95822 Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 99879 

(April 1, 2024), 89 FR 24070 (‘‘Notice’’). 4 15 U.S.C. 78s(b)(3)(A). A proposed rule change 

may take effect upon filing with the Commission if 

it is designated by the exchange as ‘‘establishing or 

changing a due, fee, or other charge imposed by the 

self-regulatory organization on any person, whether 

or not the person is a member of the self-regulatory 

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

5See Notice, supra note 3. As part of the 

Proposal, the Exchange included an Exhibit 3 

containing a paper in support of its proposed rule 

change written by Nasdaq Economic Research. See 

Phil Mackintosh & Michael Normyle, Nasdaq 

Economic Research, ‘‘How Exchanges Compete: An 

Economic Analysis of Platform Competition’’ 

(February 2024), available at https://www.sec.gov/ 

files/rules/sro/nasdaq/2024/34-99879-ex3.pdf 

(‘‘Nasdaq Paper’’). 

6Comments received on the Proposal are 

available at https://www.sec.gov/comments/srnasdaq-2024-016/srnasdaq2024016.htm. All 

comments received opposed the proposed rule 

change. 

7 15 U.S.C. 78s(b)(3)(C). 

8 15 U.S.C. 78s(b)(2)(B). 

9See Securities Exchange Act Release No. 

100188, 89 FR 46243 (May 28, 2024) (‘‘Order 

Instituting Proceedings’’). 

10See Securities Exchange Act Release No. 

101224, 89 FR 81129 (October 7, 2024). 

11 15 U.S.C. 78f(b)(4), (5), and (8), 15 U.S.C. 78k– 

1(a)(1)(C)(i)–(iv), 17 CFR 242.603(a)(1) and 17 CFR 

242.603(a)(2). 

12See Notice, supra note 3, at 24070 (stating that 

Non-Display Usage is any method of accessing 

Nasdaq U.S. information that involves access or use 

by a machine or automated device without access 

or use of a display by a natural person and 

providing examples of Non-Display Usage). The 

Exchange also states that, although either top-ofbook or depth-of-book data can be used for NonDisplay Usage, the Proposal modifies fees for depthof-book data only. See id. (citing Equity 7, Section 

123 (Nasdaq Depth-of-Book data)). 

to Add Priority Mail Express, Priority 

Mail & USPS Ground Advantage 

Contract 811 to the Competitive Product 

List and Notice of Filing Materials 

Under Seal; Filing Acceptance Date: 

November 26, 2024; Filing Authority: 39 

U.S.C. 3642, 39 CFR 3035.105, and 39 

CFR 3041.310; Public Representative: 

Maxine Bradley; Comments Due: 

December 6, 2024. 

9. Docket No(s).: MC2025–517 and 

K2025–515; Filing Title: USPS Request 

to Add Priority Mail & USPS Ground 

Advantage Contract 485 to the 

Competitive Product List and Notice of 

Filing Materials Under Seal; Filing 

Acceptance Date: November 26, 2024; 

Filing Authority: 39 U.S.C. 3642, 39 CFR 

3035.105, and 39 CFR 3041.310; Public 

Representative: Jennaca Upperman; 

Comments Due: December 6, 2024. 

10. Docket No(s).: MC2025–518 and 

K2025–516; Filing Title: USPS Request 

to Add Priority Mail & USPS Ground 

Advantage Contract 486 to the 

Competitive Product List and Notice of 

Filing Materials Under Seal; Filing 

Acceptance Date: November 26, 2024; 

Filing Authority: 39 U.S.C. 3642, 39 CFR 

3035.105, and 39 CFR 3041.310; Public 

Representative: Christoher Mohr; 

Comments Due: December 6, 2024. 

11. Docket No(s).: MC2025–519 and 

K2025–517; Filing Title: USPS Request 

to Add Priority Mail & USPS Ground 

Advantage Contract 487 to the 

Competitive Product List and Notice of 

Filing Materials Under Seal; Filing 

Acceptance Date: November 26, 2024; 

Filing Authority: 39 U.S.C. 3642, 39 CFR 

3035.105, and 39 CFR 3041.310; Public 

Representative: Jennaca Upperman; 

Comments Due: December 6, 2024. 

III. Summary Proceeding(s) 

None. See Section II for public 

proceedings. 

This Notice will be published in the 

Federal Register. 

Erica A. Barker, 

Secretary. 

[FR Doc. 2024–28349 Filed 12–2–24; 8:45 am] 

BILLING CODE 7710–FW–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–101766; File No. SR– 

NASDAQ–2024–016] 

Self-Regulatory Organizations; The 

Nasdaq Stock Market LLC; Order 

Disapproving Proposed Rule Change 

To Increase Fees for Certain Market 

Data and Connectivity Products and To 

Maintain the Current Fees for Such 

Products if Members Meet a Minimum 

Average Daily Displayed Volume 

Threshold 

November 26, 2024. 

I. Introduction 

On March 22, 2024, The Nasdaq Stock 

Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’ or ‘‘SEC’’), 

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

Securities Exchange Act of 1934 

(‘‘Exchange Act’’),1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

increase fees for certain market data and 

connectivity products and to maintain 

the current fees for such products if 

members meet a minimum average daily 

displayed volume threshold 

(‘‘Proposal’’).3 The proposed rule 

change was immediately effective upon 

filing with the Commission pursuant to 

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

Act.4 The proposed rule change was 

published for comment in the Federal 

Register on April 5, 2024.5 The 

Commission has received comment 

letters on the proposed rule change and 

a letter responding to comments from 

Nasdaq.6 On May 21, 2024, the 

Commission issued an order 

temporarily suspending the proposed 

rule change pursuant to Section 

19(b)(3)(C) of the Exchange Act 7 and 

simultaneously instituting proceedings 

under Section 19(b)(2)(B) of the 

Exchange Act 8 to determine whether to 

approve or disapprove the proposed 

rule change.9 On October 1, 2024, the 

Commission designated a longer period 

for Commission action on the proposed 

rule change.10 This order disapproves 

the proposed rule change. 

This order disapproves the proposed 

rule change because, as discussed 

below, the Exchange has not met its 

burden under the Exchange Act and the 

Commission’s Rules of Practice to 

demonstrate that the Proposal is 

consistent with the requirements of 

Sections 6(b)(4), (b)(5), and (b)(8) of the 

Exchange Act, in particular the 

requirements that the rules of a national 

securities exchange ‘‘provide for the 

equitable allocation of reasonable dues, 

fees, and other charges among its 

members and issuers and other persons 

using its facilities,’’ not be ‘‘designed to 

permit unfair discrimination between 

customers, issuers, brokers, or dealers,’’ 

and ‘‘not impose any burden on 

competition not necessary or 

appropriate in furtherance of the 

purposes of [the Exchange Act];’’ as well 

as Section 11A of the Exchange Act and 

Rules 603(a)(1) and 603(a)(2) of 

Regulation NMS which, among other 

things, require the Exchange to 

distribute market data on terms that are 

‘‘fair and reasonable’’ and ‘‘not 

unreasonably discriminatory.’’11

II. Description of the Proposed Rule 

Change and Exchange’s 

Representations 

As described in more detail in the 

Notice and Order Instituting 

Proceedings, the Exchange proposes to 

increase non-member and member firm 

fees for Non-Display Usage 12 of depthof-book data and the fees for the 

Exchange’s 40Gb and 10Gb Ultra highspeed connections to the Exchange. 

However, the Exchange proposes to 

continue to charge the current fees for 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices 95823 

13See Notice, supra note 3, at 24070. 

14See Notice, supra note 3, at 24070–71. 

15See Notice, supra note 3, at 24071. 

16See Notice, supra note 3, at 24071. 

17See Notice, supra note 3, at 24070. 

‘‘Subscriber’’ is defined as a device or computer 

terminal or an automated service which is entitled 

to receive information. See id. 

18See Notice, supra note 3, at 24070. 

19See Notice, supra note 3, at 24070. 

20See Notice, supra note 3, at 24070. 

21See Notice, supra note 3, at 24070. 

22See Notice, supra note 3, at 24071. 

23See Notice, supra note 3, at 24071. 

24See Notice, supra note 3, at 24071. 

25See Notice, supra note 3, at 24071. 

26 15 U.S.C. 78s(b)(3)(C). 

27Rule 700(b)(3), Commission Rules of Practice, 

17 CFR 201.700(b)(3). 

28See id. 

29See id. 

30Susquehanna Int’l Group, LLP v. Securities and 

Exchange Commission, 866 F.3d 442, 447 (D.C. Cir. 

2017). 

31See Order Instituting Proceedings, supra note 9, 

at 46249. 

32Nasdaq states that, as explained in the Nasdaq 

Paper, exchanges are multi-sided platforms, whose 

value is dependent on attracting users to multiple 

sides of the platform. See Notice, supra note 3, at 

24071. The Exchange states that issuers need 

investors, and every trade requires two sides to 

trade, and to make its platform attractive to 

multiple constituencies, an exchange must consider 

inter-side externalities, meaning demand for one set 

of platform services depends on the demand for 

other services. See id. 

Non-Display Usage of depth-of-book 

data and the 40Gb and 10Gb Ultra highspeed connections to member firms that 

meet a minimum average daily 

displayed volume (‘‘Minimum ADV’’). 

The Exchange proposes Minimum ADV 

to mean the introduction by a member 

firm of at least one million shares of 

added executed displayed liquidity on 

average per trading day in all securities 

through one or more of the member 

firm’s market participant identifiers 

(‘‘MPIDs’’) on Nasdaq.13 Average daily 

volume is calculated as the total volume 

of shares executed for all added 

displayed orders in all securities during 

the trading month divided by the 

number of trading days in that month, 

averaged over the six-month period 

preceding the billing month, or the date 

the firm became a member, whichever is 

shorter.14 New members will be deemed 

to meet the Minimum ADV for the first 

month of operation.15 Minimum ADV 

excludes sponsored access by a member 

on behalf of a third party.16

The Exchange currently assesses nonmember and member firms Non-Display 

Usage fees for depth-of-book data on a 

per-subscriber or per-firm basis with 

monthly fees of $375 per subscriber for 

1–39 subscribers; $15,000 per firm for 

40–99 subscribers; $30,000 per firm for 

100–249 subscribers; and $75,000 per 

firm for 250 or more subscribers.17 The 

Exchange currently assesses monthly 

fees of $21,100 for the 40Gb fiber 

connection and $15,825 for the 10Gb 

Ultra connection to the Nasdaq equities 

and options exchanges.18 The Exchange 

proposes to maintain these fees for 

member firms that meet the Minimum 

ADV.19 Under the Proposal, nonmember firms and member firms that do 

not meet the Minimum ADV would pay 

higher monthly fees of $500 per 

subscriber for 1–39 subscribers; $20,000 

per firm for 40–99 subscribers; $40,000 

per firm for 100–249 subscribers; and 

$100,000 per firm for 250 or more 

subscribers.20 Non-member firms and 

member firms that do not meet the 

Minimum ADV would also pay higher 

monthly fees of $23,700 for the 40Gb 

fiber connection and $17,800 for the 

10Gb Ultra connection.21

The Exchange states that the 

Minimum ADV is set at a level that any 

member should be able to meet without 

significant effort.22 The Exchange also 

states that, because the Minimum ADV 

applies to displayed liquidity only, the 

proposed rule should not impact the 

best execution obligations of any 

member.23 The Exchange states that, if 

all its members were to meet the 

Minimum ADV, the proposed rule 

would add an incremental 60–80 

million shares to Nasdaq’s accessible 

liquidity.24 The Exchange proposes 

higher fees for non-members that do not 

post displayed liquidity to the market 

because, according to the Exchange, 

non-members do not directly contribute 

order flow to the Exchange, but 

nevertheless benefit from that order 

flow through tighter spreads, better 

prices, and the other advantages of a 

more liquid platform.25

III. Discussion and Commission 

Findings 

A. Applicable Standard of Review 

Under Section 19(b)(2)(C) of the 

Exchange Act,26 the Commission shall 

approve the proposed rule change of a 

self-regulatory organization (‘‘SRO’’) if 

the Commission finds that the proposed 

rule change is consistent with the 

requirements of the Exchange Act and 

the applicable rules and regulations 

thereunder; if it does not make such a 

finding, the Commission shall 

disapprove the proposed rule change. 

