself generated by the need to compete 
with other exchanges. The Proposal may in turn generate competitive 
responses from other exchanges, enhancing overall competition.
Intramarket Competition
    The Proposal will not cause any unnecessary or inappropriate burden 
on intramarket competition. In fact, it will foster competition among 
broker-dealers by lowering costs for current licensees, while at the 
same time increasing the number of broker-dealers able to purchase that 
license. The current enterprise license, just like all of the 
enterprise licenses offered by Nasdaq's competitors, does not itself 
impose an unnecessary or inappropriate burden on intramarket 
competition. Relatively smaller broker-dealers have fewer internal 
Professional Subscribers and therefore operate with lower fixed costs, 
helping them compete with the larger broker-dealers. Moreover, the 
underlying fee of $26 per Professional Subscriber fee has itself been 
shown not to place an undue burden on competition, and, if that fee 
proves to be excessive, broker-dealers would be able to purchase top-
of-book data from one of the Exchange's competitors offering a 
substitute product. For all of these reasons, the Proposal will not 
place any unnecessary or inappropriate burden on intramarket 
competition.

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.\77\
---------------------------------------------------------------------------

    \77\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    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-2020-065 on the subject line.

[[Page 66630]]

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-2020-065. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NASDAQ-2020-065 and should be submitted 
on or before November 10, 2020.
---------------------------------------------------------------------------

    \78\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\78\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23148 Filed 10-19-20; 8:45 am]
BILLING CODE 8011-01-P


