[Federal Register Volume 74, Number 70 (Tuesday, April 14, 2009)]
[Notices]
[Pages 17273-17276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-8416]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59712; File No. SR-NASDAQ-2009-028]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Reduce Fees for NASDAQ 
Basic Data Feeds

April 6, 2009.
    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 27, 2009, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') 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 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

    NASDAQ is proposing a rule change to reduce fees for ``NASDAQ 
Basic'' which is a real time data feed combining both NASDAQ's Best Bid 
and Offer (``QBBO'') and the ``NASDAQ Last Sale. NASDAQ Basic was 
approved on March 16, 2009,\3\ as a pilot program (``Basic Pilot'') 
that included fees for usage and distribution of the data. NASDAQ has 
determined to further promote the deployment and usage of NASDAQ Basic 
by reducing the fee for its distribution. NASDAQ is seeking approval to 
implement this change effective April 1, 2009.
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    \3\ See Securities Exchange Act Release No. 59582 (March 16, 
2009) (SR-NASDAQ-2008-102).
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    The text of the proposed rule change is available from NASDAQ's Web 
site at http://nasdaq.cchwallstreet.com, at NASDAQ's principal office, 
and at the Commission's Public Reference Room.

[[Page 17274]]

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. The 
text of these statements may be examined at the places specified in 
Item III [sic] below, and is set forth in Sections A, B, and C below.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Building on the success of its NASDAQ Last Sale product, NASDAQ has 
implemented a pilot to offer NASDAQ Basic, real-time quotation data in 
combination with last sale data solely from the NASDAQ Market Center. 
NASDAQ Basic is a ``Level 1'' product containing two data elements: (1) 
Quotation information from the NASDAQ Market Center and (2) last sale 
data from the NASDAQ Market Center. NASDAQ Basic is available in three 
forms, NASDAQ Basic for NASDAQ, NASDAQ Basic for NYSE, and NASDAQ Basic 
for Alternext. NASDAQ Basic is designed to meet the needs of current 
and prospective subscribers that do not need or are unwilling to pay 
for the consolidated data provided by the consolidated Level 1 
products.
    NASDAQ sought and received approval to assess a monthly fee for 
distributors of NASDAQ Basic in addition to applicable monthly per user 
fees. As approved, each Distributor of NASDAQ Basic for NASDAQ-listed 
stocks was to pay a monthly fee of $1,500 for either internal or 
external distribution. Each Distributor of NASDAQ Basic for NYSE-listed 
stocks was to pay a monthly fee of $250 for internal distribution or 
$625 external distribution. Each Distributor of NASDAQ Basic for 
Alternext-listed stocks was to pay a monthly fee of $250 for internal 
distribution or $625 external distribution. In addition, each 
Distributor that receives Direct Access to the NASDAQ Basic was also to 
pay a monthly fee of $2,000 for NASDAQ-listed stocks, $1,000 for NYSE-
listed stocks, and $1,000 for Alternext-listed stocks.
    NASDAQ developed the NASDAQ Basic product proposals in consultation 
with industry members and market data vendors and, after further 
consultation; NASDQ [sic] has determined to reduce the distribution 
fees for the product. First, NASDAQ proposes to make all three feeds 
available for a single monthly Distributor Fee of $1,500, rather than 
add separate fees for NYSE- and Alternext-listed securities. Second, 
NASDAQ proposes to eliminate the fee for Direct Access to NASDAQ Basic, 
currently set forth in Rule 7047(b). Finally, NASDAQ proposes to credit 
each Distributor of NASDAQ Basic up to $1,500 per month based upon that 
Distributor's monthly usage fees. In other words, a Distributor that 
reports $1,500 or more of monthly usage of NASDAQ Basic will pay no net 
Distributor Fee, whereas a Distributor that reports $1,000 of monthly 
usage will pay a net of $500 for the Distributor Fee.
2. Statutory Basis
    In its recent order approving the NASDAQ Basic Pilot, it was 
determined that the product and fees were consistent with the 
provisions of Section 6 of the Act,\4\ in general and with Section 
6(b)(4) of the Act,\5\ as stated above, in that it provides an 
equitable allocation of reasonable fees among users and recipients of 
NASDAQ data. NASDAQ believes that the current proposal to eliminate the 
distributor fees for NASDAQ Basic is also consistent with Section 
6(b)(4) of the Act in that the remaining fees will be assessed 
uniformly on similarly situated users and that the fees for 
distribution and usage of the product will be borne by the ultimate end 
user of the product.
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    \4\ 15 U.S.C. 78f.
    \5\ 15 U.S.C. 78f(b)(4).
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    It was also determined that the product and fees are consistent 
with Section 6(b)(8) of the Act,\6\ [sic] which requires that the rules 
of an exchange not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act. The Commission 
found that NASDAQ's ability to price NASDAQ Basic is constrained by: 
(i) NASDAQ's compelling need to attract order flow from market 
participants; and (ii) the availability to market participants of 
alternatives to purchasing NASDAQ 's data. Finally, the Commission 
finds that the proposed rule change is consistent with Rule 603(a) of 
Regulation NMS,\7\ [sic] adopted under Section 11A(c)(1) of the Act, 
which requires an exclusive processor that distributes information with 
respect to quotations for or transactions in an NMS stock to do so on 
terms that are fair and reasonable and that are not unreasonably 
discriminatory.
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    \6\ 15 U.S.C. 78f(b)(8).
    \7\ 17 CFR 242.603(a).
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    NASDAQ believes that its proposal to reduce distributor fees for 
NASDAQ Basic is equally consistent with these provisions of the Act. 
The market for non-core data is competitive, due to (1) competition 
between exchanges and other trading platforms that compete with each 
other in a variety of dimensions; (2) the existence of inexpensive 
real-time consolidated data and free delayed consolidated data, and (3) 
the inherent contestability of the market for proprietary last sale 
data.
    The market for proprietary data products is currently 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 eleven self-regulatory organization (``SRO'') 
markets, as well as broker-dealers (``BDs'') and aggregators such as 
the Direct Edge and NexTrade electronic communications network 
(``ECN''). Each SRO market competes to produce transaction reports via 
trade executions, and an ever-increasing number of FINRA-regulated 
Trade Reporting Facilities (``TRFs'') compete to attract internalized 
transaction reports. It is common for BDs to further and exploit this 
competition by sending their order flow and transaction reports to 
multiple markets, rather than providing them all to a single market. 
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, and ECNs that currently produce 
proprietary data or are currently capable of producing it provides 
further pricing discipline for proprietary data products. Each SRO, 
TRF, ECN and BD is currently permitted to produce proprietary data 
products, and many currently do or have announced plans to do so, 
including NASDAQ, NYSE, Alternext, NYSEArca, and BATS.
    Any ECN or BD can combine with any other ECN, broker-dealer, or 
multiple ECNs or BDs to produce jointly proprietary data products. 
Additionally, non-broker-dealers such as order routers like LAVA, as 
well as market data