Additionally, under Rule 700(b)(3) of 

the Commission’s Rules of Practice, the 

‘‘burden to demonstrate that a proposed 

rule change is consistent with [the 

Exchange Act] and the rules and 

regulations issued thereunder . . . is on 

the self-regulatory organization that 

proposed the rule change.’’ 27 The 

description of a proposed rule change, 

its purpose and operation, its effect, and 

a legal analysis of its consistency with 

applicable requirements must be 

sufficiently detailed and specific to 

support an affirmative Commission 

finding.28 Any failure of an SRO to 

provide this information may result in 

the Commission not having a sufficient 

basis to make an affirmative finding that 

a proposed rule change is consistent 

with the Exchange Act and the 

applicable rules and regulations issued 

thereunder that are applicable to the 

SRO.29 Moreover, ‘‘unquestioning 

reliance’’ on an SRO’s representations in 

a proposed rule change is not sufficient 

to justify Commission approval of a 

proposed rule change.30

In the Order Instituting Proceedings, 

the Commission expressed concern, 

among other things, that the Proposal 

may fail to satisfy the standards under 

the Exchange Act and the rules 

thereunder that require market data and 

connectivity fees to be reasonable, 

equitably allocated, not unfairly 

discriminatory, and not an undue 

burden on competition.31 In reviewing 

the proposed rule change, the 

Commission has analyzed information 

provided by the Exchange and issues 

raised by commenters. Based on the 

information before the Commission, for 

each of the reasons discussed below 

(whether viewed independently or in 

combination), the Commission is unable 

to find that the Exchange has met its 

burden to show that the proposed rule 

change is consistent with the Exchange 

Act and the applicable rules and 

regulations thereunder, including 

Exchange Act Sections 6(b)(4), 6(b)(5), 

6(b)(8), 11A and Rules 603(a)(1) and 

603(a)(2) of Regulation NMS, and is 

therefore unable to find that the 

Proposal is consistent with the 

Exchange Act. 

B. The Exchange Has Not Met Its 

Burden To Demonstrate That the 

Proposal Is an Equitable Allocation of 

Reasonable Fees, Is Not Designed To 

Permit Unfair Discrimination, and Does 

Not Impose Any Burden on Competition 

Not Necessary or Appropriate in 

Furtherance of the Exchange Act 

1. Reasonable Fees and ‘‘Platform 

Competition’’ 

a. Exchange Statements 

As discussed in greater detail in the 

Notice, Nasdaq states that exchanges, 

like all trading venues, ‘‘compete as 

platforms,’’ 32 and that all the elements 

of the platform—trade executions, 

market data, connectivity, membership, 


lotter on DSK11XQN23PROD with NOTICES1
95824 Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices 

33See Notice, supra note 3, at 24071. 

34See Notice, supra note 3, at 24071. 

35See Notice, supra note 3, at 24071 and 15 

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

36See Notice, supra note 3, at 24071 (citing the 

staff document ‘‘Staff Guidance on SRO Rule filings 

Relating to Fees’’ (May 21, 2019), available at 

https://www.sec.gov/tm/staff-guidance-sro-rulefilings-fees (‘‘Staff Fee Guidance’’) (‘‘If significant 

competitive forces constrain the fee at issue, fee 

levels will be presumed to be fair and reasonable, 

and the inquiry is whether there is a substantial 

countervailing basis to find that the fee terms 

nevertheless fail to meet an applicable requirement 

of the Exchange Act (e.g., that fees are equitably 

allocated, not unfairly discriminatory, and not an 

undue burden on competition).’’)). Staff documents 

represent the views of Commission staff and are not 

a rule, regulation, or statement of the Commission. 

The Commission has neither approved nor 

disapproved the content of staff documents, and, 

like all staff documents, they have no legal force or 

effect, do not alter or amend the applicable law, and 

create no new or additional obligations for any 

person. 

37See Notice, supra note 3, at 24071. The 

Exchange further states that nothing in the 

Exchange Act requires proof of product-by-product 

competition, and Congress directed the Commission 

to ‘‘rely on ‘competition, whenever possible, in 

meeting its regulatory responsibilities for 

overseeing the SROs and the national market 

system.’ ’’ See id. (citing NetCoalition v. SEC, 715 

F.3d 342, 534–35 (D.C. Cir. 2013); H.R. Rep. No. 94– 

229 at 92 (1975) (‘‘[I]t is the intent of the conferees 

that the national market system evolve through the 

interplay of competitive forces as unnecessary 

regulatory restrictions are removed.’’)). The 

Exchange also states that the Commission and the 

courts have repeatedly expressed their preference 

for competition over regulatory intervention to 

determine prices, products, and services in the 

securities markets and states that the Commission 

has highlighted the importance of market forces in 

determining prices and SRO revenues. See id. 

(citing Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) 

(‘‘Regulation NMS Adopting Release’’) (the national 

market system ‘‘has been remarkably successful in 

promoting market competition in its broader forms 

that are most important to investors and listed 

companies.’’). The Exchange further states that the 

Commission has long relied on competitive forces 

to determine whether a fee proposal is equitable, 

fair, reasonable, and not unreasonably or unfairly 

discriminatory ‘‘[i]f significant competitive forces 

constrain the fee at issue, fee levels will be 

presumed to be fair and reasonable . . . .’’ See id. 

(citing Staff Fee Guidance). The Exchange also cites 

to a 2008 Commission Order stating ‘‘[i]f 

competitive forces are operative, the self-interest of 

the exchanges themselves will work powerfully to 

constrain unreasonable or unfair behavior.’’ See id. 

(citing Securities Exchange Act Release No. 59039 

(December 2, 2008), 73 FR 74770 (December 9, 

2008) (SR–NYSEArca–2006–21)). The Exchange 

explains that, accordingly, ‘‘the existence of 

significant competition provides a substantial basis 

for finding that the terms of an exchange’s fee 

proposal are equitable, fair, reasonable, and not 

unreasonably or unfairly discriminatory’’ and states 

that Commission Staff have indicated that they 

would only look at factors outside of the 

competitive market if a ‘‘proposal lacks persuasive 

evidence that the proposed fee is constrained by 

significant competitive forces.’’ See Notice, supra 

note 3, at 24071. As discussed in Sections III.B.1.c. 

and III.B.2.c. below, the Commission does not find 

that Nasdaq has sufficiently demonstrated that the 

proposed fees are subject to competition. In 

addition, the Exchange states that, in the Staff Fee 

Guidance, the Staff indicated that ‘‘[w]hen 

reviewing rule filing proposals . . . [it] is mindful 

of recent opinions by the D.C. Circuit,’’ including 

Susquehanna International Group, LLP v. SEC, 866 

F.3d 442 (D.C. Cir. 2017). See Notice, supra note 3, 

at 24072. However, the Exchange states that the 

decision of the U.S. Court of Appeals for the District 

of Columbia Circuit (‘‘D.C. Circuit’’) in 

Susquehanna is irrelevant to the Commission’s 

review of immediately effective SRO fee filings. See 

id. The Exchange states that Susquehanna involved 

the Commission’s approval of a rule proposed 

under Section 19(b)(2) of the Exchange Act, not its 

evaluation of whether to temporarily suspend an 

SRO’s immediately effective fee filing under 

Section 19(b)(3). See id. The Exchange states that 

a comparison of Sections 19(b)(2) and 19(b)(3) of 

the Exchange Act makes clear that the Commission 

is not required to undertake the same independent 

review, and make the same findings and 

determinations, for Section 19(b)(3) filings that it 

must for Section 19(b)(2) filings and, Section 

19(b)(2) requires the Commission to ‘‘find[ ] that [a] 

proposed rule change is consistent with the’’ 

Exchange Act before approving the rule. 15 U.S.C. 

78s(b)(2)(C)(i). The Exchange states that Section 

19(b)(3), by contrast, imbues the Commission with 

discretion, stating that it ‘‘may temporarily 

suspend’’ an immediately effective rule filing where 

‘‘it appears to the Commission that such action is 

necessary or appropriate.’’ See id. The Exchange 

further states that, as the Supreme Court has 

explained, statutes stating that an agency ‘‘may’’— 

but need not—take certain action are ‘‘written in the 

language of permission and discretion.’’ See id. 

(citing S. Ry. Co. v. Seaboard Allied Milling, 442 

U.S. 444, 455 (1979); see also Crooker v. SEC, 161 

F.2d 944, 949 (1st Cir. 1947) (per curiam)). The 

Exchange states that the ‘‘contrast’’ between 

Sections 19(b)(2) and 19(b)(3), ‘‘reflects the 

fundamental difference in the way Congress 

intended for different types of rules to be treated’’ 

and ‘‘while the Commission’s authority to suspend 

a fee under Subsection (3)(C) is permissive, its 

duties under Subsection (2) are stated in mandatory 

terms. See Notice, supra note 3, at 24072 (citing 

Brief of Respondent SEC, NetCoalition v. SEC, 715 

F.3d 342–43 (D.C. Cir. 2013) (Nos. 10–1421 et 

al.).’’). Thus, the Exchange states that neither 

Susquehanna, nor Section 19(b)(3) of the Exchange 

Act, requires the Commission to make independent 

findings that an immediately effective SRO fee 

filing such as this one is consistent with the 

Exchange Act and that to the degree that the 

Susquehanna decision is applicable to any 

Commission action, however, the court held that 

the Commission is required to ‘‘itself find or 

determine’’ that a proposal meets statutory 

requirements, explaining that the Commission is 

‘‘obligated to make an independent review’’ of an 

SRO’s proposal, and not rely solely on the work of 

the SRO. See id. (citing 866 F.3d at 4). When the 

Commission suspends an immediately effective rule 

filing, ‘‘Section 19(b)(3) [of the Exchange Act] 

requires that the Commission institute proceedings 

to determine whether the proposed rule change 

should be approved or disapproved under Section 

19(b)(2)(B) [of the Exchange Act],’’ and the 

‘‘Exchange Act’s requirements for approving a 

proposed rule change apply equally, regardless of 

whether the proposed rule were initially filed 

pursuant to Section 19(b)(2) or 19(b)(3) [of the 

Exchange Act].’’ See Securities Exchange Act 

Release No. 88493 (March 27, 2020), 85 FR 18617, 

18622 (April 2, 2020) (‘‘BOX Order’’). Consistent 

with that approach, the Commission critically 

evaluated the representations made and 

conclusions drawn by Nasdaq in the Proposal and 

determined based on the record that Nasdaq has 

failed to meet its burden to demonstrate that the 

Proposal is consistent with the Exchange Act, as set 

forth in Sections III.B.1.c. and III.B.2.c. below. 

38See Notice, supra note 3, at 24071. 

39See Notice, supra note 3, at 24071. The 

Exchange further states that, to the degree that the 

additional liquidity is moved from off-exchange 

venues to on-exchange platforms, overall market 

transparency will improve as well. See id. 

