Federal Register / Vol. 77, No. 68 / Monday, April 9, 2012 / Notices 21123 

4 15 U.S.C. 78f(b). 

5 15 U.S.C. 78f(b)(4). 

6 15 U.S.C. 78s(b)(3)(A)(ii). 

7 17 CFR 240.19b–4(f)(2). 

8 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2Securities Exchange Act Release No. 34–66398 

(February 15, 2012), 77 FR 10589 (February 22, 

2012). 

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 self-regulatory organization 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 

Currently, the BOX Fee Schedule lists 

fingerprint processing fees that are 

imposed on BOX Participants by the 

Financial Industry Regulatory 

Authority, Inc., (‘‘FINRA’’) in 

connection with participation in 

FINRA’s Web CRD registration system. 

The Exchange was recently notified by 

FINRA that, effective March 19, 2012, 

FINRA decreased the per card Initial 

Submission and Third Submission fees 

from $30.25 to $27.50. As such, the 

Exchange proposes to amend the BOX 

Fee Schedule to reflect this change. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with the 

requirements of Section 6(b) of the Act,4

in general, and Section 6(b)(4) of the 

Act,5 in particular, in that it provides for 

the equitable allocation of reasonable 

dues, fees, and other charges among its 

members and other persons using its 

facilities. The Exchange believes the 

proposed change is reasonable because 

the fees for fingerprint processing will 

now be lower than they previously 

were. The proposed change is equitable 

and not unfairly discriminatory because 

the new, lower fingerprint processing 

fees will apply to all eligible parties. 

Further, this fee is not being assessed or 

set by BOX or the Exchange, but by 

FINRA. 

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. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange has neither solicited 

nor received comments on the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change is filed for 

immediate effectiveness pursuant to 

Section 19(b)(3)(A)(ii) of the Exchange 

Act 6 and Rule 19b–4(f)(2) thereunder,7

because it establishes or changes a due, 

fee, or other charge applicable only to a 

member. As such, the proposed rule 

change is effective upon filing with the 

Commission. 

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend the rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

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 rulecomments@sec.gov. Please include File 

Number SR–BX–2012–023 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–BX–2012–023. 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 

a.m. and 3 p.m. Copies of the filing will 

also 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–BX– 

2012–023 and should be submitted on 

or before April 30, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2012–8430 Filed 4–6–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66731; File No. SR–NSCC– 

2012–02] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Order Approving 

Proposed Rule Change To Enhance Its 

Margining Methodology as Applied to 

Municipal and Corporate Bonds 

April 4, 2012. 

I. Introduction 

On February 1, 2012, the National 

Securities Clearing Corporation 

(‘‘NSCC’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change SR–NSCC– 

2012–02 pursuant to Section 19(b)(1) of 

the Securities Exchange Act of 1934 

(‘‘Act’’).1 The proposed rule change was 

published for comment in the Federal 

Register on February 22, 2012.2 The 

Commission received no comment 

letters. For the reasons discussed below, 


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21124 Federal Register / Vol. 77, No. 68 / Monday, April 9, 2012 / Notices 

3 In addition to those described in this filing, 

Clearing Fund components also include (i) a markto-market component that takes into account the 

difference between the contract price and market 

price for the net position of each security in a 

member’s portfolio through settlement; (ii) the 

Market Maker Domination component (‘‘MMDOM’’) 

is charged to Market Makers or firms that clear for 

them; (iii) a ‘‘special charge’’ in view of price 

fluctuations in or volatility or lack of liquidity of 

any security; (iv) an additional charge between 5– 

10% of a member’s outstanding fail positions; (v) 

a ‘‘specified activity charge’’ for transactions 

scheduled to settle on a shortened settlement cycle 

(i.e., less than T+3 or T+3 for ‘‘as-of’’ transactions); 

(vi) an additional charge that NSCC may require of 

members on surveillance status; and (vii) an 

‘‘Excess Capital Premium’’ that takes into account 

the degree to which a member’s collateral 

requirement compares to the member’s excess net 

capital by applying a charge if a member’s Required 

Deposit minus amounts applied from the charges 

described in (ii) and (iii) above is above its required 

capital. 

4 15 U.S.C. 78q–1(b)(3)(F). 

5 15 U.S.C. 78q–1. 

6 15 U.S.C. 78s(b)(2). 

7 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition and capital formation. 15 

U.S.C. 78c(f). 

8 17 CFR 200.30–3(a)(12). 

the Commission is granting approval of 

the proposed rule change. 

