Federal Register / Vol. 75, No. 201 / Tuesday, October 19, 2010 / Notices 64375 

6 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3NASDAQ previously stated that it would file a 

proposed rule change to make the NLS pilot fees 

permanent. NASDAQ has also informed 

Commission staff that it is consulting with FINRA 

to develop a proposed rule change by FINRA to 

allow inclusion of FINRA/NASDAQ TRF data in 

NLS on a permanent basis. Because NASDAQ and 

FINRA are continuing to discuss such a proposed 

rule change, and notably, are evaluating what effect 

the decision of the Court of Appeals for the District 

of Columbia Circuit in NetCoaliton v. SEC, No. 09– 

1042 (D.C. Cir. 2010) and recent amendments to 

Section 19 of the Act may have on a proposal to 

make the pilot permanent, FINRA and NASDAQ 

have not completed their consultations regarding 

such a proposed rule change. Accordingly, 

NASDAQ is filing to seek a three-month extension 

of the existing pilot. 

subsequent amendments, all written 

statements with respect to the proposed 

rule change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the MSRB’s offices. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–MSRB–2010–10 and should 

be submitted on or before November 9, 

2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.6

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–26278 Filed 10–18–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63092; File No. SR– 

NASDAQ–2010–129] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Extend Fee 

Pilot Program for NASDAQ Last Sale 

October 13, 2010. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on October 

1, 2010, The NASDAQ Stock Market 

LLC (‘‘NASDAQ’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASDAQ is proposing to extend for 

three months the fee pilot pursuant to 

which NASDAQ distributes the 

NASDAQ Last Sale (‘‘NLS’’) market data 

products. NLS allows data distributors 

to have access to real-time market data 

for a capped fee, enabling those 

distributors to provide free access to the 

data to millions of individual investors 

via the internet and television. 

Specifically, NASDAQ offers the 

‘‘NASDAQ Last Sale for NASDAQ’’ and 

‘‘NASDAQ Last Sale for NYSE/Amex’’ 

data feeds containing last sale activity in 

US equities within the NASDAQ Market 

Center and reported to the jointlyoperated FINRA/NASDAQ Trade 

Reporting Facility (‘‘FINRA/NASDAQ 

TRF’’), which is jointly operated by 

NASDAQ and the Financial Industry 

Regulatory Authority (‘‘FINRA’’). The 

purpose of this proposal is to extend the 

existing pilot program for three months, 

from October 1, 2010 to December 31, 

2010. 

This pilot program supports the 

aspiration of Regulation NMS to 

increase the availability of proprietary 

data by allowing market forces to 

determine the amount of proprietary 

market data information that is made 

available to the public and at what 

price. During the pilot period, the 

program has vastly increased the 

availability of NASDAQ proprietary 

market data to individual investors. 

Based upon data from NLS distributors, 

NASDAQ believes that since its launch 

in July 2008, the NLS data has been 

viewed by over 50,000,000 investors on 

Web sites operated by Google, 

Interactive Data, and Dow Jones, among 

others. 

The text of the proposed rule change 

is below. Proposed new language is 

underlined; proposed deletions are in 

brackets. 

* * * * * 

7039. NASDAQ Last Sale Data Feeds 

(a) For a three month pilot period 

commencing on [July] October 1, 2010, 

NASDAQ shall offer two proprietary 

data feeds containing real-time last sale 

information for trades executed on 

NASDAQ or reported to the NASDAQ/ 

FINRA Trade Reporting Facility. 

(1)–(2) No change. 

(b)–(c) No change. 

* * * * * 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item III below. 

The Exchange has prepared summaries, 

set forth in sections A, B, and C below, 

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Prior to the launch of NLS, public 

investors that wished to view market 

data to monitor their portfolios 

generally had two choices: (1) Pay for 

real-time market data or (2) use free data 

that is 15 to 20 minutes delayed. To 

increase consumer choice, NASDAQ 

proposed a pilot to offer access to realtime market data to data distributors for 

a capped fee, enabling those distributors 

to disseminate the data via the internet 

and television at no cost to millions of 

internet users and television viewers. 