40See Notice, supra note 3, at 24072. 

41See Notice, supra note 3, at 24072 (citing 

NetCoalition, 615 F.3d at 539 (D.C. Cir. 2010) 

(quoting Securities Exchange Act Release No. 59039 

(December 2, 2008), 73 FR 74770, 74782–83 

(December 9, 2008) (SR–NYSEArca–2006–21)) (‘‘No 

and listings—operate in concert.33

Specifically, the Exchange states that 

trade executions increase the value of 

market data; market data functions as an 

advertisement for on-exchange trading; 

listings increase the value of trade 

executions and market data; and greater 

liquidity on the exchange enhances the 

value of ports and colocation services.34

The Exchange continues that reliance on 

competitive solutions is fundamental to 

the Exchange Act, and that where 

significant competitive forces constrain 

fees, fee levels meet the Exchange Act’s 

standard for the ‘‘equitable allocation of 

reasonable dues, fees, and other charges 

among members and issuers and other 

persons using its facilities,’’ 35 unless 

there is a substantial countervailing 

basis to find that a fee does not meet 

some other requirement of the Exchange 

Act.36 The Exchange states that 

evidence of what it calls ‘‘platform 

competition’’ demonstrates that each 

exchange product is sold in a 

competitive environment, and its fees 

will be an equitable allocation of 

reasonable dues, fees, and other charges, 

provided that nothing about the product 

or its fee structure impairs 

competition.37

The Exchange states that the Proposal 

to increase connectivity and market data 

fees for firms that do not meet the 

Minimum ADV is designed to promote 

competition by providing an incentive 

for members to provide displayed 

liquidity, thus attracting investors and 

increasing the overall interest in and 

value of the platform, enhancing and 

enriching the market data distributed to 

the industry.38 The Exchange states that 

this will also enable it to offer investors 

a more robust, lower-cost trading 

experience through tighter spreads and 

more efficient trading, placing it in a 

better competitive position relative to 

other exchanges and trading venues.39

The Exchange states that nothing in the 

Exchange Act requires the examination 

of fees in isolation and that the 

equitable allocation of reasonable dues, 

fees, and other charges among members 

and issuers refers generally to 

‘‘reasonable dues, fees, and other 

charges’’ as a whole, not individual 

fees.40

The Exchange states that the fact that 

the market for order flow is competitive 

has long been recognized by the 

courts.41 In addition, the Exchange 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices 95825 

one disputes that competition for order flow is 

‘fierce.’ . . . As the SEC explained, ‘[i]n the U.S. 

national market system, buyers and sellers of 

securities, and the broker-dealers that act as their 

order-routing agents, have a wide range of choices 

of where to route orders for execution’; [and] ‘no 

exchange can afford to take its market share 

percentages for granted’ because ‘no exchange 

possesses a monopoly, regulatory or otherwise, in 

the execution of order flow from broker dealers.’ ’’)). 

42See Notice, supra note 3, at 24072. 

43See Notice, supra note 3, at 24072, n.22. 

44See Notice, supra note 3, at 24072, n.22. 

Nasdaq states that the Staff Fee Guidance states that 

platform competition requires that the ‘‘overall 

return of the platform, rather than the return of any 

particular fees charged to a type of customer, . . . 

be used to assess the competitiveness of the 

platform’s market,’’ and that ‘‘[a]n SRO that wishes 

to rely on total platform theory must provide 

evidence demonstrating that competitive forces are 

sufficient to constrain the SRO’s aggregate return 

across the platform.’’ See id. (citing Staff Fee 

Guidance; Exchange’s emphasis). The Exchange 

states that it does not know, and cannot determine, 

whether returns (as opposed to fees) are equalized 

across platforms, because it does not have detailed 

cost information from other exchanges. See id. The 

statement that the Exchange does not know, and 

cannot determine, whether returns (as opposed to 

fees) are equalized across platforms is not relevant 

given that the Exchange has elected to seek to 

establish that equal fees (i.e., ‘‘all-in’’ costs) across 

platforms is evidence of competitive constraint on 

platforms. See Section III.B.1.c. infra addressing the 

merit of the Exchange’s argument that equal ‘‘allin’’ costs is evidence of competition between 

platforms. In addition, the Staff Fee Guidance does 

not state that knowledge of the returns of other 

platforms is needed when using platform theory to 

demonstrate a competitive environment. Rather, the 

Staff Fee Guidance highlights relevant evidence 

regarding a platform’s own returns. For example, 

the Staff Fee Guidance states ‘‘[a]n SRO that wishes 

to rely on total platform theory must provide 

evidence demonstrating that competitive forces are 

sufficient to constrain the SRO’s aggregate return 

across the platform. In this context, at a minimum 

an SRO must present data and analysis 

demonstrating that its aggregate return is 

constrained by competition at the platform level. 

Examples of relevant data would include evidence 

of the SRO’s sources and amounts of revenues, 

costs, and gross return of the entire platform. More 

specifically, an analysis of baseline revenues, costs, 

and profitability (before the proposed fee change) 

and the expected revenues, costs, and profitability 

(following the proposed fee change) would provide 

helpful data and analysis to support a finding that 

competitive forces are operating on the entire 

platform.’’ See Staff Fee Guidance, supra note 36 

(emphasis added). 

45See Notice, supra note 3, at 24072. See also 

Nasdaq Paper, supra note 5. 

46See Notice, supra note 3, at 24072. 

47See Notice, supra note 3, at 24072. 

48See Notice, supra note 3, at 24072. The 

Exchange states that, in contrast, inverted venues 

have the opposite price structure—liquidity 

providers pay to add liquidity, while liquidity 

takers earn a rebate—these platforms offer less 

liquidity, but better queue priority, faster fills, and 

lower effective spreads for investors. See id. 

49See Notice, supra note 3, at 24072. 

50See Notice, supra note 3, at 24072. 

51The Exchange states that the concept of 

markout was created by market makers trying to 

capture the spread while providing a two-sided (bid 

and offer) market. See Notice, supra note 3, at 

24072. The Exchange states that, for market makers, 

being filled on the bid or the offer can cause a loss 

if the fill changes market prices. See id. (stating as 

an example, a fill on a market maker’s bid just as 

the stock price falls results in a ‘‘virtual loss,’’ 

because the market maker has a long position with 

a new bid lower than the fill). The Exchange states 

that negative markouts can be beneficial. See id. 

(stating as an example, if an institutional investor 

is working a large buy order, negative markouts 

represent fills as the market falls, allowing later 

orders to be placed sooner, and likely at a better 

price, reducing the opportunity costs as well as 

explicit cost of building the position). The 

Exchange further states that data suggests that 

market participants employ sophisticated analytic 

tools to weigh the cost of immediate liquidity and 

lower opportunity costs against better spread 

capture (lower markouts) and explicit trading costs. 

See Notice, supra note 3, at 24073. The Exchange 

states that, as discussed in greater detail in the 

Nasdaq Paper, the venues with the highest explicit 

costs—typically inverted and fee-fee venues—have 

the lowest implicit costs from markouts and vice 

versa. See id. The Exchange also states that higher 

positive markouts mean more spread capture, but 

those venues also tend to have the highest explicit 

costs, and provide the least liquidity, and positive 

externalities, to the market. See id. 

52See Notice, supra note 3, at 24073. 

53See Notice, supra note 3, at 24073. 

54See Notice, supra note 3, at 24073. 

55The Exchange states that empirical evidence 

also shows that market data is more valuable from 

exchanges with more liquidity. According to the 

Exchange, many customers decide not to take data 

from smaller markets, even though they are free or 

much lower cost than larger markets. See Notice, 

supra note 3, at 24073. 

states that competition is not just 

limited to order flow.42 The Exchange 

states that ‘‘platform competition’’ 

constrains platform fees and results in 

‘‘all-in’’ costs becoming equal across 

platforms, and that evidence that ‘‘allin’’ costs to users have equalized is 

evidence that competition constrains 

prices ‘‘at a platform level.’’ 43

According to the Exchange, because 

platform competition can be 

demonstrated solely by examining and 

comparing ‘‘all-in’’ costs to users, there 

is no need for the Exchange to analyze 

platform returns.44 Nasdaq states that 

data presented in the Nasdaq Paper 

shows that the combination of explicit 

‘‘all-in’’ costs to trade and other implicit 

costs has largely equalized the cost to 

trade across venues.45 Nasdaq states that 

this is a function of the fact that, if the 

‘‘all-in’’ cost to the user of interacting 

with an exchange ‘‘exceeds market 

price,’’ customers can and do shift their 

purchases and trading activity to other 

exchanges; therefore, an exchange must 

adjust one or more of its fees to attract 

customers.46

The Exchange states that different 

exchanges engage in a variety of 

business models and offer an array of 

pricing options to appeal to different 

customer types; specifically, that the 

largest exchanges operate maker-taker 

platforms, offering rebates to attract 

trading liquidity, which allows them to 

maintain actionable quotes with high 

liquidity and offer high-quality market 

data.47 The Exchange further states that 

the negative price charged to liquidity 

providers through rebates is part of the 

platform because it serves to create 

features attractive to other participants, 

including oftentimes tight spreads, 

actionable and lit quotes, and more 

valuable market data.48 The Exchange 

states that there are a wide range of 

other pricing models and product 

offerings among the dozens of lit and 

unlit trading venues that compete in the 

marketplace.49 The Exchange further 

states that different strategies among 

exchanges also manifest in the pricing 

of other services, such as market data 

and connectivity, noting that some 

exchanges charge for such services, 

while others charge little or nothing 

(typically because the exchange is new 

or has little liquidity), just as some 

exchanges charge a fee per trade, while 

others pay rebates.50

In assessing competition for exchange 

services, the Exchange states that both 

explicit costs, such as fees for trading, 

market data, and connectivity, and 

implicit cost of trading on an exchange 

must be considered, and that ‘‘[t]he 

realized spread, or markout, captures 

the implicit cost to trade on a 

platform.’’ 51 The Exchange further 

states that, considering both the explicit 

costs charged by exchanges for their 

various joint products and the implicit 

costs incurred by traders to trade on 

various exchanges, as set forth in the 

Nasdaq Paper, the data show that ‘‘allin’’ trading costs across exchanges are 

largely equalized, regardless of different 

trading strategies offered by each 

platform for each individual service.52

The Exchange states that this serves to 

show that ‘‘platform competition’’ has 

resulted in a competitive environment 

in the market for exchange services, in 

which trading platforms are constrained 

by other platforms’ offerings, taking into 

consideration the ‘‘all-in’’ cost of 

interacting with the platform.53 The 

Exchange further states that this 

constraint is a natural consequence of 

competition and that no exchange 

platform can charge excessive fees and 

expect to remain competitive, thereby 

constraining fees on all products sold as 

part of the platform.54 The Exchange 

finally states that the existence of 

‘‘platform competition’’ also explains 

why some consumers route orders to the 

exchange with the highest explicit 

trading costs even though other 

exchanges offer free or a net rebate for 

trading.55

The Exchange states that exchange 

customers are differentiated in the value 

they place on the different products 

offered by exchanges and in their 

willingness to pay for those products on 

both a firm-wide and a per-transaction 


lotter on DSK11XQN23PROD with NOTICES1
95826 Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices 

56See Notice, supra note 3, at 24073. 

57See Notice, supra note 3, at 24073. 

58See Notice, supra note 3, at 24073. 

59See Notice, supra note 3, at 24073. 

