Federal Register / Vol. 77, No. 69 / Tuesday, April 10, 2012 / Notices 21609 

9 15 U.S.C. 78s(b)(3)(A)(ii). 

10 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

introducing Supplemental Orders to the 

market. 

Finally, NASDAQ 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, 

NASDAQ 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 

numerous alternatives exist to the 

execution and routing services offered 

by NASDAQ, if NASDAQ increases its 

fees to an excessive extent, it will lose 

customers to its competitors. 

Accordingly, NASDAQ believes that 

competitive market forces help to 

ensure that the fees it charges for 

execution and routing are reasonable, 

equitably allocated, and nondiscriminatory. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

NASDAQ does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act, as amended. 

Because the market for order and 

routing execution is extremely 

competitive, members may readily opt 

to disfavor NASDAQ’s execution 

services if they believe that alternatives 

offer them better value. Accordingly, 

NASDAQ does not believe that the 

proposed changes will unfairly affect 

the ability of members or competitors to 

maintain their competitive standing in 

the financial markets. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor 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.9 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 

necessary or appropriate in the public 

interest, for the protection of investors, 

or 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 rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2012–040 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–NASDAQ–2012–040. 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 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–2012–040 and should be 

submitted on or before May 1, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–8581 Filed 4–9–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66740; File No. SR– 

NASDAQ–2012–042] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Re-Organize 

NASDAQ’s Rules Governing the Fees 

Applicable to NASDAQ’s Depth-ofBook Market Data 

April 5, 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 28, 

2012, The NASDAQ Stock Market LLC 

(‘‘NASDAQ’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III 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 the Substance 

of the Proposed Rule Change 

NASDAQ proposes to: (1) Re-organize 

NASDAQ’s rules governing the fees 

applicable to NASDAQ’s Depth-of-Book 

market data; and (2) establish an 

Enterprise License for Non-Professional 

Usage of certain NASDAQ Depth-ofBook market data. 

The text of the proposed rule change 

is available at http:// 

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 


srobinson on DSK4SPTVN1PROD with NOTICES
21610 Federal Register / Vol. 77, No. 69 / Tuesday, April 10, 2012 / Notices 

3See NASDAQ Rule 7023(a)(1)((D). See also 

Securities Exchange Act Release No. 34–61700 

(Mar. 12, 2010), 75 FR 13172 (Mar. 18, 2010). 

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 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

NASDAQ is proposing two changes to 

the fees governing distribution of 

NASDAQ market data: (1) Re-organize 

NASDAQ’s rules governing the fees 

applicable to NASDAQ’s Depth-of-Book 

market data; and (2) establish an 

Enterprise License for Non-Professional 

Usage of certain NASDAQ Depth-ofBook market data. 

Re-Organizing NASDAQ Rules 7017 and 

7023 

NASDAQ proposes to create a single 

rule containing all fees applicable to 

NASDAQ Depth-of-Book market data. 

To accomplish this, NASDAQ will 

combine NASDAQ Rule 7017 which 

governs the NASDAQ Quotation Data 

Service or NQDS and NASDAQ Rule 

7023 which governs NASDAQ 

TotalView and NASDAQ OpenView. In 

doing so, NASDAQ will collect and 

improve all existing defined terms and 

add several new defined terms where 

needed to enhance the clarity of 

NASDAQ’s rules. None of these 

proposed modifications will change the 

substance of NASDAQ’s rules or the 

manner in which NASDAQ applies the 

existing fees for NASDAQ Depth-ofBook data. 

New Rule 7023 begins by defining the 

relevant terminology in subsection (a). 

New Rule 7023(a)(1) defines in one 

place the three Depth-of-Book feeds that 

NASDAQ offers: NASDAQ Level 2 

(formerly known as the NASDAQ 

Quotation Data Service or NQDS) 

currently defined in Rule 7017(a); 

NASDAQ TotalView, currently defined 

in Rule 7023(a), and NASDAQ 

OpenView, currently defined at Rule 

7023(c). 

NASDAQ is proposing to rename 

NQDS as NASDAQ Level 2, and to 

clarify the definition of NASDAQ Level 

2 without substantively modifying its 

content or cost. NQDS (now Level 2) 

currently consists of three components: 

individual market maker quotations 

from NASDAQ, NASDAQ Level 1, and 

the Last Sale Information Service (‘‘Last 

Sale’’). The NASDAQ Level 1 and Last 

Sale Services are consolidated data 

feeds disseminated by the network 

processor for NASDAQ-listed stocks. 

The current monthly fee for NASDAQ 

Level 1 is $20 per Professional 

Subscriber and $1 per Non-Professional 

Subscriber for NASDAQ Level 1 and 

Last Sale. However, because NASDAQ 

Level 1 and Last Sale are consolidated 

feeds, the fees for those services are 

remitted to the network processor rather 

than to the Exchange. 