NASDAQ now proposes a three-month 

extension of that pilot program, subject 

to the same fee structure as is applicable 

today.3

NLS consists of two separate ‘‘Level 1’’ 

products containing last sale activity 

within the NASDAQ market and 

reported to the jointly-operated FINRA/ 

NASDAQ TRF. First, the ‘‘NASDAQ Last 

Sale for NASDAQ’’ data product is a 

real-time data feed that provides realtime last sale information including 

execution price, volume, and time for 

executions occurring within the 

NASDAQ system as well as those 

reported to the FINRA/NASDAQ TRF. 

Second, the ‘‘NASDAQ Last Sale for 

mstockstill on DSKH9S0YB1PROD with NOTICES

64376 Federal Register / Vol. 75, No. 201 / Tuesday, October 19, 2010 / Notices 

4 15 U.S.C. 78f. 

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

6Securities Exchange Act Release No. 51808 

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

NYSE/Amex’’ data product provides 

real-time last sale information including 

execution price, volume, and time for 

NYSE- and NYSE Amex-securities 

executions occurring within the 

NASDAQ system as well as those 

reported to the FINRA/NASDAQ TRF. 

NASDAQ established two different 

pricing models, one for clients that are 

able to maintain username/password 

entitlement systems and/or quote 

counting mechanisms to account for 

usage, and a second for those that are 

not. Firms with the ability to maintain 

username/password entitlement systems 

and/or quote counting mechanisms are 

eligible for a specified fee schedule for 

the NASDAQ Last Sale for NASDAQ 

Product and a separate fee schedule for 

the NASDAQ Last Sale for NYSE/Amex 

Product. Firms that are unable to 

maintain username/password 

entitlement systems and/or quote 

counting mechanisms also have 

multiple options for purchasing the 

NASDAQ Last Sale data. These firms 

choose between a ‘‘Unique Visitor’’ 

model for internet delivery or a 

‘‘Household’’ model for television 

delivery. Unique Visitor and Household 

populations must be reported monthly 

and must be validated by a third-party 

vendor or ratings agency approved by 

NASDAQ at NASDAQ’s sole discretion. 

In addition, to reflect the growing 

confluence between these media outlets, 

NASDAQ offered a reduction in fees 

when a single distributor distributes 

NASDAQ Last Sale Data Products via 

multiple distribution mechanisms. 

Second, NASDAQ established a cap 

on the monthly fee, currently set at 

$50,000 per month for all NASDAQ Last 

Sale products. The fee cap enables 

NASDAQ to compete effectively against 

other exchanges that also offer last sale 

data for purchase or at no charge. 

As with the distribution of other 

NASDAQ proprietary products, all 

distributors of the NASDAQ Last Sale 

for NASDAQ and/or NASDAQ Last Sale 

for NYSE/Amex products pay a single 

$1,500/month NASDAQ Last Sale 

Distributor Fee in addition to any 

applicable usage fees. The $1,500 

monthly fee applies to all distributors 

and does not vary based on whether the 

distributor distributes the data 

internally or externally or distributes 

the data via both the internet and 

television. 

2. Statutory Basis 

NASDAQ believes that the proposed 

rule change is consistent with the 

provisions of Section 6 of the Act,4 in 

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

Act,5 in particular, in that it provides an 

equitable allocation of reasonable fees 

among users and recipients of the data. 

In adopting Regulation NMS, the 

Commission granted self-regulatory 

organizations and broker-dealers 

increased authority and flexibility to 

offer new and unique market data to the 

public. It was believed that this 

authority would expand the amount of 

data available to consumers, and also 

spur innovation and competition for the 

provision of market data. 