60See Notice, supra note 3, at 24073 (citing 

Regulation NMS: Minimum Pricing Increments, 

Access Fees, and Transparency of Better Price 

Orders, Securities Exchange Act Release No. 96494 

(File No. S7–30–22) and stating that non-exchange 

venues rely on market data distributed by 

exchanges to set prices and greater transparency 

allows both exchange and non-exchange venues to 

operate more effectively and efficiently). 

61See Notice, supra note 3, at 24074. 

62See Notice, supra note 3, at 24074. 

63See Notice, supra note 3, at 24074. 

64 In addition, the Exchange states that its 

experience shows that fewer customers connect 

with smaller trading venues than with larger 

venues. See Notice, supra note 3, at 24073. 

65See Notice, supra note 3, at 24074. 

66See Notice, supra note 3, at 24073. 

67See Notice, supra note 3, at 24073. 

68See Notice, supra note 3, at 24073. 

69See Notice, supra note 3, at 24074. 

70See Notice, supra note 3, at 24074. 

71See Notice, at 24074 (emphasis original). See 

also Letter from John M. Yetter, Vice President and 

Senior Deputy General Counsel, Nasdaq, to Vanessa 

Countryman, Secretary, Commission, dated July 19, 

2024 (‘‘Nasdaq Response Letter’’), at 8. 

72See Letters from Tyler Gellasch, President and 

CEO, Healthy Markets Association, to Vanessa 

Countryman, Secretary, Commission, dated April 

24, 2024 (‘‘HMA Letter’’); Adrian Griffiths, Head of 

Market Structure, MEMX LLC to Vanessa 

Countryman, Secretary, Commission, dated June 12, 

2024 (‘‘MEMX Letter’’); and Ellen Greene, Managing 

Director, Equities and Options Market Structure and 

Joseph Corcoran, Managing Director, Associate 

General Counsel, Securities Industry and Financial 

Markets Association to Vanessa Countryman, 

Secretary, Commission, dated May 17, 2024 

(‘‘SIFMA Letter’’). 

73See HMA Letter, supra note 72, at 4; MEMX 

Letter, supra note 72, at 2; SIFMA Letter, supra note 

72, at 2. 

74See HMA Letter, supra note 72, at 4; MEMX 

Letter, supra note 72, at 2–3; SIFMA Letter, supra 

note 72, at 2. 

basis; for example, individual customers 

‘‘multi-home,’’ meaning they are 

customers on multiple platforms, and 

are thus able to route different trades to 

different platforms to take advantage of 

favorable opportunities offered on a 

trade-to-trade basis.56 The Exchange 

states that exchanges compete by 

offering differentiated packages of 

pricing and products to attract different 

categories of customer, and that 

consumers will ‘‘vote with their feet,’’ 

incentivizing platforms to supply an 

array of pricing and product offerings 

that suit diverse consumer needs far 

more effectively than a uniform, onesize-fits-some rigid product offering.57

The Exchange further states that if an 

exchange misprices a particular product 

such that its total return is boosted 

above competitive levels, competing 

exchanges will quickly attract customer 

volume through more attractive ‘‘all-in’’ 

trading costs.58 In addition, the 

Exchange states that if a particular 

package of pricing and products is not 

attractive to a sufficient volume of 

customers in a particular category, those 

customers may elect not to purchase the 

service and that this is why exchanges 

compete at a product level, as well as 

based on ‘‘all-in’’ trading costs.59

The Exchange states that the number 

of transactions completed on nonexchange venues has been growing, that 

‘‘allowing exchanges to compete as 

platforms’’ will help exchanges compete 

against non-exchange venues, and, to 

the extent order flow is shifted from 

non-exchange to exchange venues, 

overall market transparency will 

improve.60 The Exchange states that 

exchanges have a unique role to play in 

market transparency because they 

publish an array of pre- and post-trade 

data that non-exchange venues, almost 

entirely, do not. The Exchange also 

states that the Proposal will contribute 

to market quality because it will help 

bring new order flow to the Exchange, 

and greater displayed liquidity on the 

Exchange offers investors deeper, more 

liquid markets and execution 

opportunities.61 The Exchange states 

that increased order flow benefits 

investors by deepening the Exchange’s 

liquidity pool, potentially providing 

greater execution incentives and 

opportunities, offering additional 

flexibility for all investors to enjoy cost 

savings, supporting the quality of price 

discovery, promoting market 

transparency, and lowering spreads 

between bids and offers and thereby 

lowering investor costs.62 The Exchange 

states that, to the degree that liquidity 

is attracted from dark venues, that 

liquidity also increases transparency for 

the market overall, providing investors 

with more information about market 

trends.63

The Exchange states that ‘‘allowing 

exchanges to compete effectively as 

platforms’’ has other positive network 

effects: larger trading platforms offer 

lower average trading costs and, as 

trading platforms attract more liquidity, 

bid-ask spreads tighten, search costs fall 

(by limiting the number of venues that 

a customer needs to check to assess the 

market), and connection costs decrease, 

as customers have no need to connect to 

all venues.64 The Exchange states that 

the Proposal will help members that 

meet the Minimum ADV maintain lower 

costs and will benefit them through the 

many positive externalities associated 

with a more liquid exchange.65

The Exchange states that smaller 

established trading platforms provide 

specialized services that cater to 

individual customer needs, but that 

these specialized services help the 

smaller exchanges grow by driving 

liquidity to their platforms, and, if they 

are successful, achieve the economies of 

scale that benefit the larger 

enterprises.66 The Exchange states that, 

in line with its claim that the total costs 

of interacting with an exchange are 

roughly equal, smaller exchanges offset 

higher trading costs with lower 

connectivity, market data, or other 

fees.67 The Exchange states that, while 

the mix of fees will change as exchanges 

grow, the ‘‘all-in’’ cost of interacting 

with the exchange remains roughly the 

same.68

The Exchange states that the 

competition among exchanges as trading 

platforms, as well as the competition 

between exchanges and alternative 

trading venues, constrain exchanges 

from charging excessive fees for any 

exchange products, including trading, 

listings, ports, and market data.69 The 

Exchange also states that the fees that 

arise from the competition among 

trading platforms may be too low 

because they fail to reflect the benefits 

to the market as a whole of exchange 

products and services, allowing other 

venues to free-ride on these investments 

by the exchange platforms, increasing 

fragmentation and search costs.70 The 

Exchange states that, as long as total 

returns are constrained by competitive 

forces, there is no regulatory basis to be 

concerned with pricing of particular 

elements offered on a platform and that 

regulatory constraints in this 

environment are likely to reduce 

consumer welfare by constraining 

certain exchanges from offering 

packages of pricing and products that 

would be attractive to certain sets of 

consumers, thus impeding competition 

with venues that are not subject to the 

same regulatory limitations and 

reducing the benefits of competition to 

customers.71

b. Opposing Comments and Exchange 

Response 

All commenters oppose the 

Proposal.72 Multiple commenters state 

that the Exchange mischaracterizes the 

Proposal as a discount instead of a 

possible fee increase.73 Commenters 

state that the Proposal would raise fees 

on a number of Nasdaq market data and 

connectivity products and one 

commenter states that no Nasdaq 

member or non-member would benefit 

from lower fees under the Proposal; 

instead, some market participants 

would be charged higher fees.74

Commenters also state that the Proposal, 

including the Nasdaq Paper, does not 

include sufficient or meaningful data or 

justification to support the fee increase 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices 95827 

75See HMA Letter, supra note 72, at 4–5; MEMX 

Letter, supra note 72, at 3–6; SIFMA Letter, supra 

note 72, at 3–5. 

76See HMA Letter, supra note 72, at 4–5; SIFMA 

Letter, supra note 72, at 4–5. 

77See HMA Letter, supra note 72, at 5. 

78See SIFMA Letter, supra note 72, at 5. 

79See SIFMA Letter, supra note 72, at 6. This 

specific commenter states that the Proposal ‘‘did 

not include the number or size of members that 

currently trade in volumes that meet the definition 

of the proposed term ‘Minimum ADV,’ how many 

additional members it would expect to cross the 

threshold as a result of the [ ] Proposal, or 

comparison of these statistics at various volume 

threshold levels.’’ Id. at 8. 

80See SIFMA Letter, supra note 72, at 5. 

81See SIFMA Letter, supra note 72, at 4. The 

commenter cites to two reports, see Lawrence R. 

Glosten, ‘‘Economics of the Stock Exchange 

Business: Proprietary Market Data’’ (January 2020) 

and Expand & SIFMA, ‘‘An Analysis of Market Data 

Fees’’ (August 2018), available at https://

www.sifma.org/wp-content/uploads/2019/01/ 

Expand-and-SIFMA-An-Analysis-of-Market-DataFees-08-2018.pdf. 

82See SIFMA Letter, supra note 72, at 4 (citing 

Glosten, ‘‘Economics of the Stock Exchange 

Business; Proprietary Market Data,’’ at 4, supra note 

81). 

83See SIFMA Letter, supra note 72, at 4. 

84See HMA Letter, supra note 72, at 5. 

85See MEMX Letter, supra note 72, at 3. The 

commenter is another national securities exchange 

and states that other exchanges, including the 

commenter, have justified their non-transaction fees 

by providing detailed financial information to the 

Commission. 

86See MEMX Letter, supra note 72, at 3–4 (citing 

Staff Fee Guidance, supra note 36). 

87See MEMX Letter, supra note 72, at 4. The 

commenter states that the analysis provided by 

Nasdaq generally reflects the 2021 data related to 

trading on exchanges operated by the three 

incumbent exchange groups and one independent 

exchange with a unique market model (IEX) and 

that data about the cost of trading on new maker/ 

taker exchanges that compete more directly with 

the three incumbent exchange groups, including the 

commenter and MIAX Pearl, LLC, are excluded 

from various analysis. Id. at 4 n.14. Additionally, 

the commenter states that the data on trading on all 

three independent U.S. equities exchanges is stale 

and does not reflect relevant changes made by each 

of those markets in the last three years. Id. 

88See Nasdaq Response Letter, supra note 71. In 

the Response Letter, Nasdaq also raised certain 

procedural issues. See id. at 4, 20–22. The Exchange 

states that the Commission itself, and not staff 

acting under delegated authority, must act within 

the statutorily prescribed timing requirements of 

the Dodd-Frank Act, or the proposal will be deemed 

approved. See id. at 4 and 21. This argument lacks 

merit. See BOX Order, supra note 37, at 18625. The 

Exchange also states that if staff, under delegated 

authority, disapprove the proposal prior the 

statutorily provided time limit, and then the 

Commission exercises its discretionary right to 

review, either on its own initiative or upon petition, 

then the staff’s disapproval will not constitute 

action by the Commission, and thus, unless the 

Commission makes a final determination of the 

proposal within the statutory prescribed 240-day 

period, then the proposal is considered to have 

been deemed approved. See Nasdaq Response 

Letter, supra note 71, at 21–22. Orders issued by 

delegated authority ‘‘are issued will the full 

authority of the Commission and are signed by the 

Secretary’s office on behalf of the Commission.’’ See 

Securities Exchange Act Release Nos. 93229 

(October 1, 2021), 86 FR 55873, 55879 (October 7, 

2021) (SR–CboeBZX–2020–053) (‘‘CboeBZX Order’’) 

and 93230 (October 1, 2021), 86 FR 55881, 55887 

(October 7, 2021) (SR–CboeBZX–2020–070). Section 

4A of the Exchange Act authorizes the Commission 

to delegate certain functions, including the 

approval or disapproval of a proposed rule change 

under Section 19, to a ‘‘division of the 

Commission,’’ 15 U.S.C. 78d–1(a), and the 

Commission’s Rules of Practice are clear that ‘‘an 

action made pursuant to delegated authority shall 

have immediate effect and be deemed the action of 

the Commission.’’ See Commission Rule of Practice 

431(e), 17 CFR 201.431(e). See also, e.g., Rule of 

Practice 430(c), 17 CFR 201.430(c) (referring to ‘‘a 

final order entered pursuant to [delegated 

authority]’’); Rule of Practice 431(f), 17 CFR 

201.431(f) (giving an order by delegated authority 

operative effect, even when review has been sought, 

until a person receives actual notice that it was 

been stayed, modified, or reversed on review). 