[[Page 17275]]

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 ECNs, BDs, and vendors can by-
pass SROs is significant in two respects. First, non-SROs can compete 
directly with SROs for the production and distribution of proprietary 
data products, as Archipelago and BATS Trading did prior to registering 
as SROs. 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 writ large.
    Consolidated data provides two additional measures of pricing 
discipline for proprietary data products that are a subset of the 
consolidated data stream. First, the consolidated data is widely 
available in real-time at $1 per month for non-professional users. 
Second, consolidated data is also available at no cost with a 15- or 
20-minute delay. Because consolidated data contains marketwide 
information, it effectively places a cap on the fees assessed for 
proprietary data (such as last sale data) that is simply a subset of 
the consolidated data. The mere availability of low-cost or free 
consolidated data provides a powerful form of pricing discipline for 
proprietary data products that contain data elements that are a subset 
of the consolidated data, by highlighting the optional nature of 
proprietary products.
    Market data vendors provide another form of price discipline for 
proprietary data products because they control the primary means of 
access to end users. Vendors impose price restraints based upon their 
business models. For example, vendors such as Bloomberg and Reuters 
that assess a surcharge on data they sell may refuse to offer 
proprietary products that end users will not purchase in sufficient 
numbers. Internet portals, such as Google, impose a discipline by 
providing only that data which 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 successfully market proprietary data products.
    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, and BATS Trading. Today, BATS 
publishes its data at no charge on its website in order to attract 
order flow, and it uses market data revenue rebates from the resulting 
executions to maintain low execution charges for its users. Several 
ECNs have existed profitably for many years with a minimal share of 
trading, including Bloomberg Tradebook and NexTrade.
    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, Reuters and Thomson. New entrants are already on the 
horizon, including ``Project BOAT,'' a consortium of financial 
institutions that is assembling a cooperative trade collection facility 
in Europe. These institutions are active in the United States and could 
rapidly and profitably export the Project Boat technology to exploit 
the opportunities offered by Regulation NMS.
    In light of the highly competitive market for market data, NASDAQ 
believes that it has considered all relevant factors and has not 
considered irrelevant factors in order to establish a fair, reasonable, 
and not unreasonably discriminatory fee and an equitable allocation of 
fees among all users.

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. To the contrary, as 
set forth in detail above, the market for the data elements contained 
in NASDAQ Basic is already competitive, with both real-time and delayed 
consolidated data as well as the ability for innumerable entities begin 
rapidly and inexpensively to offer competitive last sale data products.
    The Commission has recently issued an order firmly establishing 
that in reviewing non-core data products such as NASDAQ Basic, the 
Commission will utilize a market-based approach that relies primarily 
on competitive forces to determine the terms on which non-core data is 
made available to investors.\8\ The Commission adopted a two-part test:
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    \8\ Securities Exchange Act Release No. 57917 (Dec. 2, 2008) 
(NetCoalition Order'' [sic] resolving File No. SR-NYSEArca-2006-21).