The current fee for NASDAQ Level 2, 

listed in Rule 7017(a) and (b), is $50 

monthly for Professional Subscribers 

and $10 monthly for Non-Professional 

Subscribers. Of that $50 for Professional 

Subscribers, $20 is attributable to 

NASDAQ Level 1; and of that $10 for 

Non-Professional Subscribers, $1 is 

attributable to NASDAQ Level 1. Thus, 

the current monthly fee attributable to 

individual market maker quotations 

from NASDAQ is $30 for Professional 

Subscribers and $9 for Non-Professional 

Subscribers. 

Going forward, new NASDAQ Rule 

7023(a)(1)(A) will properly define 

NASDAQ Level 2 to include only 

individual market maker quotations 

from NASDAQ (thereby excluding the 

consolidated data feeds), and new Rule 

7023(b)(1) will properly list the monthly 

fee of $30 for Professional Subscribers 

and $9 for Non-Professional Subscribers 

(thereby excluding the fees for the 

consolidated data feeds). As a result, 

there will be no impact to current or 

future Subscribers either in the price or 

content of NASDAQ Level 2. 

New NASDAQ Rule 7023(a)(2) 

contains new definitions of Display and 

Non-Display Usage of Depth-of-Book 

data based on the distinction already 

reflected throughout current NASDAQ 

Rule 7023, most clearly at subsection 

(a)(1)(D). NASDAQ has assessed fees for 

Display and Non-Display Usage since 

2006, although it was not until 2010 that 

NASDAQ assessed different fees based 

on the two different usage methods.3

New NASDAQ Rule 7023(a)(3) 

defines and distinguishes between 

Professional and Non-Professional 

Subscribers, carrying forward the same 

definition set forth in current NASDAQ 

Rule 7017(c). 

New NASDAQ Rule 7023(a)(4) 

defines Distributor and distinguishes 

between Internal and External 

Distribution. 

New NASDAQ Rule 7023(a)(5) 

defines and distinguishes between 

Direct Access and Indirect Access based 

on the existing definition and 

distinction set forth at NASDAQ Rule 

7019(d). This will not change the 

application of NASDAQ rules or fees. 

New NASDAQ Rule 7023(a)(6) 

defines Controlled Device with minor, 

stylistic changes to the definition set 

forth at existing NASDAQ Rule 7023(b). 

The stylistic changes are intended only 

to improve the clarity and not to change 

the application or impact of the defined 

term. 

New NASDAQ Rule 7023(b) collects 

and reorganizes the Subscriber fees for 

NASDAQ Level 2, NASDAQ TotalView, 

and NASDAQ OpenView. Subsection 

(b)(1)(A) and (b)(1)(B) set forth the 

monthly Non-Professional and 

Professional Subscriber fees currently 

set forth in NASDAQ Rule 7017(a) and 

(b). The fee for Professional usage of 

NASDAQ Level 2 will appear lower by 

$20 (down from $50 to $30) per month 

because (as stated above) NASDAQ is 

removing the $20 monthly fee for 

NASDAQ Level 1 that previously had 

been combined in the fee for NASDAQ 

Level 2. The fee for Non-Professional 

usage of Level 2 will also appear lower 

by $1 (from $10 to $9) because 

NASDAQ is removing the $1 fee for 

NASDAQ Level 1 which also had been 

combined with the fee for NASDAQ 

Level 2. New NASDAQ Rule 

7023(b)(1)(C) states clearly that the fees 

for NASDAQ Level 1 and NASDAQ 

Level 2 are completely separate, as they 

have been and should be. The feeds 

themselves also have been and will 

remain separately available for the same 

monthly Subscriber fees. 

The Subscriber fees for NASDAQ 

TotalView and NASDAQ OpenView are 

now set forth at NASDAQ Rule 

7023(b)(2) and (b)(3) in the same form 

as currently set forth in NASDAQ Rule 

7023(a) and (c). 

New NASDAQ Rule 7023(c) sets forth 

the fee caps generally referred to as 

Enterprise Licenses. Subsections (c)(1), 

(c)(2), and (c)(4) reflect the enterprise 

licenses currently set forth in NASDAQ 

Rule 7023(a)(1)(C) and (D). Current Rule 

7023(a)(1)(E) is being modified and 

moved to new NASDAQ Rule 7023(c)(3) 

as described in more detail below in the 

second section of this proposed rule 

change. 

New NASDAQ Rule 7023(d) and (e) 

are repeated almost verbatim from 

current Rule 7023(a)(2) and (d). 

NASDAQ is proposing to make minor, 

stylistic changes to those provisions, 

which will have no impact on the 

application of the rule. 