Furthermore, as the Commission has stated, 

Congress was aware of the Commission’s ability to 

delegate authority to approve SRO rule filings when 

the time restrictions in Exchange Act Section 

19(b)(2)(D) were enacted; and, to construe Section 

19(b)(2), as Nasdaq does, to require Commission 

review of an order by delegated authority to be 

completed within 240 days ‘‘would undermine both 

the specific deadlines set forth in the statute and 

the Commission’s ability to delegate functions’’ and 

such a construction is not necessary to fulfill 

Congress’s purpose in enacting the deadlines to 

‘‘streamline’’ the rule filing process. See, e.g., BOX 

Order, supra note 37, at 18625–26 and Securities 

Exchange Act Release No. 82727 (February 15, 

2018), 83 FR 7793, 7799 (February 22, 2017). 

or the tying of costs from one product, 

market data, to another product, 

transactions.75 Commenters disagree 

with the Proposal’s claim that, due to 

‘‘platform competition,’’ the 

Commission does not need to look at the 

data for these specific fees, and state 

that the Exchange has not offered any 

relevant facts or analysis to support the 

imposition of these specific increased 

fees.76 One commenter states that the 

increase of 33% appears to be arbitrary, 

rather than the result of changes to 

explicit costs and rigorous analysis,77

and another commenter states that the 

Proposal fails to provide an analysis to 

support the reasonableness of the fee 

increases.78 One commenter states that 

the Exchange has not shared any 

analysis of how many, what types, and 

how firms will be impacted by the 

proposed fee change, which makes it 

difficult to provide meaningful 

comment on this aspect of the 

Proposal.79

Commenters also state that the 

Exchange has not demonstrated that 

‘‘platform competition’’ constrains the 

specific market data and connectivity 

fees subject to the Proposal. One 

commenter states that the Proposal and 

the Nasdaq Paper do not address how 

the fees for the specific products are 

constrained by ‘‘platform competition,’’ 

how the purported competition impacts 

the levels at which the Exchange has 

determined to set the proposed fees for 

these products, whether there are 

reasonable substitutes for the relevant 

products, any revenue or cost analysis 

to demonstrate the need for the 

increased fees, or any evidence that the 

increased fees would not result in 

supra-competitive profits for the 

Exchange.80 This same commenter also 

states that the evidence offered in the 

Nasdaq Paper is insufficient to 

demonstrate that the Exchange has been 

subject to significant competitive forces 

in setting the fees. The commenter states 

that they, along with other market 

participants, have previously provided 

evidence that rebuts the argument that 

‘‘platform competition’’ constrains an 

exchange’s market data fees and 

demonstrates that an exchange’s 

decision to offer multiple products 

(trading services and market-data 

products) does not constrain prices in 

the manner contemplated when a 

platform facilitates a multi-sided 

transaction.81 The commenter 

specifically states that it has provided 

evidence to the Commission that shows 

that, while trading on various exchanges 

can be substitutable, trade data from 

various exchanges is not.82 The 

commenter states that the prices that 

exchanges charge for trading are roughly 

reasonable, while the prices for trading 

data have in some cases increased 

significantly in the past years with no 

apparent competition-based reason.83

Another commenter states that the 

Proposal’s reliance on platform theory 

ignores the Exchange’s pricing power 

for its market data products.84

A different commenter states that the 

data and analysis in the Proposal and 

the Nasdaq Paper do not establish that 

‘‘platform competition’’ constrains the 

Exchange’s fees, that competitive forces 

are sufficient to constrain the 

Exchange’s aggregate return across the 

platform, or that market participants can 

avoid purchasing the Exchange’s 

services if the price of those services, 

either individually or as a whole, is 

unreasonable.85 The commenter states 

that the data provided by the Exchange 

does not include evidence that would be 

relevant to demonstrate ‘‘platform 

competition,’’ including evidence of its 

sources and amounts of revenues, costs, 

and the gross return of the entire 

platform.86 The commenter states that, 

at most, Nasdaq’s analysis shows that 

certain other large exchange groups may 

similarly charge unreasonable fees 

today, free of competitive constraints 

felt by smaller exchanges with lower 

fees that Nasdaq largely ignores in its 

analysis.87

The Exchange submitted a Response 

Letter, which reiterates many of the 

arguments made in the Proposal.88 The 


lotter on DSK11XQN23PROD with NOTICES1
95828 Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices 

89See Nasdaq Response Letter, supra note 71, at 

1–2. 

90See Nasdaq Response Letter, supra note 71, at 

5 n.18. 

91See Nasdaq Response Letter, supra note 71, at 

5. 

92See Nasdaq Response Letter, supra note 71, at 

8. 

93See Nasdaq Response Letter, supra note 71, at 

7. The Response Letter also states that ‘‘if the allin cost to the user of interacting with an exchange— 

taking into account the amount of liquidity on the 

exchange—exceeds market price, customers shift 

purchases away from that exchange, and therefore 

the exchange must adjust one or more of its fees to 

attract customers. The ‘all-in’ cost includes not only 

explicit costs, such as fees for trading, market data, 

and connectivity, but also the implicit costs of 

trading on an exchange.’’ Id. 

94See Nasdaq Response Letter, supra note 71, at 

14. 

95See Nasdaq Response Letter, supra note 71, at 

9, 11. In 2022, for example, Nasdaq reported that 

the introduction of fees for the five MRX data feeds 

caused an approximately 15% reduction in the 

number of customers with access to those feeds. 

Nasdaq states that it has also had cancellations of 

BX and PSX data feeds because the liquidity 

available on those exchanges has been insufficient 

to support the cost of market data. Id. 

96See Nasdaq Response Letter, supra note 71, at 

11. Nasdaq states that, as an example, 54% (15 out 

of 28) of market participants report on Form ATS– 

N that they purchase proprietary real time market 

data, while the remaining market participants rely 

on the Securities Information Processors (‘‘SIPs’’) 

for market information. Id. 

97See Nasdaq Response Letter, supra note 71, at 

12. The Exchange states that, while most of their 

top 25 customers purchase colocation services, that 

percentage drops below 60% for the next top 25, 

drops to only about 20% for the next 50, and 

approaches zero for most other customers. Id. 

98As an initial matter, this proposed fee change 

would be an increase for all non-members and 

members who do not attain the required Minimum 

ADV. The Exchange refers to the proposed rule 

change as a fee increase in its Response Letter. See 

Nasdaq Response Letter, supra note 71, at 4. 

99See Notice, supra note 3, at 24071. 

100See Notice, supra note 3, at 24072–73. 

101See Notice, supra note 3, at 24072. 102See Notice, supra note 3, at 24071. 103See Notice, supra note 3, at 24072. 

104See Notice, supra note 3, at 24072, n.22, and 

Nasdaq Paper, supra note 5. 

105See also MEMX Letter, supra note 72, at 4 

(‘‘[e]ven taken at face value, at most Nasdaq’s 

analysis shows that certain other large exchange 

groups may similarly charge unreasonable fees 

today’’). 

106See, e.g., W. Kip Viscusi, Joseph E. Harrington, 

Jr., & David E.M. Sappington, Economics of 

Regulation and Antitrust (5th ed. 2018), at 128–130 

and 177–178. See also supra notes 82–84 and 

accompanying text (commenters stating that there is 

a lack of competition for exchange market data 

products and that Nasdaq has pricing power for its 

market data products). 

Exchange states that reliance on 

competitive solutions is fundamental to 

the Exchange Act and that the Nasdaq 

Paper and its supporting evidence 

demonstrate that the proposed fees are 

subject to competitive forces and will 

enhance competition and benefit 

investors by incentivizing liquidity on 

the Exchange.89 The Exchange states 

that the services in the Proposal are 

inextricable from the operation of 

exchanges as a platform and the 

competitiveness of these fees must be 

analyzed ‘‘at the platform level’’ rather 

than by positing the existence of a 

product-by-product market existing in 

isolation from the platform.90 The 

Exchange also again states its belief that 

the Commission and the courts have 

expressed a preference for competition 

over regulatory intervention to 

determine prices, products, and services 

in the securities market.91 The Exchange 

states that regulatory constraints in this 

environment are likely to reduce 

consumer welfare by constraining 

certain exchanges from offering 

packages of pricing and products that 

would be attractive to certain sets of 

consumers, thus impeding competition 

with venues that are not subject to the 

same regulatory limitations and 

reducing the benefits of competition to 

consumers.92 The Exchange also states 

that its research shows that the 

combination of ‘‘all-in’’ costs to trade 

and other implicit costs has largely 

equalized the cost to trade across 

venues, which demonstrates that 

competition has helped constrain fees.93

The Exchange states that allowing 

‘‘platform competition’’ means that the 

exchanges will be better able to compete 

against non-exchange venues, and, to 

the degree order flow is shifted from 

non-exchange to exchange venues, 

overall market transparency is improved 

which enables non-exchange venues to 

provide more accurate pricing to their 

customers, and play their own role in 

capital formation more efficiently and 

effectively.94

The Exchange states that ‘‘platform 

competition’’ has constrained market 

data fees over the last two decades, 

because customers can and routinely do 

shift their purchases to another national 

securities exchange in response to 

competitive pricing alternatives and that 

fees have been constrained because 

customers have a choice in market data 

and connectivity.95 Nasdaq states that 

the fact that customers are turning to 

other sources for their data needs 

demonstrates that there is a competitive 

constraint on the fees that an exchange 

can charge.96 Nasdaq states that 

customers similarly have a choice in 

whether they purchase connectivity 

services and that of all the customers on 

the Exchange, only 4% purchase any 

colocation services at all, and only 22% 

purchase depth-of-book information.97

c. Analysis of ‘‘Platform Competition’’ 

Arguments in the Proposal 98

As described above, Nasdaq states 

that exchanges are multi-sided 

platforms, whose value is dependent on 

attracting users to multiple sides of the 

platform.99 Nasdaq’s justification that 

the Proposal provides for reasonable 

fees as required by Section 6(b)(4) of the 

Exchange Act, is that the Exchange is a 

platform that is subject to competition 

from other exchanges and trading 

venues ‘‘at the platform level’’ (not just 

the product level).100 Nasdaq states that 

this competition constrains fees for all 

of the products that the platform 

produces because the products are sold 

in a competitive environment (i.e., the 

competitive platform environment, not 

necessarily a competitive product 

environment).101 Accordingly, Nasdaq 

states that any fee for a product of its 

platform is reasonable, ‘‘provided that 

nothing about the product or its fee 

structure impairs competition.’’ 102

Nasdaq states that a result of 

‘‘platform competition’’ is that the ‘‘allin’’ costs (both explicit and implicit 

costs) for a user to interact with an 

exchange are largely equal across 

exchanges because, if an exchange 

‘‘exceeds market price’’ for its package 

of products, customers can and do shift 

their purchases and trading activity to 

other exchanges.103 Nasdaq states that 

‘‘platform competition’’ can be 

demonstrated by examining the ‘‘all-in’’ 

costs to users and the Nasdaq Paper 

seeks to demonstrate that the ‘‘all-in’’ 

costs to users are largely equal across 

platforms.104 Accordingly, the Proposal 

relies on the Nasdaq Paper and its 

analysis of user costs to attempt to 

demonstrate that competition between 

exchanges constrains fees and, in turn, 

that the proposed fees are reasonable. 