NASDAQ believes that its NASDAQ 

Last Sale market data products are 

precisely the sort of market data product 

that the Commission envisioned when it 

adopted Regulation NMS. The 

Commission concluded that Regulation 

NMS—by lessening regulation of the 

market in proprietary data—would itself 

further the Act’s goals of facilitating 

efficiency and competition: 

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

prices, sizes, market center identifications of 

the NBBO and consolidated last sale 

information are not required to receive (and 

pay for) such data. The Commission also 

believes that efficiency is promoted when 

broker-dealers may choose to receive (and 

pay for) additional market data based on their 

own internal analysis of the need for such 

data.6

By removing ‘‘unnecessary regulatory 

restrictions’’ on the ability of exchanges 

to sell their own data, Regulation NMS 

advanced the goals of the Act and the 

principles reflected in its legislative 

history. If the free market should 

determine whether proprietary data is 

sold to broker-dealers at all, it follows 

that the price at which such data is sold 

should be set by the market as well. 

On July 21, 2010, President Barak 

Obama signed into law H.R. 4173, the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 

(‘‘Dodd-Frank Act’’), which amended 

Section 19 of the Act. Among other 

things, Section 916 of the Dodd-Frank 

Act amended paragraph (A) of Section 

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

phrase ‘‘on any person, whether or not 

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

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

SRO rule proposals establishing or 

changing dues, fees, or other charges are 

immediately effective upon filing 

regardless of whether such dues, fees, or 

other charges are imposed on members 

of the SRO, non-members, or both. 

Section 916 further amended paragraph 

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

Act to read, in pertinent part, ‘‘At any 

time within the 60-day period beginning 

on the date of filing of such a proposed 

rule change in accordance with the 

provisions of paragraph (1) [of Section 

19(b)], the Commission summarily may 

temporarily suspend the change in the 

rules of the self-regulatory organization 

made thereby, if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of this title. If the Commission 

takes such action, the Commission shall 

institute proceedings under paragraph 

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

whether the proposed rule should be 

approved or disapproved.’’ 

NASDAQ believes that these 

amendments to Section 19 of the Act 

reflect Congress’s intent to allow the 

Commission to rely upon the forces of 

competition to ensure that fees for 

market data are reasonable and 

equitably allocated. Although Section 

19(b) had formerly authorized 

immediate effectiveness for a ‘‘due, fee 

or other charge imposed by the selfregulatory organization,’’ the 

Commission adopted a policy and 

subsequently a rule stipulating that fees 

for data and other products available to 

persons that are not members of the selfregulatory organization must be 

approved by the Commission after first 

being published for comment. At the 

time, the Commission supported the 

adoption of the policy and the rule by 

pointing out that unlike members, 

whose representation in self-regulatory 

organization governance was mandated 

by the Act, non-members should be 

given the opportunity to comment on 

fees before being required to pay them, 

and that the Commission should 

specifically approve all such fees. 

NASDAQ believes that the amendment 

to Section 19 reflects Congress’s 

conclusion that the evolution of selfregulatory organization governance and 

competitive market structure have 

rendered the Commission’s prior policy 

on non-member fees obsolete. 

Specifically, many exchanges have 

evolved from member-owned not-forprofit corporations into for-profit 

investor-owned corporations (or 

subsidiaries of investor-owned 

corporations). Accordingly, exchanges 

no longer have narrow incentives to 

manage their affairs for the exclusive 

benefit of their members, but rather 

have incentives to maximize the appeal 

of their products to all customers, 

whether members or non-members, so 

as to broaden distribution and grow 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 75, No. 201 / Tuesday, October 19, 2010 / Notices 64377 

revenues. Moreover, we believe that the 

change also reflects an endorsement of 

the Commission’s determinations that 

reliance on competitive markets is an 

appropriate means to ensure equitable 

and reasonable prices. Simply put, the 

change reflects a presumption that all 

fee changes should be permitted to take 

effect immediately, since the level of all 

fees are constrained by competitive 

forces. 

The recent decision of the United 

States Court of Appeals for the District 

of Columbia Circuit in NetCoaliton v. 