II. Description 

This rule change will enhance NSCC’s 

margining methodology as it applies to 

municipal and corporate bonds 

Proposal Overview 

A primary objective of NSCC’s 

clearing fund (‘‘Clearing Fund’’) is to 

have on deposit from each applicable 

member assets sufficient to satisfy losses 

that may otherwise be incurred by 

NSCC as the result of the default of the 

member and the resultant close out of 

that member’s unsettled positions under 

NSCC’s trade guaranty. Each member’s 

Clearing Fund required deposit is 

calculated daily pursuant to a formula 

set forth in Procedure XV of NSCC’s 

Rules, which formula is designed to 

provide sufficient funds to cover this 

risk of loss. The Clearing Fund formula 

accounts for a variety of risk factors 

through the application of a number of 

components, each described in 

Procedure XV.3

The volatility component or ‘‘VaR’’ is 

a core component of this formula and is 

designed to calculate the amount of 

money that may be lost on a portfolio 

over a given period of time and that is 

assumed would be necessary to 

liquidate the portfolio within a given 

level of confidence. Pursuant to 

Procedure XV, NSCC may exclude from 

this calculation net unsettled positions 

in classes of securities such as illiquid 

municipal or corporate bonds, whose 

volatility is amenable to generally 

accepted statistical analysis only in a 

complex manner. The volatility charge 

for such positions is determined by 

multiplying the absolute value of the 

positions by a predetermined percentage 

(‘‘haircut’’), which shall not be less than 

2%. 

In connection with its ongoing review 

of the adequacy and appropriateness of 

its margining methodologies, NSCC is 

amending Procedure XV of its Rules so 

that NSCC will apply this haircut-based 

margining methodology at a rate of no 

less than 2% as is currently permitted 

by Procedure XV to all municipal and 

corporate bonds processed through 

NSCC. The proposed rule change will 

make clear that to the extent NSCC 

deems appropriate NSCC may apply this 

haircut to any of the municipal and 

corporate bonds that it processes. As 

NSCC continues its ongoing review of 

the adequacy of its margining 

methodology in achieving the desired 

coverage, the proposed rule change will 

allow NSCC to apply a margin 

requirement to these instruments that it 

deems appropriate. 

NSCC reviews its risk management 

processes against applicable regulatory 

and industry standards, including, but 

not limited to: (i) The Recommendations 

for Central Counterparties 

(‘‘Recommendations’’) of the Committee 

on Payment and Settlement Systems 

and the Technical Committee of the 

International Organization of Securities 

Commissions (‘‘IOSCO’’) and (ii) the 

securities laws and rulemaking 

promulgated by the Commission. In 

conformance with Recommendations 3 

and 4 of the IOSCO Recommendations 

and with the Commission rules 

proposed under the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act of 2010, specifically proposed Rule 

17Ad–22(b)(1) addressing measurement 

and management of credit exposures, 

this proposed rule change will assist 

NSCC in its continuous efforts to ensure 

the reliability of its margining 

methodology and will limit NSCC’s 

exposures to losses by allowing NSCC to 

apply a margin requirement to the 

corporate and municipal bonds it clears 

that captures the risk characteristics, 

which are asset class specific, of these 

instruments, including historical price 

volatility, market liquidity, and 

idiosyncratic risk. 

Implementation Timeframe 

Members will be advised of the 

implementation date through issuance 

of an NSCC Important Notice. 

Proposed Rule Changes 

In order to make clear that to the 

extent NSCC deems appropriate it may 

apply a haircut-based margining 

methodology to all municipal and 

corporate bonds processed at NSCC, 

NSCC is amending Sections I(A)(1)(a)(ii) 

and I(A)(2)(a)(ii) of Procedure XV, as 

marked on Exhibit 5 to the proposed 

rule filing, by removing the qualifier 

‘‘illiquid’’ before ‘‘municipal or 

corporate bonds.’’ No other changes to 

the Rules are contemplated by this 

proposed rule change. 

III. Discussion 

Section 17A(b)(3)(F) of the Act 4

requires, among other things, that the 

rules of a clearing agency be designed, 

to assure the safeguarding of securities 

and funds which are in the custody or 

control of such clearing agency or for 

which it is responsible and in general to 

protect investors and the public interest. 

As a central counterparty, NSCC 

occupies an important role in the 

securities settlement system by 

interposing itself between 

counterparties to financial transactions, 

thereby reducing the risk faced by 

members and contributing to global 

financial stability. The effectiveness of a 

central counterparty’s risk controls and 

the adequacy of its financial resources 

are critical to achieving these riskreducing goals. Because the proposed 

rule change will assist NSCC in its 

continuous efforts to ensure the 

reliability of its margining methodology 

and will limit NSCC’s exposures to 

losses by allowing it to apply a margin 

requirement to corporate and municipal 

bonds cleared at NSCC that better 

addresses the risk characteristics of 

these instruments, the proposed rule 

change should help assure the 

safeguarding of securities and funds 

which are in the custody or control of 

NSCC or for which it is responsible, and 

in general, protect investors and the 

public interest and therefore is 

consistent with the requirements of 

Section 17A(b)(3)(F) of the Act. The 

proposed rule change is not inconsistent 

with the existing rules of NSCC, 

including any other rules proposed to be 

amended. 

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposal is 

consistent with the requirements of the 

Act and in particular with the 

requirements of Section 17A of the Act 5

and the rules and regulations 

thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,6 that the 

proposed rule change (File No. SR– 

NSCC–2012–02) be, and hereby is, 

approved.7


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Federal Register / Vol. 77, No. 68 / Monday, April 9, 2012 / Notices 21125 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Compare NASDAQ Rule 7011 (top-of-book 

consolidated data) and NASDAQ Rule 7047 (top-ofbook NASDAQ-only data). 