With the exception of those 

provisions identified above and 

described in detail below, the 

elimination of NASDAQ Rule 7017 and 

the proposed changes to NASDAQ Rule 

7023 are technical and administrative 

changes that will not impact the fees 

assessed to any Subscriber. 


srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 69 / Tuesday, April 10, 2012 / Notices 21611 

4NASDAQ previously offered the same optional 

Enterprise License on a pilot basis. See Securities 

Exchange Act Release No. 63892 (Feb. 11, 2011); 76 

FR 9391 (Feb. 17, 2011) (SR–NASDAQ–2011–021); 

Securities Exchange Act Release No. 63084 (Oct. 13, 

2010); 75 FR 64379 (Oct. 19, 2010) (SR–NASDAQ– 

2010–125). See also Securities Exchange Act 

Release No. 62908 (Sept. 14, 2010); 75 FR 57321 

(Sept. 20, 2010) (SR–NASDAQ–2010–111). The 

proposed Depth Enterprise License will be a 

permanent rule rather than a pilot. 

5NASDAQ relies on Distributor self-reporting of 

usage rather than on individual contact with each 

end-user Subscriber. NASDAQ permits Distributors 

to designate an entire Subscriber population as 

Non-Professional provided that the number of 

Professional Subscribers within that Subscriber 

population does not exceed ten percent (10%) of 

the total population. 

6 15 U.S.C. 78f. 

7 15 U.S.C. 78f(b)(4). 

8Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496 (June 29, 2005). 

Depth-of-Book Enterprise License for 

Non-Professional Usage 

New NASDAQ Rule 7023(c)(3) will 

offer an optional Enterprise License for 

unlimited Non-Professional Usage of 

NASDAQ Level 2, NASDAQ TotalView, 

or NASDAQ OpenView for certain 

NASDAQ members. Specifically, 

Distributors that are also broker-dealers 

registered under the Act can choose to 

pay a fee of $325,000 per month that 

covers all Non-Professional Usage fees 

to Subscribers with whom the firm has 

a brokerage relationship.4 This Depthof-Book Enterprise License Fee includes 

Non-Professional Usage fees, but does 

not include Distributor fees. Nonbroker-dealer vendors and application 

service providers are not eligible for the 

enterprise license; such firms typically 

pass through the cost of market data 

Subscriber fees to their customers.5

NASDAQ continues to seek broader 

distribution of Depth-of-Book data and 

to reduce the cost of providing Depthof-Book data to larger numbers of 

investors. In the past, NASDAQ has 

accomplished this goal in part by 

offering similar enterprise licenses for 

Professional and Non-Professional 

Usage of TotalView which contains the 

full Depth-of-Book data for the 

NASDAQ Market Center Execution 

System. NASDAQ believes that the 

adoption of enterprise licenses has led 

to greater distribution of market data, 

particularly among Non-Professional 

Subscribers. 

Based on input from market 

participants, NASDAQ believes that this 

increase in distribution is attributable in 

part to the relief it provides distributors 

from the NASDAQ requirement that 

distributors count and report each NonProfessional Subscriber of NASDAQ 

Depth-of-Book data. In addition to 

increased administrative flexibility, 

enterprise licenses also encourage 

broader distribution by firms that are 

currently over the fee cap as well as 

those that are approaching the cap and 

wish to take advantage of the benefits of 

the program. Further, NASDAQ believes 

that capping fees in this manner creates 

goodwill with broker-dealers and 

increases transparency for retail 

investors. 

The Depth-of-Book Enterprise License 

Fee covers usage fees for data received 

directly from NASDAQ as well as data 

received from third-party vendors (e.g., 

Bloomberg, Thomson-Reuters, etc.). 

Upon joining the program, firms may 

inform third-party market data vendors 

they utilize (through a NASDAQprovided form) that, going forward, 

depth data usage by the broker-dealer 

may be reported to NASDAQ on a nonbillable basis. This structure attempts to 

address a long-standing concern that 

broker-dealers are over-billed for market 

data consumed by one person through 

multiple market-data display devices. 

At the same time, the proposed billing 

structure will continue to provide 

NASDAQ with accurate reporting 

information for purposes of usage 

monitoring and auditing. 

The proposed Depth-of-Book 

Enterprise License Fee is completely 

optional and does not replace existing 

enterprise license fee alternatives set 

forth in Rule 7023. Additionally, the 

proposal does not impact individual 

usage fees for any product or raise the 

costs of any Subscriber of any NASDAQ 

data product. To the contrary, it 

provides broker-dealers with an 

additional approach to providing more 

NASDAQ data at a fixed cost. 

b. [sic] Statutory Basis 

NASDAQ believes that the proposed 

rule change is consistent with the 

provisions of Section 6 of the Act,6 in 

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

Act,7 in particular, in that it provides an 

equitable allocation of reasonable fees 

among Subscribers and recipients of 

NASDAQ data. In adopting Regulation 

NMS, the Commission granted selfregulatory organizations and brokerdealers increased authority and 

flexibility to offer new and unique 

market data to the public. It was 

believed that this authority would 

expand the amount of data available to 

consumers, and also spur innovation 

and competition for the provision of 

market data. 