SEC, No. 09–1042 (D.C. Cir. 2010), 

although reviewing a Commission 

decision made prior to the effective date 

of the Dodd-Frank Act, upheld the 

Commission’s reliance upon 

competitive markets to set reasonable 

and equitably allocated fees for market 

data. ‘‘In fact, the legislative history 

indicates that the Congress intended 

that the market system ‘evolve through 

the interplay of competitive forces as 

unnecessary regulatory restrictions are 

removed’ and that the SEC wield its 

regulatory power ‘in those situations 

where competition may not be 

sufficient,’ such as in the creation of a 

‘consolidated transactional reporting 

system.’ NetCoaltion, at 15 (quoting H.R. 

Rep. No. 94–229, at 92 (1975), as 

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

323). The court’s conclusions about 

Congressional intent are therefore 

reinforced by the Dodd-Frank Act 

amendments, which create a 

presumption that exchange fees, 

including market data fees, may take 

effect immediately, without prior 

Commission approval, and that the 

Commission should take action to 

suspend a fee change and institute a 

proceeding to determine whether the fee 

change should be approved or 

disapproved only where the 

Commission has concerns that the 

change may not be consistent with the 

Act. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

NASDAQ does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act, as amended. 

Notwithstanding its determination that 

the Commission may rely upon 

competition to establish fair and 

equitably allocated fees for market data, 

the NetCoaltion court found that the 

Commission had not, in that case, 

compiled a record that adequately 

supported its conclusion that the market 

for the data at issue in the case was 

competitive. For the reasons discussed 

above, NASDAQ believes that the DoddFrank Act amendments to Section 19 

materially alter the scope of the 

Commission’s review of future market 

data filings, by creating a presumption 

that all fees may take effect 

immediately, without prior analysis by 

the Commission of the competitive 

environment. Even in the absence of 

this important statutory change, 

however, NASDAQ believes that a 

record may readily be established to 

demonstrate the competitive nature of 

the market in question. 

Specifically, NASDAQ’s ability to 

price its Last Sale Data Products is 

constrained by (1) Competition between 

exchanges and other trading platforms 

that compete with each other in a 

variety of dimensions; (2) the existence 

of inexpensive real-time consolidated 

data and free delayed consolidated data; 

and (3) the inherent contestability of the 

market for proprietary last sale data. 

The market for proprietary last sale 

data products is currently competitive 

and inherently contestable because 

there is fierce competition for the inputs 

necessary to the creation of proprietary 

data and strict pricing discipline for the 

proprietary products themselves. 

Numerous exchanges compete with 

each other for listings, trades, and 

market data itself, providing virtually 

limitless opportunities for entrepreneurs 

who wish to produce and distribute 

their own market data. This proprietary 

data is produced by each individual 

exchange, as well as other entities, in a 

vigorously competitive market. 

Transaction execution and proprietary 

data products are complementary in that 

market data is both an input and a 

byproduct of the execution service. In 

fact, market data and trade execution are 

a paradigmatic example of joint 

products with joint costs. The decision 

whether and on which platform to post 

an order will depend on the attributes 

of the platform where the order can be 

posted, including the execution fees, 

data quality and price and distribution 

of its data products. Without the 

prospect of a taking order seeing and 

reacting to a posted order on a particular 

platform, the posting of the order would 

accomplish little. Without trade 

executions, exchange data products 

cannot exist. Data products are valuable 

to many end users only insofar as they 

provide information that end users 

expect will assist them or their 

customers in making trading decisions. 

The costs of producing market data 

include not only the costs of the data 

distribution infrastructure, but also the 

costs of designing, maintaining, and 

operating the exchange’s transaction 

execution platform and the cost of 

regulating the exchange to ensure its fair 

operation and maintain investor 

confidence. The total return that a 

trading platform earns reflects the 

revenues it receives from both products 

and the joint costs it incurs. Moreover, 

an exchange’s broker-dealer customers 

view the costs of transaction executions 

and of data as a unified cost of doing 

business with the exchange. A brokerdealer will direct orders to a particular 

exchange only if the expected revenues 

from executing trades on the exchange 

exceed net transaction execution costs 

and the cost of data that the brokerdealer chooses to buy to support its 

trading decisions (or those of its 

customers). The choice of data products 

is, in turn, a product of the value of the 

products in making profitable trading 

decisions. If the cost of the product 

exceeds its expected value, the brokerdealer will choose not to buy it. 

