74784 Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 

6 Id. 

7 17 CFR 200.30–3(a)(31). 

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

2 17 CFR 240.19b–4. 

to 90 days as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding, or as to which the 

self-regulatory organization consents, 

the Commission shall either approve the 

proposed rule change, disapprove the 

proposed rule change, or institute 

proceedings to determine whether the 

proposed rule change should be 

disapproved. The 45th day after 

publication of the notice for this 

proposed rule change is December 22, 

2014. The Commission is extending this 

45-day time period. 

The Commission finds it appropriate 

to designate a longer period within 

which to take action on the proposed 

rule change so that it has sufficient time 

to consider this proposed rule change. 

Accordingly, the Commission, pursuant 

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

designates February 5, 2015, as the date 

by which the Commission shall either 

approve or disapprove, or institute 

proceedings to determine whether to 

disapprove, the proposed rule change 

(File No. SR–NYSEArca–2014–107) 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.7

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–29365 Filed 12–15–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73807; File No. SR– 

NASDAQ–2014–117] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Modify an 

Optional Subscriber Fee and Tiered 

Distribution Fee for ‘‘Enhanced’’ Data 

Displays (the ‘‘Enhanced Display 

Solution Fee’’) 

December 10, 2014. 

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 November 

25, 2014, The NASDAQ Stock Market 

LLC (‘‘NASDAQ’’ or the ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to modify an 

optional Subscriber fee and tiered 

Distribution fee for ‘‘Enhanced’’ data 

displays (the ‘‘Enhanced Display 

Solution Fee’’). 

The text of the proposed rule change 

is below; proposed new language is 

italicized; proposed deletions are in 

brackets. 

* * * * * 

7026. Distribution Models 

(a) Display Solutions 

(1) Enhanced Display[s] Solution 

(‘‘EDS’’) (optional delivery method) 

(A) The charges to be paid by 

Distributors for offering EDS 

S[s]ubscribers of NASDAQ Depth [data] 

Information [controlled display 

products along] with access to an API or 

similar solution shall be: 

Number of downstream EDS subscribers 

Monthly Enhanced Display Solution Fee per Distributor for the right to offer an [display products 

containing] API or similar solution*.

[1–299 users = $2,000/month. 

300–399 users = $3,000/month]. 

1–399 [400–499] users = $4,000/month. 

[500–599 users = $5,000/month. 

600–699 users = $6,000/month. 

700–799 users = $7,000/month. 

800–899 users = $8,000/month. 

900–999 users = $9,000/month]. 

400–999 users = $7,500/month. 

1,000 users or more = $15[0],000/month. 

* [Customers] Distributors that are subscribing to certain enterprise depth capped fees as described in NASDAQ Rule 7023(a)(1)(c) are exempt 

from this fee. 

(B) The monthly fee per Professional 

[or Non-Professional] EDS S[s]ubscriber 

for utilizing NASDAQ Level 2, NASDAQ 

TotalView or NASDAQ OpenView data 

on a [controlled display] product with 

access to an API or similar solution 

[through that display] is $74 per month 

for TotalView and Level 2 and $6 per 

month for OpenView. [the applicable 

NASDAQ TotalView or NASDAQ 

OpenView rates.] 

The monthly fee per Non-Professional 

EDS Subscriber for utilizing NASDAQ 

Level 2, NASDAQ TotalView or 

NASDAQ OpenView data on a product 

with access to an API or similar solution 

is the applicable NASDAQ Level 2, 

NASDAQ TotalView or NASDAQ 

OpenView rates. 

[The monthly fee per Professional or 

Non-Professional subscriber for utilizing 

the Level 2 data for NASDAQ-listed 

securities on a controlled display 

product with access to an API or similar 

solution through that display is the 

applicable NASDAQ TotalView rates.] 

[The monthly fee per Professional or 

Non-Professional subscriber for utilizing 

NASDAQ Level 2 data for NYSE, AMEX 

or regional listed securities on a 

controlled display product with access 

to an API or similar solution through 

that display is the applicable NASDAQ 

OpenView rates.] 

(C) EDS Enterprise License: EDS 

Distributors may elect to purchase an 

Enterprise License for $30,000 per 

month. Such Enterprise License shall 

entitle the EDS Distributor to distribute 

to an unlimited number of Professional 

EDS Subscribers for a monthly fee of 

$70 for TotalView and/or Level 2 and $6 

for OpenView, notwithstanding the fees 

set forth in subsection (B) above. 

(2) The term ‘‘[n]Non-[p]Professional’’ 

shall have the same meaning as set forth 

in NASDAQ Rule 7011(b). 

(3) The term ‘‘Distributor’’ shall have 

the same meaning as set forth in 

NASDAQ Rule 7019(c). 

(b)–(c) No change. 

* * * * * 

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Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 74785 

3The term ‘‘controlled device’’ is defined as 

follows in Rule 7023(a)(6): A Controlled Device is 

any device that a Distributor of NASDAQ Depth-ofBook data permits to: (1) Access the Depth-of-Book 

information or (2) communicate with the 

Distributor so as to cause the Distributor to access 

the Depth-of-Book data. Where a Controlled Device 

is part of an electronic network between computers 

used for investment, trading or order routing 

activities, the Distributor must demonstrate that the 

particular Controlled Device should not have to pay 

for an entitlement. For example, in some Display 

systems the Distributor gives the Subscribers the 

choice to view the data or not; a Subscriber that 

chooses not to view it would not be charged. 