The Commission concluded that 

Regulation NMS—by deregulating the 

market in proprietary data—would itself 

further the Act’s goals of facilitating 

efficiency and competition: 

[E]fficiency is promoted when brokerdealers who do not need the data beyond the 

prices, sizes, market center identifications of 

the NBBO and consolidated last sale 

information are not required to receive (and 

pay for) such data. The Commission also 

believes that efficiency is promoted when 

broker-dealers may choose to receive (and 

pay for) additional market data based on their 

own internal analysis of the need for such 

data.8

By removing ‘‘unnecessary regulatory 

restrictions’’ on the ability of exchanges 

to sell their own data, Regulation NMS 

advanced the goals of the Act and the 

principles reflected in its legislative 

history. If the free market should 

determine whether proprietary data is 

sold to broker-dealers at all, it follows 

that the price at which such data is sold 

should be set by the market as well. 

Level 2, TotalView and OpenView are 

precisely the sort of market data product 

that the Commission envisioned when it 

adopted Regulation NMS. 

On July 21, 2010, President Barack 

Obama signed into law H.R. 4173, the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 

(‘‘Dodd-Frank Act’’), which amended 

Section 19 of the Act. Among other 

things, Section 916 of the Dodd-Frank 

Act amended paragraph (A) of Section 

19(b)(3) of the Act by inserting the 

phrase ‘‘on any person, whether or not 

the person is a member of the selfregulatory organization’’ after ‘‘due, fee 

or other charge imposed by the selfregulatory organization.’’ As a result, all 

SRO rule proposals establishing or 

changing dues, fees, or other charges are 

immediately effective upon filing 

regardless of whether such dues, fees, or 

other charges are imposed on members 

of the SRO, non-members, or both. 

Section 916 further amended paragraph 

(C) of Section 19(b)(3) of the Act to read, 

in pertinent part, ‘‘At any time within 

the 60-day period beginning on the date 

of filing of such a proposed rule change 

in accordance with the provisions of 

paragraph (1) [of Section 19(b)], the 

Commission summarily may 

temporarily suspend the change in the 

rules of the self-regulatory organization 

made thereby, 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 this title. If the Commission 

takes such action, the Commission shall 

institute proceedings under paragraph 

(2)(B) [of Section 19(b)] to determine 

whether the proposed rule should be 

approved or disapproved.’’ 

The decision of the United States 

Court of Appeals for the District of 

Columbia Circuit in NetCoalition v. 


srobinson on DSK4SPTVN1PROD with NOTICES
21612 Federal Register / Vol. 77, No. 69 / Tuesday, April 10, 2012 / Notices 

SEC, No. 09–1042 (DC Cir. 2010), 

although reviewing a Commission 

decision made prior to the effective date 

of the Dodd-Frank Act, 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, at 15 (quoting 

H.R. Rep. No. 94–229, at 92 (1975), as 

reprinted in 1975 U.S.C.C.A.N. 321, 

323). The court’s conclusions about 

Congressional intent are therefore 

reinforced by the Dodd-Frank Act 

amendments, which create a 

presumption that exchange fees, 

including market data fees, may take 

effect immediately, without prior 

Commission approval, and that the 

Commission should take action to 

suspend a fee change and institute a 

proceeding to determine whether the fee 

change should be approved or 

disapproved only where the 

Commission has concerns that the 

change may not be consistent with the 

Act. 

For the reasons stated above, 

NASDAQ believes that the proposed 

fees are fair and equitable, and not 

unreasonably discriminatory. As 

described above, the proposed fees are 

based on pricing conventions and 

distinctions that exist in NASDAQ’s 

current fee schedule, and the fee 

schedules of other exchanges. These 

distinctions (top-of-book versus Depthof-Book, Professional versus nonProfessional Subscribers, Direct versus 

Indirect Access, Internal versus External 

Distribution) are each based on 

principles of fairness and equity that 

have helped for many years to maintain 

fair, equitable, and not unreasonably 

discriminatory fees, and that apply with 

equal or greater force to the current 

proposal. 

As described in greater detail below, 

if NASDAQ has calculated improperly 

and the market deems the proposed fees 

to be unfair, inequitable, or 

unreasonably discriminatory, firms can 

diminish or discontinue the use of their 

data because the proposed fee is entirely 

optional to all parties. Firms are not 

required to purchase Depth-of-Book data 

or to utilize any specific pricing 

alternative if they do choose to purchase 

Depth-of-Book data. NASDAQ is not 

required to make Depth-of-Book data 

available or to offer specific pricing 

alternatives for potential purchases. 

NASDAQ can discontinue offering a 

pricing alternative (as it has in the past) 

and firms can discontinue their use at 

any time and for any reason (as they 

often do), including due to their 

assessment of the reasonableness of fees 

charged. NASDAQ continues to create 

new pricing policies aimed at increasing 

fairness and equitable allocation of fees 

among Subscribers, and NASDAQ 

believes this is another useful step in 

that direction. 

NASDAQ believes that the Depth-ofBook Enterprise License promotes 

increased transparency by offering a 

new pricing option resulting in lower 

fees for heavy users of Depth-of-Book 

data. This fee limitation will, in turn, 

enable firms to make additional 

information available to the firms’ 

clients, thereby increasing transparency 

of the market. Additionally, the 

proposal provides for simplified market 

data administration by eliminating the 

current requirement that firms identify 

and track the number of individual 

Subscribers of Depth-of-Book data. 