Moreover, as a broker-dealer chooses to 

direct fewer orders to a particular 

exchange, the value of the product to 

that broker-dealer decreases, for two 

reasons. First, the product will contain 

less information, because executions of 

the broker-dealer’s orders will not be 

reflected in it. Second, and perhaps 

more important, the product will be less 

valuable to that broker-dealer because it 

does not provide information about the 

venue to which it is directing its orders. 

Data from the competing venue to 

which the broker-dealer is directing 

orders will become correspondingly 

more valuable. 

Similarly, in the case of products such 

as NLS that are distributed through 

market data vendors, the vendors 

provide price discipline for proprietary 

data products because they control the 

primary means of access to end users. 

Vendors impose price restraints based 

upon their business models. For 

example, vendors such as Bloomberg 

and Reuters that assess a surcharge on 

data they sell may refuse to offer 

proprietary products that end users will 

not purchase in sufficient numbers. 

Internet portals, such as Google, impose 

a discipline by providing only data that 

will enable them to attract ‘‘eyeballs’’ 

that contribute to their advertising 

revenue. Retail broker-dealers, such as 

Schwab and Fidelity, offer their 

customers proprietary data only if it 

promotes trading and generates 

sufficient commission revenue. 

Although the business models may 

differ, these vendors’ pricing discipline 

is the same: They can simply refuse to 

purchase any proprietary data product 

that fails to provide sufficient value. 

NASDAQ and other producers of 

proprietary data products must 

understand and respond to these 

mstockstill on DSKH9S0YB1PROD with NOTICES

64378 Federal Register / Vol. 75, No. 201 / Tuesday, October 19, 2010 / Notices 

varying business models and pricing 

disciplines in order to market 

proprietary data products successfully. 

Moreover, NASDAQ believes that 

products such as NLS can enhance 

order flow to NASDAQ by providing 

more widespread distribution of 

information about transactions in real 

time, thereby encouraging wider 

participation in the market by investors 

with access to the internet or television. 

Conversely, the value of such products 

to distributors and investors decreases if 

order flow falls, because the products 

contain less content. 

Analyzing the cost of market data 

distribution in isolation from the cost of 

all of the inputs supporting the creation 

of market data will inevitably 

underestimate the cost of the data. Thus, 

because it is impossible to create data 

without a fast, technologically robust, 

and well-regulated execution system, 

system costs and regulatory costs affect 

the price of market data. It would be 

equally misleading, however, to 

attribute all of the exchange’s costs to 

the market data portion of an exchange’s 

joint product. Rather, all of the 

exchange’s costs are incurred for the 

unified purposes of attracting order 

flow, executing and/or routing orders, 

and generating and selling data about 

market activity. The total return that an 

exchange earns reflects the revenues it 

receives from the joint products and the 

total costs of the joint products. 

Competition among trading platforms 

can be expected to constrain the 

aggregate return each platform earns 

from the sale of its joint products, but 

different platforms may choose from a 

range of possible, and equally 

reasonable, pricing strategies as the 

means of recovering total costs. For 

example, some platform may choose to 

pay rebates to attract orders, charge 

relatively low prices for market 

information (or provide information free 

of charge) and charge relatively high 

prices for accessing posted liquidity. 

Other platforms may choose a strategy 

of paying lower rebates (or no rebates) 

to attract orders, setting relatively high 

prices for market information, and 

setting relatively low prices for 

accessing posted liquidity. In this 

environment, there is no economic basis 

for regulating maximum prices for one 

of the joint products in an industry in 

which suppliers face competitive 

constraints with regard to the joint 

offering. This would be akin to strictly 

regulating the price that an automobile 

manufacturer can charge for car sound 

systems despite the existence of a highly 

competitive market for cars and the 

availability of after-market alternatives 

to the manufacturer-supplied system. 