The Exchange does not explain how 

equal ‘‘all-in’’ user costs to trade across 

all exchanges establish that the 

Exchange’s fees for the market data and 

connectivity products subject to the 

Proposal are subject to competitive 

constraint. Even assuming that ‘‘all-in’’ 

user costs reflect the prices that users 

pay, equal ‘‘all-in’’ users costs would 

not be sufficient to establish the 

presence of sufficient competitive forces 

that would constrain the level of the 

Exchange’s proposed fees for the market 

data and connectivity products subject 

to the Proposal and ensure that such 

fees are reasonable.105 This is because a 

concentrated market where firms have 

significant market power can also have 

equal prices.106 As a result, establishing 

that prices are equal across firms does 

not establish the degree of competition 

between these firms. Accordingly, the 

Commission agrees with the opposing 

commenters’ statements above that 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices 95829 

107See HMA Letter, supra note 72, at 4–5; MEMX 

Letter, supra note 72, at 3–6; SIFMA Letter, supra 

note 72, at 3–5 (stating that ‘‘neither the proposal 

or the [Nasdaq Paper] demonstrate that platform 

competition constrains the specific market data and 

co-located connectivity fees as issue in the 

[Proposal].’’). 

108See Nasdaq Paper, supra note 5, at 60. 109See Nasdaq Paper, supra note 5, at 59–60. In 

an updated version of the analysis, Nasdaq states 

that instead, using updated data, competition has 

essentially equalized the explicit ‘‘all-in’’ costs of 

the three largest exchange families. See Nasdaq 

Letter at 11. This analysis does not change the 

Commission’s view that Nasdaq’s analysis of ‘‘allin’’ costs is flawed. First, even if explicit costs are 

‘‘equalized’’ across these three exchanges in 2022, 

they were shown to vary significantly in the older 

version of the analysis from 2021. It is not clear 

whether Nasdaq is showing that the exchange was 

not subject to the same degree of competition in 

2021 and 2022, or if there was a mistake in the 2021 

analysis. Comparing the updated analysis to the 

previous one at the least shows that their results are 

not particularly robust over time. Additionally, 

even if the updated figure is the ‘‘correct’’ one, there 

is no evidence that the costs from the updated 

figures are also equalized once implicit costs are 

considered. 

110See Nasdaq Paper, supra note 5, at 60. 

111See Nasdaq Paper, supra note 5, at 60 (Figure 

2: 2021 All-In Cost to Trade by Exchange); and 

Nasdaq Response Letter, supra note 71, at 11 

(Figure 2: 2002 Estimated All-In Cost to Trade). 

These categories include revenues related to 

colocation and ports, data, SIP revenue, and 

trading, as well as estimated data center costs. 

112See, e.g., Nasdaq Paper, supra note 5, at 71 

(referencing ‘‘market data, connectivity, and other 

fixed costs’’); and at 75 (referencing ‘‘the cost of 

market data and other fixed costs’’). 

113To see this, consider the example from above 

and assume that each exchange charges a liquidity 

take fee of $0.001 per share. The trader’s actual total 

transaction cost for each 100-share order would be 

$0.10 on each exchange. However, Nasdaq’s 

methodology would calculate user transaction costs 

as $5 on Exchange B (i.e., the exchange’s total 

transaction revenue¥$0.001 * 10,000 executed 

shares = $10¥divided by the number of trades, 

which is 2). 

114The issues with using ‘‘per-trade’’ costs are 

illustrated by ‘‘Figure 1: Industry-Wide All-In Cost 

to Trade’’ in the Nasdaq Response Letter which 

shows a drop in Nasdaq’s ‘‘all-in’’ cost measure 

(defined as revenues divided by trades) since 2019 

and which Nasdaq states shows that the explicit allin costs per trade have fallen industry-wide since 

2019 (excluding markouts). See Nasdaq Response 

Letter, supra note 71, at 10. However, Nasdaq does 

not acknowledge that this same figure also shows 

that there was a significant increase in trading 

volume in 2019. Nasdaq does not address the 

likelihood that, unless there was a particularly 

significant drop in revenues beginning in 2019, this 

‘‘drop’’ in the ratio of revenues to trades was most 

likely driven by an increase in the number of trades 

(i.e., the denominator) rather than a decrease in 

revenues (i.e., the numerator). 

115See, e.g., Nasdaq Paper, supra note 5, at 67 

(stating that ‘‘U.S. exchanges operate a number of 

different platform business models today, and each 

is able to attract customers and compete,’’ and 

‘‘how do all these different business models 

compete unless all-in costs to users are 

constrained?’’). 

116See Nasdaq Paper, supra note 5, at 68 (Table 

1: Heatmap of Different Exchange Models and Their 

Characteristics). 

117See also Nasdaq Paper, supra note 5, at 60, 

stating that ‘‘implicit costs explain how venues 

with far higher explicit costs manage to compete 

with seemingly much cheaper venues’’ and at 61, 

stating that ‘‘[t]aking all explicit costs to trade into 

account, however, reveals significant differences 

across exchanges . . . Such a sizeable disparity 

suggests that there is another factor that keeps these 

exchanges in competition.’’ 

Nasdaq has not demonstrated that the 

specific market data and connectivity 

fees subject to the Proposal are 

constrained by competition.107

Therefore, the Commission finds that 

Nasdaq has failed to meet its burden 

under the Exchange Act to demonstrate 

that the proposed fees are reasonable as 

required under Section 6(b)(4) of the 

Exchange Act. 

The evidence that Nasdaq provides is 

flawed in other ways as well. Nasdaq’s 

two-step analysis,108 which it states 

shows that competition equalizes ‘‘allin’’ user costs across exchanges, uses a 

methodology that does not allow those 

costs to be compared accurately across 

exchanges. Nasdaq first claims to 

examine explicit ‘‘all-in’’ user costs and 

finds that these costs vary significantly 

across exchanges.109 Nasdaq then adds 

implicit costs for users to trade on each 

venue, which Nasdaq claims broadly 

equalizes costs to the user across 

venues.110 Nasdaq’s analysis of explicit 

‘‘all-in’’ user costs across exchanges 

uses a methodology to determine user 

costs by taking the annual revenues ‘‘per 

category’’ of costs for each exchange 

group and dividing by the total number 

of trades for each exchange group, 

respectively.111 This methodology to 

determine user costs as revenue 

normalized ‘‘per trade’’ (i.e., annual 

exchange revenue per cost category/total 

annual trades for the exchange) does not 

allow for an accurate comparison of an 

individual trader’s ‘‘all-in’’ costs across 

exchanges—where there are potentially 

very different order flow levels and 

average order sizes that vary by trader. 

As Nasdaq acknowledges, 

connectivity and data costs are fixed 

costs 112—meaning that, all else being 

equal, these costs will be the same 

regardless of the number of transactions 

effected by the trader. First, dividing 

fixed costs by the number of trades will 

make these costs for exchanges that 

execute more trades appear lower than 

for exchanges that execute fewer trades, 

even when it is not the case. For 

example, consider a trader that 

purchases fiber connections to three 

exchanges (A, B and C), each of which 

costs $20,000 per month and are 

otherwise identical. The trader executes 

a 100-share order on each exchange. 

Assume that this is the only trade 

executed on Exchange A, while 

Exchange B executes a single additional 

9,900-share order from a different 

trader, and Exchange C executes 99 

additional 100-share orders, again from 

different traders. Following Nasdaq’s 

methodology, this would create the 

misleading result of connectivity costs 

(per trade) of $20,000 on Exchange A, 

$10,000 on Exchange B, and $200 on 

Exchange C, which does not reflect the 

fact that the trader paid the same 

$20,000 to connect to and execute an 

identical trade on each exchange. 

Second, since variable costs are 

typically assessed on a per-share, and 

not per-trade, basis, Nasdaq’s 

methodology will similarly make user 

costs for exchanges with a smaller 

number of trades appear higher, all else 

equal.113 Accordingly, Nasdaq’s 

methodology for measuring explicit user 

costs does not provide for an accurate 

comparison of such costs across 

exchanges.114

Additionally, Nasdaq draws 

unsupported conclusions from certain 

intermediate steps in its reasoning. 

Many of Nasdaq’s arguments conflate 

the fact that exchanges are able to attract 

customers despite different business 

models as evidence that competition 

constrains ‘‘all-in’’ user costs.115 For 

example, in reference to ‘‘Table 1: 

Heatmap of Different Exchange Models 

and Their Characteristics,’’ Nasdaq 

assumes that the ability of exchanges 

with different business models and cost 

structures to attract customers means 

that all-in costs ‘‘must’’ be constrained 

by competition.116 However, the ability 

of an exchange to attract customers to its 

market data and connectivity products 

is not evidence of competition for those 

products; the same result could also 

hold were the exchange to have market 

power or be a monopolist for its market 

data and connectivity products. 

Nasdaq then goes on to discuss how 

different exchanges ‘‘compete’’ (i.e., 

attract customers) despite their vastly 

different explicit costs, and it concludes 

that it must be the case that ‘‘all-in’’ user 

costs at some point must equalize (i.e., 

through implicit costs) 117—questioning 

why else a customer would choose to 

purchase from a more expensive 

exchange when a cheaper one is 

available. This discussion ignores the 

fact that disparate prices are also 

consistent with certain products of the 

exchanges simply being different; and 

potentially different enough such that 

some products, such as the market data 

and connectivity products subject to the 

Proposal, do not even compete. 

Therefore, this line of reasoning does 

not provide support for the role Nasdaq 

presents for implicit costs, which in any 

case is never empirically demonstrated, 

as discussed below. 

In order for the Exchange to rely on 

its proposition that ‘‘all-in’’ costs to 


lotter on DSK11XQN23PROD with NOTICES1
95830 Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices 

118See, e.g., Notice, supra note 3, at 24072 

(stating that ‘‘[d]ata shows that the combination of 

explicit all-in costs to trade and other implicit costs 

has largely equalized the cost to trade across 

venues.’’) and Nasdaq Paper, supra note 5, at 60 

(stating that ‘‘it is clear . . . that all-in costs to users 

are roughly equal across exchanges.’’), and at 81 

(stating that ‘‘[a]s we have shown . . . , platform 

competition has already resulted in rough 

equalization of all-in costs for users across exchange 

venues.’’). 

119See, e.g., Notice, supra note 3, at 24072, and 

Nasdaq Paper, supra note 5, at 59 (stating that 

‘‘[c]ustomers consider the all-in cost for them to 

trade at each venue, including the explicit costs of 

trading, connectivity, membership, and data,’’ and 

that ‘‘implicit costs to trade cannot be overlooked 

in assessing competition.’’). 

120See Nasdaq Paper, supra note 5, at 59. 

121See Nasdaq Paper, supra note 5, at 59. 

122See Nasdaq Paper, supra note 5, at 60. 

123See Nasdaq Paper, supra note 5, at 60–72. 

124See Nasdaq Paper, supra note 5, at 60 (Figure 

2: 2021 All-In Cost to Trade by Exchange). 

125See Nasdaq Paper, supra note 5, at 62 (Figure 

3: Per-Trade Markouts and Net Transaction Fees by 

Exchange). 

126See Nasdaq Paper, supra note 5, at 65 (Figure 

4: All-In Trading Costs by Venue). 

127See Nasdaq Paper, supra note 5, at 68 (Table 

1: Heatmap of Different Exchange Models and Their 

Characteristics). 