NASDAQ continues to create new 

pricing policies aimed at increasing 

transparency in the market and believes 

this is useful step in that direction. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

NASDAQ does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act, as amended. 

Notwithstanding its determination that 

the Commission may rely upon 

competition to establish fair and 

equitably allocated fees for market data, 

the NetCoalition court found that the 

Commission had not, in that case, 

compiled a record that adequately 

supported its conclusion that the market 

for the data at issue in the case was 

competitive. NASDAQ believes that a 

record may readily be established to 

demonstrate the competitive nature of 

the market in question. 

There is intense competition between 

trading platforms that provide 

transaction execution and routing 

services and proprietary data products. 

Transaction execution and proprietary 

data products are complementary in that 

market data is both an input and a 

byproduct of the execution service. In 

fact, market data and trade execution are 

a paradigmatic example of joint 

products with joint costs. The decision 

whether and on which platform to post 

an order will depend on the attributes 

of the platform where the order can be 

posted, including the execution fees, 

data quality and price and distribution 

of its data products. Without the 

prospect of a taking order seeing and 

reacting to a posted order on a particular 

platform, the posting of the order would 

accomplish little. Without trade 

executions, exchange data products 

cannot exist. Data products are valuable 

to many end Subscribers only insofar as 

they provide information that end 

Subscribers expect will assist them or 

their customers in making trading 

decisions. 

The costs of producing market data 

include not only the costs of the data 

distribution infrastructure, but also the 

costs of designing, maintaining, and 

operating the exchange’s transaction 

execution platform and the cost of 

regulating the exchange to ensure its fair 

operation and maintain investor 

confidence. The total return that a 

trading platform earns reflects the 

revenues it receives from both products 

and the joint costs it incurs. Moreover, 

an exchange’s customers view the costs 

of transaction executions and of data as 

a unified cost of doing business with the 

exchange. A broker-dealer will direct 

orders to a particular exchange only if 

the expected revenues from executing 

trades on the exchange exceed net 

transaction execution costs and the cost 

of data that the broker-dealer chooses to 

buy to support its trading decisions (or 

those of its customers). The choice of 

data products is, in turn, a product of 

the value of the products in making 

profitable trading decisions. If the cost 

of the product exceeds its expected 

value, the broker-dealer will choose not 

to buy it. Moreover, as a broker-dealer 

chooses to direct fewer orders to a 

particular exchange, the value of the 

product to that broker-dealer decreases, 

for two reasons. First, the product will 

contain less information, because 

executions of the broker-dealer’s orders 

will not be reflected in it. Second, and 

perhaps more important, the product 

will be less valuable to that brokerdealer because it does not provide 

information about the venue to which it 

is directing its orders. Data from the 

competing venue to which the brokerdealer is directing orders will become 

correspondingly more valuable. 

Thus, a super-competitive increase in 

the fees charged for either transactions 

or data has the potential to impair 

revenues from both products. ‘‘No one 

disputes that competition for order flow 

is ‘fierce’.’’ NetCoalition at 24. However, 

the existence of fierce competition for 

order flow implies a high degree of price 

sensitivity on the part of broker-dealers 

with order flow, since they may readily 

reduce costs by directing orders toward 

the lowest-cost trading venues. A 


srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 69 / Tuesday, April 10, 2012 / Notices 21613 

broker-dealer that shifted its order flow 

from one platform to another in 

response to order execution price 

differentials would both reduce the 

value of that platform’s market data and 

reduce its own need to consume data 

from the disfavored platform. Similarly, 

if a platform increases its market data 

fees, the change will affect the overall 

cost of doing business with the 

platform, and affected broker-dealers 

will assess whether they can lower their 

trading costs by directing orders 

elsewhere and thereby lessening the 

need for the more expensive data. 

Analyzing the cost of market data 

distribution in isolation from the cost of 

all of the inputs supporting the creation 

of market data will inevitably 

underestimate the cost of the data. Thus, 

because it is impossible to create data 

without a fast, technologically robust, 

and well-regulated execution system, 

system costs and regulatory costs affect 

the price of market data. It would be 

equally misleading, however, to 

attribute all of the exchange’s costs to 

the market data portion of an exchange’s 

joint product. Rather, all of the 

exchange’s costs are incurred for the 

unified purposes of attracting order 

flow, executing and/or routing orders, 

and generating and selling data about 

market activity. The total return that an 

exchange earns reflects the revenues it 

receives from the joint products and the 

total costs of the joint products. 

Competition among trading platforms 

can be expected to constrain the 

aggregate return each platform earns 

from the sale of its joint products, but 

different platforms may choose from a 

range of possible, and equally 

reasonable, pricing strategies as the 

means of recovering total costs. For 

example, some platform may choose to 

pay rebates to attract orders, charge 

relatively low prices for market 

information (or provide information free 

of charge) and charge relatively high 

prices for accessing posted liquidity. 