The level of competition and 

contestability in the market is evident in 

the numerous alternative venues that 

compete for order flow, including ten 

self-regulatory organization (‘‘SRO’’) 

markets, as well as internalizing brokerdealers (‘‘BDs’’) and various forms of 

alternative trading systems (‘‘ATSs’’), 

including dark pools and electronic 

communication networks (‘‘ECNs’’). 

Each SRO market competes to produce 

transaction reports via trade executions, 

and two FINRA-regulated Trade 

Reporting Facilities (‘‘TRFs’’) compete to 

attract internalized transaction reports. 

It is common for BDs to further and 

exploit this competition by sending 

their order flow and transaction reports 

to multiple markets, rather than 

providing them all to a single market. 

Competitive markets for order flow, 

executions, and transaction reports 

provide pricing discipline for the inputs 

of proprietary data products. 

The large number of SROs, TRFs, BDs, 

and ATSs that currently produce 

proprietary data or are currently capable 

of producing it provides further pricing 

discipline for proprietary data products. 

Each SRO, TRF, ATS, and BD is 

currently permitted to produce 

proprietary data products, and many 

currently do or have announced plans to 

do so, including NASDAQ, NYSE, 

NYSE Amex, NYSEArca, and BATS. 

Any ATS or BD can combine with any 

other ATS, BD, or multiple ATSs or BDs 

to produce joint proprietary data 

products. Additionally, order routers 

and market data vendors can facilitate 

single or multiple broker-dealers’ 

production of proprietary data products. 

The potential sources of proprietary 

products are virtually limitless. 

The fact that proprietary data from 

ATSs, BDs, and vendors can by-pass 

SROs is significant in two respects. 

First, non-SROs can compete directly 

with SROs for the production and sale 

of proprietary data products, as BATS 

and Arca did before registering as 

exchanges by publishing proprietary 

book data on the Internet. Second, 

because a single order or transaction 

report can appear in an SRO proprietary 

product, a non-SRO proprietary 

product, or both, the data available in 

proprietary products is exponentially 

greater than the actual number of orders 

and transaction reports that exist in the 

marketplace. 

In addition to the competition and 

price discipline described above, the 

market for proprietary data products is 

also highly contestable because market 

entry is rapid, inexpensive, and 

profitable. The history of electronic 

trading is replete with examples of 

entrants that swiftly grew into some of 

the largest electronic trading platforms 

and proprietary data producers: 

Archipelago, Bloomberg Tradebook, 

Island, RediBook, Attain, TracECN, 

BATS Trading and Direct Edge. Today, 

BATS publishes its data at no charge on 

its Web site in order to attract order 

flow, and it uses market data revenue 

rebates from the resulting executions to 

maintain low execution charges for its 

users. A proliferation of dark pools and 

other ATSs operate profitably with 

fragmentary shares of consolidated 

market volume. 

Regulation NMS, by deregulating the 

market for proprietary data, has 

increased the contestability of that 

market. While broker-dealers have 

previously published their proprietary 

data individually, Regulation NMS 

encourages market data vendors and 

broker-dealers to produce proprietary 

products cooperatively in a manner 

never before possible. Multiple market 

data vendors already have the capability 

to aggregate data and disseminate it on 

a profitable scale, including Bloomberg, 

Reuters and Thomson. 

The competitive nature of the market 

for products such as NLS is borne out 

by the performance of the market. In 

May 2008, the internet portal Yahoo! 

began offering its Web site viewers realtime last sale data provided by BATS 

Trading. NLS competes directly with 

the BATS product that is still 

disseminated via Yahoo! The New York 

Stock Exchange also distributes 

competing last sale data products at a 

price comparable to the price of NLS. 

Under the regime of Regulation NMS, 

there is no limit to the number of 

competing products that can be 

developed quickly and at low cost. 

Moreover, consolidated data provides 

two additional measures of pricing 

discipline for proprietary data products 

that are a subset of the consolidated data 

stream. First, the consolidated data is 

widely available in real-time at $1 per 

month for non-professional users. 