    The first is to ask whether the exchange was subject to 
significant competitive forces in setting the terms of its proposal 
for non-core data, including the level of any fees. If an exchange 
was subject to significant competitive forces in setting the terms 
of a proposal, the Commission will approve the proposal unless it 
determines that there is a substantial countervailing basis to find 
that the terms nevertheless fail to meet an applicable requirement 
of the Exchange Act or the rules thereunder. If, however, the 
exchange was not subject to significant competitive forces in 
setting the terms of a proposal for non-core data, the Commission 
will require the exchange to provide a substantial basis, other than 
competitive forces, in its proposed rule change demonstrating that 
the terms of the proposal are equitable, fair, reasonable, and not 
unreasonably discriminatory.\9\
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    \9\ Id. at 48-49.

    This standard begins from the premise that no Commission rule 
requires exchanges or market participants either to distribute non-core 
data to the public or to display non-core data to investors.\10\
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    \10\ Id. at 4.
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    In its NetCoalition Order the Commission concluded that ``at least 
two broad types of significant competitive forces applied to NYSE Arca 
in setting the terms of its Proposal to distribute the ArcaBook data: 
(1) NYSE Arca's compelling need to attract order flow from market 
participants; and (2) the availability to market participants of 
alternatives to purchasing the ArcaBook data. The Commission conducted 
an exhaustive 14-page review of these two competitive forces before 
concluding that the availability of alternatives, as well as the 
compelling need to attract order flow, imposed significant competitive 
pressure on the exchange's need to act equitably, fairly, and 
reasonably in

[[Page 17276]]

setting the terms of the fees for its non-core data product.\11\
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    \11\ Id. at 51-65. The Commission then spent an additional 36 
pages (65-101) analyzing and refuting comments challenging the 
Commission's competition analysis.
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    The market data provided in NASDAQ Basic is non-core data that is 
governed by the same analysis the Commission set forth in the 
NetCoalition Order. As with the NYSE Arca depth-of-book product, no 
rule requires NASDAQ or any other exchange to offer its BBO and Last 
Sale or vendors to display that data. Because NASDAQ Basic data is 
merely a subset of depth-of-book data, NASDAQ is subject to the same 
competitive forces that apply to depth-of-book data: Its compelling 
need to attract order flow from market participants; and the 
availability to market participants of alternatives to purchasing the 
NASDAQ Basic data. Indeed, the Commission invoked the same reasoning in 
approving pilot programs for NASDAQ Last Sale and NYSE Open Book which 
provide non-core last sale data from NASDAQ and the New York Stock 
Exchange, one element of this proposal.\12\
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    \12\ See Securities Exchange Act Release No. 57966 (June 16, 
2008), 73 FR 35182 (June 20, 2008) (File No. SR-NYSE-2007-04) (NYSE 
Real-Time Reference Prices); Securities Exchange Act Release No. 
57965 (June 16, 2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-
060) (NASDAQ Last Sale Data Feeds).
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    NASDAQ considerations in setting the fees for NASDAQ Basic are 
virtually identical to those the Commission approved in the 
NetCoaltiion [sic] Order. First, the proposed fees for NASDAQ Basic 
data will apply equally to all professional subscribers and equally to 
all non-professional subscribers. The fees therefore do not 
unreasonably discriminate among types of subscribers. Second, the 
proposed fees for the NASDAQ Basic data are substantially less than 
those charged by the Network Processors for the consolidated NBBO or 
last sale data. Third, NASDAQ projects that the total revenues 
generated by the fee for NASDAQ Basic data initially will amount to 
less than the $8 million per year that NYSE Arca projected would be 
generated by its ArcaBook data.\13\
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    \13\ Id. at 101-104.
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    Finally, as stated above, rapid effectiveness of the proposed rule 
change is in the public interest and supports the protection of 
investors by allowing data distributors to make additional market data 
available to investors that choose to purchase it. Widespread 
availability of NASDAQ Basic benefits investors by improving access to 
real-time market data that investors can choose to use. It also enables 
member firms to reduce their costs and to pass on those cost savings to 
their customers through reduced commissions.

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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (a) By order approve such proposed rule change, or
    (b) Institute proceedings to determine whether the proposed rule 
change should be 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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#f183849d94dc929e9c9c949f8582b1829492df969e87"><span class="__cf_email__" data-cfemail="c0b2b5aca5eda3afadada5aeb4b380b3a5a3eea7afb6">[email protected]</span></a>. Please include 
File Number SR-NASDAQ-2009-028 on the subject line.

Paper Comments

    <bullet> 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-2009-028. This 
file number should be included on the subject line if e-mail 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 inspection 
and copying in the Commission's Public Reference Room, 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-2009-028 and should be submitted on or before May 
5, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-8416 Filed 4-13-09; 8:45 am]
BILLING CODE 8010-01-P


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