Other platforms may choose a strategy 

of paying lower rebates (or no rebates) 

to attract orders, setting relatively high 

prices for market information, and 

setting relatively low prices for 

accessing posted liquidity. In this 

environment, there is no economic basis 

for regulating maximum prices for one 

of the joint products in an industry in 

which suppliers face competitive 

constraints with regard to the joint 

offering. This would be akin to strictly 

regulating the price that an automobile 

manufacturer can charge for car sound 

systems despite the existence of a highly 

competitive market for cars and the 

availability of after-market alternatives 

to the manufacturer-supplied system. 

The market for market data products 

is competitive and inherently 

contestable because there is fierce 

competition for the inputs necessary to 

the creation of proprietary data and 

strict pricing discipline for the 

proprietary products themselves. 

Numerous exchanges compete with 

each other for listings, trades, and 

market data itself, providing virtually 

limitless opportunities for entrepreneurs 

who wish to produce and distribute 

their own market data. This proprietary 

data is produced by each individual 

exchange, as well as other entities, in a 

vigorously competitive market. 

Broker-dealers currently have 

numerous alternative venues for their 

order flow, including ten SRO markets, 

as well as internalizing 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. Competitive markets 

for order flow, executions, and 

transaction reports provide pricing 

discipline for the inputs of proprietary 

data products. 

The large number of SROs, TRFs, BDs, 

and ATSs that currently produce 

proprietary data or are currently capable 

of producing it provides further pricing 

discipline for proprietary data products. 

Each SRO, TRF, ATS, and BD is 

currently permitted to produce 

proprietary data products, and many 

currently do or have announced plans to 

do so, including NASDAQ, NYSE, 

NYSE Amex, NYSEArca, and BATS. 

Any ATS or BD can combine with any 

other ATS, BD, or multiple ATSs or BDs 

to produce joint proprietary data 

products. Additionally, order routers 

and market data vendors can facilitate 

single or multiple broker-dealers’ 

production of proprietary data products. 

The potential sources of proprietary 

products are virtually limitless. 

The fact that proprietary data from 

ATSs, BDs, and vendors can by-pass 

SROs is significant in two respects. 

First, non-SROs can compete directly 

with SROs for the production and sale 

of proprietary data products, as BATS 

and Arca did before registering as 

exchanges by publishing Depth-of-Book 

data on the Internet. Second, because a 

single order or transaction report can 

appear in an SRO proprietary product, 

a non-SRO proprietary product, or both, 

the data available in proprietary 

products is exponentially greater than 

the actual number of orders and 

transaction reports that exist in the 

marketplace. 

Market data vendors provide another 

form of price discipline for proprietary 

data products because they control the 

primary means of access to end 

Subscribers. Vendors impose price 

restraints based upon their business 

models. For example, vendors such as 

Bloomberg and Thomson Reuters that 

assess a surcharge on data they sell may 

refuse to offer proprietary products that 

end Subscribers will not purchase in 

sufficient numbers. Internet portals, 

such as Google, impose a discipline by 

providing only data that will enable 

them to attract ‘‘eyeballs’’ that 

contribute to their advertising revenue. 

Retail broker-dealers, such as Schwab 

and Fidelity, offer their customers 

proprietary data only if it promotes 

trading and generates sufficient 

commission revenue. Although the 

business models may differ, these 

vendors’ pricing discipline is the same: 

they can simply refuse to purchase any 

proprietary data product that fails to 

provide sufficient value. NASDAQ and 

other producers of proprietary data 

products must understand and respond 

to these varying business models and 

pricing disciplines in order to market 

proprietary data products successfully. 

In addition to the competition and 

price discipline described above, the 

market for proprietary data products is 

also highly contestable because market 

entry is rapid, inexpensive, and 

profitable. The history of electronic 

trading is replete with 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 Direct Edge. A 

proliferation of dark pools and other 

ATSs operate profitably with 

fragmentary shares of consolidated 

market volume. 

Regulation NMS, by deregulating the 

market for proprietary data, has 

increased the contestability of that 

market. While broker-dealers have 

previously published their proprietary 

data individually, Regulation NMS 

encourages market data vendors and 

broker-dealers to produce proprietary 

products cooperatively in a manner 

never before possible. Multiple market 

data vendors already have the capability 

to aggregate data and disseminate it on 

a profitable scale, including Bloomberg, 

and Thomson Reuters. 

The court in NetCoalition concluded 

that the Commission had failed to 

demonstrate that the market for market 

data was competitive based on the 

reasoning of the Commission’s 


srobinson on DSK4SPTVN1PROD with NOTICES
21614 Federal Register / Vol. 77, No. 69 / Tuesday, April 10, 2012 / Notices 

9See Securities Exchange Act Release No. 63291 

(Nov. 9, 2010) 75 FR 70311 (Nov. 17, 2010) (SR– 

NYSEArca–2010–97). 