Second, consolidated data is also 

available at no cost with a 15- or 20- 

minute delay. Because consolidated 

data contains marketwide information, 

it effectively places a cap on the fees 

assessed for proprietary data (such as 

last sale data) that is simply a subset of 

the consolidated data. The mere 

availability of low-cost or free 

consolidated data provides a powerful 

form of pricing discipline for 

proprietary data products that contain 

data elements that are a subset of the 

consolidated data, by highlighting the 

optional nature of proprietary products. 

In this environment, a supercompetitive increase in the fees charged 

for either transactions or data has the 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 75, No. 201 / Tuesday, October 19, 2010 / Notices 64379 

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

8 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

potential to impair revenues from both 

products. ‘‘No one disputes that 

competition for order flow is ‘fierce’.’’ 

NetCoalition at 24. However, the 

existence of fierce competition for order 

flow implies a high degree of price 

sensitivity on the part of broker-dealers 

with order flow, since they may readily 

reduce costs by directing orders toward 

the lowest-cost trading venues. A 

broker-dealer that shifted its order flow 

from one platform to another in 

response to order execution price 

differentials would both reduce the 

value of that platform’s market data and 

reduce its own need to consume data 

from the disfavored platform. If a 

platform increases its market data fees, 

the change will affect the overall cost of 

doing business with the platform, and 

affected broker-dealers will assess 

whether they can lower their trading 

costs by directing orders elsewhere and 

thereby lessening the need for the more 

expensive data. Similarly, increases in 

the cost of NLS would impair the 

willingness of distributors to take a 

product for which there are numerous 

alternatives, impacting NLS data 

revenues, the value of NLS as a tool for 

attracting order flow, and ultimately, the 

volume of orders routed to NASDAQ 

and the value of its other data products. 

In establishing the price for the 

NASDAQ Last Sale Products, NASDAQ 

considered the competitiveness of the 

market for last sale data and all of the 

implications of that competition. 

NASDAQ believes that it has considered 

all relevant factors and has not 

considered irrelevant factors in order to 

establish a fair, reasonable, and not 

unreasonably discriminatory fees and an 

equitable allocation of fees among all 

users. The existence of numerous 

alternatives to NLS, including real-time 

consolidated data, free delayed 

consolidated data, and proprietary data 

from other sources ensures that 

NASDAQ cannot set unreasonable fees, 

or fees that are unreasonably 

discriminatory, without losing business 

to these alternatives. Accordingly, 

NASDAQ believes that the acceptance 

of the NLS product in the marketplace 

demonstrates the consistency of these 

fees with applicable statutory standards. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Three comment letters were filed 

regarding the proposed rule change as 

originally published for comment 

NASDAQ responded to these comments 

in a letter dated December 13, 2007. 

Both the comment letters and 

NASDAQ’s response are available on 

the SEC Web site at http://www.sec.gov/ 

comments/sr-nasdaq-2006–060/ 

nasdaq2006060.shtml. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act.7 At any time 

within 60 days of the filing of the 

proposed rule change, the Commission 

summarily may temporarily suspend 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASDAQ–2010–129 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2010–129. This 

file number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, on official business 

days between the hours of 10 a.m. and 

3 p.m. Copies of the filing also will be 

available for inspection and copying at 

the principal office of the Exchange. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NASDAQ–2010–129 and 

should be submitted on or before 

November 9, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–26246 Filed 10–18–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63084; File No. SR– 

NASDAQ–2010–125] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Revise an 

Optional Depth Data Enterprise 

License Fee for Broker-Dealer 

Distribution of Depth-of-Book Data 

October 13, 2010. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on 

September 30, 2010, The NASDAQ 

Stock Market LLC (‘‘NASDAQ’’ or the 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

NASDAQ proposes to revise an 

optional Depth Data Enterprise License 

Fee for broker-dealer distribution of 

depth-of-book data to non-professional 

mstockstill on DSKH9S0YB1PROD with NOTICES