4See NASDAQ Rule 7023. 

5See NASDAQ Rules 7044 (Market Pathfinders), 

7048 (Custom Data Feeds), and 7057 (NASDAQ 

MatchView). 

6See NASDAQ Rule 7023(a)(3)(A). 

7See NASDAQ Rule 7023(a)(4). 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Kevin O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–8463 Filed 4–6–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66724; File No. SR– 

NASDAQ–2012–044] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Modify the 

Fees Applicable to Non-Display Usage 

of Certain NASDAQ Depth-of-Book 

Market Data 

April 3, 2012. 

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 March 26, 

2012, The NASDAQ Stock Market LLC 

(‘‘NASDAQ’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by NASDAQ. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASDAQ is filing this proposed 

change to modify the fees applicable to 

Non-Display Usage of certain NASDAQ 

Depth-of-Book market data. The text of 

the proposed rule change is available at 

nasdaq.cchwallstreet.com, at 

NASDAQ’s principal office, 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, 

NASDAQ 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. 

NASDAQ 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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Growth in Use of Non-Displayed Data. 

The implementation of Regulation NMS 

in 2006 and 2007 triggered a dramatic 

change in the composition, speed, and 

consumption of market data products in 

U.S. equities trading. Regulation NMS 

spurred the development and 

proliferation of proprietary data 

products by liberalizing SEC Rule 603, 

allowing self-regulatory organizations to 

offer on a proprietary basis data that 

previously was confined to national 

market system plans, and permit 

investors to use this proprietary data in 

circumstances where consolidated data 

previously was required. Regulation 

NMS also drove market participants to 

increase trading speed and, by 

necessity, the speed of market data feeds 

by requiring in Rule 611 that all market 

participants compete to access a limited 

set of protected quotations. As a result, 

some market participants and exchanges 

have used Depth-of-Book data to 

identify liquidity in fragmented 

markets. 

Technological advancements and 

their use by increasingly sophisticated 

market participants have intensified the 

changes brought about by Regulation 

NMS. For example, the prevalence and 

importance of co-location has grown 

rapidly as market participants seek to 

access protected quotes faster than their 

competitors. Also, markets and market 

participants continually seek expanded 

bandwidth options to communicate an 

ever-increasing number of trading 

messages without significant latencies 

and improvement of determinism. 

Connectivity offerings have multiplied 

as new networks and technologies come 

on line. 

As technology, automation, speed, 

and other aspects of trading have 

evolved, so too has market data 

consumption. No longer is trading and 

investing dominated by individuals 

responding to market data displayed on 

trading screens by manually entering 

quotes and trades into the markets. 

Instead, the vast majority of trading is 

done by firms leveraging powerful 

servers running sophisticated 

algorithms and consuming massive 

quantities of data without displaying 

that data to individual traders. While 

certain groups of investors, including 

retail investors, continue to view 

traditional market data displays, their 

orders are generally processed, 

delivered, and executed by firm servers 

using non-displayed data. Non-Display 

Usage is used not only for automated 

order generation and program trading, 

but also to provide reference prices for 

algorithmic trading and order routing; 

and for various back office processes, 

including surveillance, order 

verification, and risk management 

functions. 

NASDAQ Market Data Pricing. 

NASDAQ’s pricing model for market 

data products must keep pace with 

changes in data consumption patterns in 

order to allocate fees and charges fairly 

among Subscribers. NASDAQ’s pricing 

has evolved over time in response to 

previous changes in market data 

consumption, and it now includes 

numerous factors for setting fees. 

Generally, NASDAQ allocates market 

data fees among Subscribers based on 

the data elements consumed, including 

top-of-book,3 Depth-of-Book,4 and other, 

more sophisticated data products.5

NASDAQ also distinguishes between 

different sets of securities, NASDAQlisted securities versus securities listed 

on other markets for which NASDAQ’s 

data plays a different, often more 

limited, role. Moreover, NASDAQ has 

long followed industry practice by 

distinguishing between real-time and 

delayed data, allocating higher fees to 

real-time usage and lower or no fees to 

delayed data usage. Also, since 1999 

NASDAQ has distinguished between 

Professional and Non-Professional 

Subscribers, offering lower fees to NonProfessional Subscribers in order to 

encourage use by average investors and 

also recognizing that Professional 

Subscribers make heavier use of the 

same data feeds.6 These four 

distinctions have existed in tandem for 

many years. 

Since the mid-2000s, in response to 

changes driven by Regulation NMS, 

NASDAQ has added new considerations 

to its pricing. Thus, in 2005, NASDAQ 

amended its Distributor fee schedule to 

distinguish between distributions [sic] 

that is Internal (redistribution within an 

entity that receives NASDAQ market 

data) versus External (redistribution 

outside that entity) to the Distributor.7

Also, in 2005 NASDAQ began 

differentiating between Direct Access 

and Indirect Access, charging more for 

firms that access data directly from 

NASDAQ based on the enhanced speed 

and simplicity for Subscribers and the 


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