10 15 U.S.C. 78s(b)(3)(A)(ii). 

NetCoalition order because, in the 

court’s view, the Commission had not 

adequately demonstrated that the 

Depth-of-Book data at issue in the case 

is used to attract order flow. NASDAQ 

believes, however, that evidence not 

before the court clearly demonstrates 

that availability of data attracts order 

flow. For example, as of July 2010, 92 

of the top 100 broker-dealers by shares 

executed on NASDAQ consumed NQDS 

and 80 of the top 100 broker-dealers 

consumed TotalView. During that 

month, the NQDS–Subscribers were 

responsible for 94.44% of the orders 

entered into NASDAQ and TotalView 

Subscribers were responsible for 

92.98%. 

Competition among platforms has 

driven NASDAQ continually to improve 

its platform data offerings and to cater 

to customers’ data needs. For example, 

NASDAQ has developed and 

maintained multiple delivery 

mechanisms (IP, multi-cast, and 

compression) that enable customers to 

receive data in the form and manner 

they prefer and at the lowest cost to 

them. NASDAQ offers front end 

applications such as its ‘‘Bookviewer’’ 

to help customers utilize data. NASDAQ 

has created new products like 

TotalView Aggregate to complement 

TotalView ITCH and/NQDS, because 

offering data in multiple formatting 

allows NASDAQ to better fit customer 

needs. NASDAQ offers data via multiple 

extranet providers, thereby helping to 

reduce network and total cost for its 

data products. NASDAQ has developed 

an online administrative system to 

provide customers transparency into 

their data feed requests and streamline 

data usage reporting. NASDAQ has also 

expanded its Enterprise License options 

that reduce the administrative burden 

and costs to firms that purchase market 

data. 

Despite these enhancements and a 

dramatic increase in message traffic, 

NASDAQ’s fees for market data have 

remained flat. In fact, as a percent of 

total Subscriber costs, NASDAQ data 

fees have fallen relative to other data 

usage costs—including bandwidth, 

programming, and infrastructure—that 

have risen. The same holds true for 

execution services; despite numerous 

enhancements to NASDAQ’s trading 

platform, absolute and relative trading 

costs have declined. Platform 

competition has intensified as new 

entrants have emerged, constraining 

prices for both executions and for data. 

The vigor of competition for Depth-ofBook information is significant and the 

Exchange believes that this proposal 

itself clearly evidences such 

competition. NASDAQ is offering a new 

pricing model in order to keep pace 

with changes in the industry and 

evolving customer needs. It is entirely 

optional and is geared towards 

attracting new customers, as well as 

retaining existing customers. 

The Exchange has witnessed 

competitors creating new products and 

innovative pricing in this space over the 

course of the past year. NASDAQ 

continues to see firms challenge its 

pricing on the basis of the Exchange’s 

explicit fees being higher than the zeropriced fees from other competitors such 

as BATS. In all cases, firms make 

decisions on how much and what types 

of data to consume on the basis of the 

total cost of interacting with NASDAQ 

or other exchanges. Of course, the 

explicit data fees are but one factor in 

a total platform analysis. Some 

competitors have lower transactions fees 

and higher data fees, and others are vice 

versa. The market for this Depth-of-Book 

information is highly competitive and 

continually evolves as products develop 

and change. 

Additional evidence cited by NYSE 

Arca in SR–NYSE Arca–2010–097 9 [sic] 

which was not before the NetCoalition 

court also demonstrates that availability 

of Depth-of-Book data attracts order 

flow and that competition for order flow 

can constrain the price of market data: 

1. Terrence Hendershott & Charles M. 

Jones, Island Goes Dark: Transparence, 

Fragmentation, and Regulation, 18 Review of 

Financial Studies 743 (2005); 

2. Charts and Tables referenced in Exhibit 

3B to that filing; 

3. PHB Hagler Bailly, Inc., ‘‘Issues 

Surrounding Cost-Based Regulation of 

Market Data Prices;’’ and 

4. PHB Hagler Bailly, Inc., ‘‘The Economic 

Perspective on Regulation of Market Data.’’ 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor 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.10 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 

necessary or appropriate in the public 

interest, for the protection of investors, 

or 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 rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2012–042 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–NASDAQ–2012–042. 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 such filing 

also will be available for inspection and 

copying at the principal offices 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– 


srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 69 / Tuesday, April 10, 2012 / Notices 21615 

11 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3A Non-ISE Market Maker is a market maker as 

defined in Section 3(a)(38) of the Act, registered in 

the same options class on another options 

exchange. 

4See Securities Exchange Act Release No. 53630 

(April 11, 2006), 71 FR 19918 (April 18, 2006) (SR– 

ISE–2006–18). 

5See Securities Exchange Act Release No. 61869 

(April 7, 2010), 75 FR 19449 (April 14, 2010) (SR– 

ISE–2010–25). 

6Options classes subject to maker/taker fees are 

identified by their ticker symbol on the Exchange’s 

Schedule of Fees. 