128See Nasdaq Paper, supra note 5, at 70 (Figure 

6: Maker-Taker Venues Have Most Time at NBBO 

and Highest value data). 

129See Nasdaq Paper, supra note 5, at 71 (Figure 

7: The SIP incentive structure rewards venues that 

contribute most to the NBBO). 

130Similarly, Nasdaq included in its response 

letter a ‘‘Figure 1: Industry-Wide All-In Cost to 

Trade’’ that purports to show changes in industrywide explicit costs to trade over time, during the 

period from 2017–2021, but does not include 

implicit costs, and furthermore does not allow for 

a comparison of costs across individual exchanges. 

Nasdaq Response Letter, supra note 71, at 10. 

131Nasdaq’s implicit cost analysis and explicit 

cost analysis do not clearly reflect the costs 

incurred by similar groups of traders so cannot be 

combined. For example, while the connectivity and 

market data costs in Figure 2 are presumably 

incurred by all traders that connect to the exchange, 

the analysis of realized spreads in Figure 3 only 

considers the estimated fees/rebates paid by a 

‘‘large market marker.’’ See id. Furthermore, as 

Nasdaq acknowledges, ‘‘markouts,’’ i.e., realized 

spreads, measure the theoretical profitability from 

the perspective of a liquidity provider, which 

represents a cost to the liquidity taker. See Nasdaq 

Paper, supra note 5, at 61 n.35. As such, they reflect 

a cost incurred by one group of market participants 

on an exchange, but the theoretical profits of 

another group. 

132For example, while Figure 2, Figure 3, and 

Table 1 are presented in units of ‘‘mils’’ (i.e., 1/ 

1,000th of a dollar); Figure 4 is presented in basis 

points (i.e., 0.01 percentage points). See Nasdaq 

Paper, supra note 5, at 60–72. In addition, while 

Figures 2 and 3 are presented ‘‘per trade,’’ it is not 

clear whether Table 1 and Figure 4 are presented 

per trade or per share. See id. 

133See Notice, supra note 3, at 24074. 

134See Notice, supra note 3, at 24074. 

135See Notice, supra note 3, at 24073. 

136See Notice, supra note 3, at 24074. 

137See Notice, supra note 3, at 24074. 

138See Notice, supra note 3, at 24074. 

139See Notice, supra note 3, at 24074. 

users being equal across exchanges 

implies that there is competition 

between exchanges that constrains fees 

across exchange products, the Exchange 

must at least establish that the ‘‘all-in’’ 

costs to users across exchanges are in 

fact largely equal. The Exchange claims 

to have demonstrated that users’ ‘‘allin’’ costs are largely equal across trading 

venues,118 including explicit costs 

related to connectivity, data, and 

transactions in its discussion, as well as 

implicit transaction costs, as measured 

by realized spreads.119 Nasdaq states 

that ‘‘[d]emonstrating that exchanges 

compete at the platform level, and that 

[‘]all-in[’] costs to the user are already 

constrained by that competition, 

requires a two-step analysis.’’ 120 First, 

Nasdaq claims to analyze the ‘‘all-in’’ 

explicit costs for the user to trade across 

exchanges, which Nasdaq states vary 

significantly.121 Second, Nasdaq claims 

to analyze the implicit costs for a user 

to trade on each venue, which Nasdaq 

states broadly equalizes the costs to 

users across venues.122 Nasdaq’s claim 

that ‘‘all-in’’ costs to users are largely 

equal across exchanges, which Nasdaq 

claims is a sign of competition between 

platforms constraining fees for the 

market data and connectivity products 

subject to the Proposal, cannot be 

verified by the supplied data. This is 

because the Exchange’s figures do not 

combine all of the costs the Exchange 

claims are relevant to a user’s decision 

to trade on a given exchange.123 For 

example, in the Nasdaq Paper, ‘‘Figure 

2: 2021 All-In Cost to Trade by 

Exchange’’ 124 includes data, 

connectivity, and explicit transaction 

costs, but not implicit transaction costs; 

‘‘Figure 3: Per-Trade Markouts and Net 

Transaction Fees by Exchange,’’ 125

‘‘Figure 4: All-In Trading Costs by 

Venue,’’ 126 and ‘‘Table 1: Heatmap of 

Different Exchange Models and Their 

Characteristics’’ 127 include explicit and 

implicit transaction costs but not data or 

connectivity costs; ‘‘Figure 6: MakerTaker Venues Have Most Time at NBBO 

and Highest value data’’ 128 and ‘‘Figure 

7: The SIP incentive structure rewards 

venues that contribute most to the 

NBBO’’ 129 purport to establish a link 

between data fees and transaction 

volumes, showing a large variation in 

data-related fees and revenues across 

trading venues, but do not combine this 

with information about other costs.130

The Exchange has not provided a figure 

that combines all costs, both implicit 

and explicit and both transactionrelated and data/connectivity-related, 

that the Exchange itself states are part of 

a user’s decision to participate on a 

trading venue. It is also not clear how 

the figures provided by Nasdaq should 

be combined,131 or whether the figures 

provided by Nasdaq are calculated using 

the same units.132

Because Nasdaq has not sufficiently 

demonstrated that ‘‘all-in’’ costs to users 

across exchanges are in fact largely 

equal, which Nasdaq claims is the 

fundamental basis for its finding that it 

is subject to competition for all of its 

joint platform products, the Commission 

is unable to find that Nasdaq has met its 

burden to demonstrate that the 

proposed fees are reasonable as required 

by Section 6(b)(4) of the Exchange Act. 

2. Equitable Allocation of Reasonable 

Fees, Unfair Discrimination, and Burden 

on Competition 

a. Exchange Arguments 

The Exchange states that the proposed 

fees are equitable and reasonable 

because they will be subject to 

competition.133 The Exchange states 

that the Proposal is not unfairly 

discriminatory and that Non-Display 

Usage of depth-of-book data and the 

Exchange’s 40Gb and 10Gb Ultra highspeed connections will be offered to all 

members and non-members on like 

terms.134 The Exchange states that 

incentive programs have been widely 

adopted by exchanges, and are 

reasonable, equitable, and nondiscriminatory because they are open on 

an equal basis to similarly situated 

members and provide additional 

benefits or discounts that are reasonably 

related to the value to an exchange’s 

market quality and activity.135 The 

Exchange also states that the Proposal is 

not unfairly discriminatory with respect 

to either members or non-members as it 

is not unfair to charge more to firms that 

do not directly contribute order flow to 

the Exchange, but nevertheless benefit 

from that order flow through tighter 

spreads, better prices, and the other 

advantages of a more liquid platform.136

The Exchange states that all members 

that meet the ADV threshold will be 

charged lower fees and Nasdaq offers 

rebates to members that offer displayed 

liquidity.137 The Exchange states that, 

with these rebates, any member—even 

smaller members—should have the 

ability to post sufficient displayed 

liquidity to meet the ADV threshold.138

The Exchange also states that the 

Proposal is not unfairly discriminatory 

with respect to non-members that are 

broker-dealers because they have the 

option of becoming members to obtain 

the lower fees, and because they realize 

the benefits of higher liquidity, 

including tighter spreads and better 

prices, and it is not unfair 

discrimination to charge a higher fee for 

that benefit.139 The Exchange further 

states that the Proposal is not unfairly 


lotter on DSK11XQN23PROD with NOTICES1
Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices 95831 

140See Notice, supra note 3, at 24074. 

141See also Notice, supra note 3, at 24074 (citing 

as an example The Nasdaq Stock Market, Price 

List—U.S. Equities, available at http://

www.nasdaqtrader.com/Trader.aspx?id=DPUSData 

(providing discounts for Non-Professional 

subscribers for Nasdaq TotalView and other market 

data products, enterprise licenses for broker-dealers 

for multiple market data products, and a digital 

media enterprise license for Nasdaq Basic)). 

142See HMA Letter, supra note 72, at 6–8 and 

SIFMA Letter, supra note 72, at 3 (both citing 

portions of Release No. 65362 (September 20, 2011), 

76 FR 59466 (September 26, 2011) (SR–NASDAQ– 

2011–010) (Order Disapproving a Proposed Rule 

Change to Link Market Data Fees and Transaction 

Execution Fees) (‘‘NASDAQ–2011–010 Disapproval 

Order’’) (specifically citing the Commission 

statements that ‘‘[t]he Commission also does not 

believe NASDAQ has demonstrated that the 

incremental step of linking the pricing of trade 

executions and market data is an equitable 

allocation of fees, or is not unfairly or unreasonably 

discriminatory . . . exchanges that do not provide 

market data, or that already do not charge any 

participant for market data, would not be able to 

respond to NASDAQ’s proposal with a similar 

pricing scheme,’’ ‘‘preventing the linking of market 

data fees to trade executions will help bolster 

competitive forces in the area of market data, 

because exchange market data fees must appeal 

simultaneously to market participants that trade 

directly on an exchange and those that do not trade 

directly on an exchange . . . . The Commission 

believes it is important to preserve competitive 

forces for market data as much as possible,’’ and 

‘‘The Commission is similarly concerned about 

placing an undue burden on competition in the 

execution services market. NASDAQ’s proposal 

would allow it to use significant discounts on fees 

for its market data products as an inducement to 

attract order flow rather than relying on the quality 

of its transaction services and the level of its 

transaction fees to compete for orders. NASDAQ 

states that any competitor exchange could choose 

to respond to the proposed pricing by NASDAQ by 

offering its own discounts on its data products.’’). 

See also MEMX Letter, supra note 72, at 5–8 

(further questioning why the Exchange would file 

such a similar proposal to the one that was 

disapproved in 2011, and states that the Proposal 

may be a pre-emptive response to anticipated 

changes to Regulation NMS and its market structure 

rules limiting transaction-based incentives as it 

would potentially preserve the ability for 

incumbent exchanges to influence market 

participant routing behavior and stating that the 

Proposal ‘‘offers a potential end run around such 

changes by allowing larger incumbent exchanges to 

provide ‘incentives’ through increasing fees charged 

for related services and then ‘discount[ing]’ those 

fees for firms that meet specified volume 

thresholds’’ which would ‘‘preserve the ability for 

incumbent exchanges to influence market 

participant routing behavior in a world where 

explicitly transaction-based incentives are more 

difficult to offer due to regulatory constraints’’ and 

‘‘[s]maller exchanges that price their services fairly, 

as required by the [Exchange] Act, would not be 

able to provide comparable incentives as the 

incentives are predicated on charging excessive fees 

that are then reduced for market participants that 

route order flow to the exchange implementing the 

fee instead of one of many competitive execution 

venues.’’). 

143See MEMX Letter, supra note 72, at 2. 

144See HMA Letter, supra note 72, at 5. This 

same commenter states that ‘‘[i]n the face of that 

reality, Nasdaq’s wholly unsupported claim that 

these fees, in particular, should be permitted 

because they are somehow part of an overall 

competitive environment rings hollow.’’ Id. 

145See SIFMA Letter, supra note 72, at 3 and 5 

(also stating that there is not sufficient information 

or analysis provided in the Proposal to overcome 

these concerns). 

146See MEMX Letter, supra note 72, at 5–6 (also 

stating that the fact that the Minimum ADV 

required is low does not make the Proposal any less 

unfairly discriminatory or anti-competitive). 

147See Nasdaq Response Letter, supra note 71, at 

15. 

148See Nasdaq Response Letter, supra note 71, at 

16–17. Nasdaq states that Commission ‘‘has 

acknowledged that exchanges can offer different 

prices to ‘particular classes of subscribers’ based on 

market conditions such as ‘their economic 

circumstances and their needs for and use of . . . 

information.’ ’’ Id. at 17 (citing Concept Release, 

Regulation of Market Information Fees and 

Revenues, 64 FR 70613, 70630 (December 17, 1999). 