7The Intermarket Linkage Plan prohibits an 

exchange from allowing the automatic execution of 

public customer orders at a price that is inferior to 

the best prices being publically displayed by 

another exchange. Under ISE Rule 803(c)(2), it is 

the responsibility of the PMM to either execute an 

order at a price that matches or betters the NBBO, 

or obtain such better prices on behalf of the public 

customer. 

8 15 U.S.C. 78f(b). 

9 15 U.S.C. 78f(b)(4). 

NASDAQ–2012–042, and should be 

submitted on or before May 1, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–8580 Filed 4–9–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66734; File No. SR–ISE– 

2012–29] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Relating to Additions to the 

Schedule of Fees 

April 4, 2012. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on April 2, 

2012, the International Securities 

Exchange, LLC (the ‘‘Exchange’’ or the 

‘‘ISE’’) filed with the Securities and 

Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I and II 

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. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The ISE proposes to add notes to its 

Schedule of Fees with respect to two 

fees. The text of the proposed rule 

change is available on the Exchange’s 

Web site (http://www.ise.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 

self-regulatory organization 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 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 

The Exchange proposes to add notes 

to its Schedule of Fees with respect to 

the application of two fees currently 

assessed by ISE. The first note relates to 

Non-ISE Market Maker fees, which 

apply to regular and complex orders, 

and how those fees are applied to 

execution of complex orders on the 

Exchange.3 Non-ISE Market Maker fees 

were adopted by ISE in 2006.4 Prior to 

this fee change, Non-ISE Market Makers 

were subject to the fee listed on the 

Schedule of Fees under ‘‘firm 

proprietary’’ for both regular and 

complex orders. In order to attract 

complex orders to the Exchange, ISE 

charged an execution fee only on the 

largest leg of a complex order. Most of 

the execution fees for complex orders on 

the Exchange’s Schedule of Fees 

currently note that for complex orders, 

this fee is ‘‘charged for the leg of the 

trade consisting of the most contracts.’’ 

However, in 2006, when ISE carved out 

the fee for Non-ISE Market Makers as a 

separate line item on the Schedule of 

Fees, the Exchange inadvertently failed 

to note that the Exchange only charges 

an execution fee on the largest leg of a 

trade for complex orders sent to the 

Exchange. The Exchange continued to 

charge Non-ISE Market Makers only for 

the largest leg of a complex order. The 

Exchange now proposes to add the 

following note under the Non-ISE 

Market Maker line item: ‘‘For Complex 

Orders, fee charged only for the leg of 

the trade consisting of the most 

contracts.’’ 

The second note relates to a fee for 

executions in symbols that are subject to 

the Exchange’s modified maker/taker 

fees. The Exchange initially adopted 

modified maker/taker fees in April 

2010 5 and has since amended these fees 

regularly in response to competitive 

changes made by other options 

exchanges. These fees apply to market 

participants that add or remove 

liquidity from the Exchange in 101 

options classes.6 When the Exchange 

adopted modified maker/taker fees, it 

did not specify how the maker/taker 

fees would apply to executions by 

Primary Market Makers (PMMs) when 

they provide away market price 

protection for marketable public 

customer orders when the ISE market is 

not at the NBBO in accordance with 

their obligations under ISE rules and the 

Intermarket Linkage Plan.7 Since the 

PMM is performing its linkage 

obligations when it executes (i.e., ‘‘trade 

reports’’) such public customer orders, it 

is neither a taker nor maker of liquidity 

as those terms are used within the 

framework of the ISE’s maker/taker 

pricing model. Accordingly, when 

PMMs are performing this intermarket 

price protection function, the Exchange 

has not charged any fees or provided 

any rebates for PMM trade reports since 

the adoption of the maker/taker fees. 

The Exchange now proposes to specify 

in a note that: ‘‘Primary Market Makers 

do not receive a maker rebate nor pay 

a taker fee when trade reporting a public 

customer order in accordance with their 

obligation to provide away market price 

protection pursuant to ISE Rule 

803(c)(2).’’ 

2. Statutory Basis 

The Exchange believes that its 

proposal to clarify its Schedule of Fees 

is consistent with Section 6(b) of the 

Act 8 in general, and furthers the 

objectives of Section 6(b)(4) of the Act 9

in particular, in that it is an equitable 

allocation of reasonable dues, fees and 

other charges among Exchange members 

and other persons using its facilities. In 

particular, the proposal will correct an 

ambiguity that was created by the 

adoption of a separate Non-ISE Market 

Maker fee that failed to specify the fee’s 

application to complex orders. Non-ISE 

Market Makers were only charged for 

the largest leg of a complex order prior 

to that fee change, and continued to be 

charged only for the largest leg of a 

complex order after the fee change. 

Accordingly, the Exchange’s application 

of the transaction fee to complex orders 

remained consistent, and Non-ISE 

Market Makers continued to be treated 


srobinson on DSK4SPTVN1PROD with NOTICES