149See Nasdaq Response Letter, supra note 71, at 

16. 

150See Nasdaq Response Letter, supra note 71, at 

17. 

151See Nasdaq Response Letter, supra note 71, at 

19. 

152See Nasdaq Response Letter, supra note 71, at 

19–20. 

153See Nasdaq Response Letter, supra note 71, at 

20 (stating that courts are wary about claims that 

offering discounts is anti-competitive because lower 

prices benefit customers regardless of how those 

prices are set, as long as they are above predatory 

levels). 

154See Nasdaq Response Letter, supra note 71, at 

20. 

discriminatory with respect to nonmember firms that are not brokerdealers, such as market data vendors 

and index providers, because they also 

benefit from the value that the 

additional liquidity generated by this 

Proposal will provide to the trading 

platform.140 The Exchange states that 

discounts for specific categories of 

market participants are well-established, 

and include non-professional fees, 

broker-dealer enterprise licenses, and a 

media enterprise license.141

b. Opposing Comments and Exchange 

Response 

Multiple commenters state that the 

Proposal is unfairly discriminatory, as 

well as an undue burden on 

competition, and inconsistent with a 

past Commission order disapproving a 

similar Nasdaq proposed rule change.142

One commenter states that the Proposal 

is an example of Nasdaq leveraging its 

market power to reduce competition ‘‘by 

offering discounts on overpriced 

services’’ to Nasdaq members who route 

order flow to Nasdaq.143

One commenter states that any 

Nasdaq member trading less than the 

proposed Minimum ADV would be 

disadvantaged by having to pay higher 

connectivity fees or by having to alter its 

order routing in a way that the current 

volume on Nasdaq suggests would be 

sub-optimal for business, creating a 

massive burden on competition, and 

discriminating against those who cannot 

or do not qualify, as well as other 

trading venues.144 Another commenter 

states that non-members will always pay 

higher fees as well as members who do 

not meet the threshold, which benefits 

the larger members on the Exchange, 

and the Exchange itself, at the expense 

of smaller members and non-members 

and creates a significant competitive 

imbalance in the markets for the 

relevant market data and connectivity 

services.145 Another commenter 

similarly states that the Proposal is an 

undue burden on competition and 

discriminates against those who are not 

members or who cannot meet the 

Minimum ADV as market data and 

connectivity are indispensable to 

broker-dealers and other market 

participants.146

In response, Nasdaq states that there 

is nothing inherently unfair or 

discriminatory about offering different 

prices to different categories of 

customers based on the type or quantity 

of the service purchases, including 

providing incentives to certain 

customers to direct more order flow to 

an exchange.147 Nasdaq further states 

that offering pricing incentives to attract 

customer orders is procompetitive 

behavior and states that Commission 

‘‘has approved differential pricing on 

numerous prior occasions.’’ 148 Nasdaq 

states that a prohibition against all 

differential pricing would suppress 

competition and harm buyers because 

the sellers would likely respond by not 

making any price cuts at all to avoid the 

cost of extending them to all buyers, 

which would in effect establish an 

artificial price floor.149 Nasdaq states 

that differentiation and variation in 

product offerings are hallmarks of 

competition and beneficial to customers 

and consumer welfare.150 Nasdaq also 

states that the Minimum ADV is 

reasonable because the burden on any 

member is expected to be minor and 

such a burden is offset by the significant 

benefit to all market participants of 

more efficient trading and lower 

costs.151

Nasdaq reiterates that the Proposal is 

neither unfairly discriminatory to a nonmember broker-dealer because the nonmember broker-dealers have the option 

of becoming members to obtain the 

proposed lowered fee and they also 

realize the benefits of more liquidity on 

the exchange, nor to non-member firms 

that are not broker-dealers since those 

non-members also benefit from the 

additional liquidity expected by the 

Proposal.152 Finally, Nasdaq states that 

the Proposal does not place an undue 

burden on competition and that 

providing discounts is not anticompetitive,153 and that bundled 

discounts are also pro-competitive.154


lotter on DSK11XQN23PROD with NOTICES1
95832 Federal Register / Vol. 89, No. 232 / Tuesday, December 3, 2024 / Notices 

155See NASDAQ–2011–010 Disapproval Order, 

supra note 142. ‘‘[A]n exchange proposal that seeks 

to penalize market participants for trading in 

markets other than the proposing exchange would 

present a substantial countervailing basis for 

finding unreasonable and unfair discrimination and 

likely would prevent the Commission from 

approving an exchange proposal.’’ See Securities 

Exchange Act Release No. 59039 (December 2, 

2008), 73 FR 74770, 74791 (December 9, 2008) (SR– 

NYSEArca–2006–21) (Order Setting Aside Action 

by Delegated Authority and Approving Proposed 

Rule Change Relating to NYSE Arca Data), vacated 

and remanded by NetCoalition v. SEC, No. 09–1042 

(D.C. Cir. 2010) but on other grounds. 

156The Commission agrees with the commenter 

who states that the absence of an analysis of how 

many, what types, and how firms will be impacted 

by the proposed fee change makes it difficult to 

evaluate the proposed Minimum ADV threshold. 

See SIFMA Letter, supra note 72, at 6. This specific 

commenter states that the Proposal ‘‘did not include 

the number or size of members that currently trade 

in volumes that meet the definition of the proposed 

term ‘Minimum ADV,’ how many additional 

members it would expect to cross the threshold as 

a result of the [ ] Proposal, or comparison of these 

statistics at various volume threshold levels.’’ Id. 

157See supra note 155. 

158See Notice, supra note 3, at 24071. 

159See Nasdaq Response Letter, supra note 71, at 

20. 

160See Nasdaq Response Letter, supra note 71, at 

20. 

161See supra notes 82–84 and accompanying text 

(commenters stating that there is a lack of 

competition for exchange market data products and 

that Nasdaq has pricing power for its market data 

products). 

162 15 U.S.C. 78s(b)(3)(C). 

163 17 CFR 200.30–3(a)(12). 

c. Analysis of Arguments Regarding 

Equitable Allocation, Unfair 

Discrimination, and Burden on 

Competition Not Necessary or 

Appropriate 

Nasdaq proposes to increase fees for 

certain market data and connectivity 

products and to maintain the current 

fees for such products if members meet 

the Minimum ADV. The Proposal would 

thereby link the level of Nasdaq trading 

volume (i.e., executed displayed 

volume) to the level of fees for Nasdaq 

market data and connectivity products. 

In disapproving a prior Nasdaq proposal 

to link market data pricing to 

transaction volume, the Commission 

cited its previous statement that the 

Exchange Act precludes exchanges from 

adopting terms for market data 

distribution that unfairly discriminate 

by favoring participants in an 

exchange’s market or penalizing 

participants in other markets.155 Nasdaq 

has not demonstrated that the 

incremental step of linking the pricing 

of market data and connectivity to 

Nasdaq trading volume (i.e., the 

Minimum ADV) is an equitable 

allocation of fees as required by Section 

6(b)(4) of the Exchange Act, is not 

unfairly discriminatory as required by 

Section 6(b)(5) of the Exchange Act, and 

is consistent with Section 11A of the 

Exchange Act and Rules 603(a)(1) and 

603(a)(2) of Regulation NMS which, 

among other things, require the 

Exchange to distribute market data on 

terms that are ‘‘fair and reasonable’’ and 

‘‘not unreasonably discriminatory.’’ 

Nasdaq states that the marketplace is 

intensely competitive, and states that 

competitive forces ensure that the 

Proposal is equitable and not unfairly 

discriminatory. The Proposal would 

result in market participants paying 

different fees for the same market data 

from Nasdaq depending on the amount 

of their executed displayed volume on 

the Exchange.156 Thus, the Proposal 

adopts terms for market data 

distribution that unfairly discriminate 

by favoring participants in an 

exchange’s market or penalizing 

participants in other markets.157

The Commission is concerned that the 

Proposal would result in an inequitable 

allocation of fees and unfairly 

discriminate against market participants 

who are users of market data and 

connectivity but are not significant 

users of execution services and do not 

meet the Minimum ADV requirement, 

and thus would not qualify for the lower 

market data and connectivity fees. This 

could include, for example, market 

participants who divide their liquidity 

provision among multiple exchanges 

that trade NMS stocks, or that utilize 

market data but do not trade on Nasdaq, 

and thus do not provide sufficient 

executed displayed volume to Nasdaq to 

qualify for the lower market data fees. 

In this regard, the Commission is 

concerned that linking market data and 

connectivity fees to executed displayed 

volume would essentially allow Nasdaq 

to charge significantly higher fees for 

market data and connectivity to market 

participants that choose to provide 

liquidity at other exchanges, by charging 

them more than those Nasdaq members 

that meet the Minimum ADV on 

Nasdaq. By requiring market 

participants to become members of the 

Exchange (and then meet the Minimum 

ADV) to receive the proposed pricing 

benefit for market data and connectivity, 

the Proposal would penalize market 

participants for not being a member of 

the Exchange and thus the Proposal 

would adopt terms for market data 

distribution that would unfairly 

discriminate against those market 

participants that cannot or will not 

become members of the Exchange. 

Nasdaq has not demonstrated that the 

incremental step of linking the pricing 

of market data and connectivity to 

Nasdaq trading volume (i.e., the 

Minimum ADV) would not impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Exchange Act as 

required by Section 6(b)(8) of the 

Exchange Act. As discussed above, 

Nasdaq states it currently faces intense 

‘‘competition as a platform,’’ and that its 

proposal is providing an incentive for 

members who provide a requisite level 

of liquidity lower fees for market data 

and connectivity.158 Nasdaq states that 

‘‘[p]roviding discounts is not anticompetitive’’ and states its view that 

‘‘courts have also deemed ‘bundled’ 

discounts, like the Proposal, to be procompetitive.’’ 159 Nasdaq acknowledges, 

however, that a bundled discount might 

harm competition ‘when it is offered by 

firms holding or on the verge of gaining 

monopoly power in the relevant 

market.’ ’’ 160 However, Nasdaq has not 

adequately articulated why the linking 

of market data and connectivity fees to 

the Minimum ADV will not negatively 

impact the competition that exists today 

in the market for order flow. The 

Proposal would allow Nasdaq to use a 

significant discount on the fee for its 

market data product as an inducement 

to attract liquidity rather than relying on 

the quality of its transaction services to 

compete for displayed liquidity. As 

discussed above, Nasdaq fails to 

demonstrate that its market data and 

connectivity products are subject to 

competitive forces, and preventing the 

linking of market data fees to executed 

displayed volume will help prevent 

exchanges from using their advantages 

in the area of market data to reduce 

competitive forces in the market for 

order flow.161

IV. Conclusion 

For the reasons set forth above, the 

Commission does not find that the 

proposed rule change is consistent with 

the Exchange Act and the rules and 

regulations thereunder applicable to a 

national securities exchange, and, in 

particular, with Sections 6(b)(4), 6(b)(5), 

6(b)(8), and 11A of the Exchange Act 

and with Rules 603(a)(1) and 603(a)(2) 

of Regulation NMS thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(3)(C) of the Exchange 

Act,162 that File No. SR–NASDAQ– 

2024–016, be and hereby is, 

disapproved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.163

Sherry R. Haywood, 

Assistant Secretary. 

[FR Doc. 2024–28258 Filed 12–2–24; 8:45 am] 

BILLING CODE 8011–01–P 


lotter on DSK11XQN23PROD with NOTICES1