Similarly, in a Non-Display system, users of 

Controlled Devices may have a choice of basic or 

advanced computerized trading or order routing 

services, where only the advanced version uses the 

information. Customers of the basic service would 

not be charged. 

4Such use would be considered a Retransmission and would be governed by NASDAQ 

Rule 7019 governing market data distribution. 

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 

Exchange 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 IV 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 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

NASDAQ is proposing to amend 

NASDAQ Rule 7026 (Distribution 

Models) to modify the optional 

Enhanced Display Solution (‘‘EDS’’) Fee 

governing the distribution of NASDAQ 

TotalView, NASDAQ OpenView and 

NASDAQ Level 2 Information 

(collectively, ‘‘NASDAQ Depth 

Information’’). The modified optional 

EDS Fee will offer increased flexibility 

and simplified market data 

administration for members and to 

Distributors with external subscribers 

that use the NASDAQ Depth 

Information internally. 

Existing EDS Fee. Currently, the 

optional EDS Fee provides a pricing 

option for Distributors who provide a 

‘‘controlled device’’ product 3 along 

with an Application Programming 

Interface (‘‘API’’) or similar solution to 

Subscribers. Non-display use is not 

permitted under the Enhanced Display 

Solution fee structure. To ensure proper 

application of the EDS Fee, NASDAQ 

requires Distributors to monitor for any 

non-display or excessive use suggesting 

that the EDS Subscriber is not in 

compliance. The Distributor is liable for 

any unauthorized use by the EDS 

Subscribers under the EDS Fee. The 

optional fee is available only to 

NASDAQ members and external 

Distributors offering NASDAQ Depth 

Information and who apply and are 

approved for an Enhanced Display 

Solution. 

The EDS option also has 

administrative requirements for data 

usage. As administered today, the 

Distributor must agree to reformat, 

redisplay and/or alter the NASDAQ 

Depth Information prior to 

retransmission, but not to affect the 

integrity of the NASDAQ Depth 

Information and not to render it 

inaccurate, unfair, uninformative, 

fictitious, misleading or discriminatory. 

An Enhanced Display Solution is any 

controlled display product containing 

NASDAQ Depth Information where the 

Distributor controls a display of 

NASDAQ Depth Information, but also 

allows the EDS Subscriber to access an 

API or similar solution from that display 

product. The EDS Subscriber may use 

the NASDAQ Depth Information for the 

EDS Subscriber’s own purposes and 

may not redistribute the information 

outside of their organization. The EDS 

Subscriber may not redistribute the data 

internally to other users in the same 

organization. 

Proposed Modification. The new 

Enhanced Display Solution will offer 

even greater flexibility. Where 

previously, EDS required the Distributor 

to both ‘‘control’’ the display and the 

entitlement to the display, effective 

January 1, 2015, Distributors will have 

the option to disseminate NASDAQ 

Depth Information to EDS Subscribers 

without the requirement of controlling 

the display. This does not replace the 

existing EDS program, but rather 

provides additional flexibility by 

offering two options under the EDS 

program. In response to industry 

demand and ongoing changes in the 

technical distribution of market data, 

NASDAQ will now permit Distributors 

to offer APIs that power third party 

software display applications where the 

Distributor controls the entitlement but 

not the display of data. Previously, 

downstream firms receiving this type of 

NASDAQ Depth Information would 

have been classified as a data feed 

recipient and pay a much higher 

internal distributor fee. These 

downstream data feed recipients are 

now able to reduce their cost and the 

cost to the industry by paying a modest 

fee increase for each EDS Subscriber, 

while also removing reporting and 

administration requirements by 

allowing the Distributor to manage this 

on behalf of the EDS Subscriber firm. 

The EDS program will continue to cover 

the same NASDAQ Depth Information, 

namely NASDAQ TotalView, NASDAQ 

OpenView, and NASDAQ Level 2. 

The EDS Subscriber, or end user, to 

an Enhanced Display Solution may use 

the NASDAQ Depth Information for its 

own purposes but may not redistribute 

the NASDAQ Depth Information outside 

of their organization or even internally 

to other subscribers in the same 

organization. Any EDS Subscriber 

distributing the NASDAQ Depth 

Information further downstream from 

NASDAQ—such as posting the 

NASDAQ Depth Information on a 

shared drive or delivering the NASDAQ 

Depth Information into another 

system—would forfeit eligibility for the 

EDS Fee.4 Additionally, EDS 

Distributors must offer an integrated 

data solution with secured data 

transmissions, a robust entitlement 

system and monitor EDS Subscribers for 

any non-display or excessive usage to 

ensure compliance. EDS Distributors 

must also offer NASDAQ Depth 

Information in Distributor’s own 

messaging formats (rather than its raw 

NASDAQ message formats) by 

reformatting, redisplaying and/or 

altering the NASDAQ Depth 

Information prior to retransmission, but 

not to affect the integrity of the 

NASDAQ Depth Information and not to 

render it inaccurate, unfair, 

uninformative, fictitious, misleading or 

discriminatory. 

Non-display use is not included or 

permitted under the EDS Fee. While 

Distributors are not required to 

technically control against non-display 

usage (due to the difficulty of achieving 

such control), the Distributor is required 

to restrict non-display usage 

contractually by including such 

restrictions in any agreements with 

recipients of the Information. The nondisplay definition in the policy 

document is not changing. Today, data 

use that powers the display is allowed. 

For example, if an application is 

updating a portfolio and exposes such 

information on the display, this use is 

included under EDS. Also, calculating 

VWAPs or other derived information for 

use on the display/device is permitted 

under EDS. Examples of prohibited nondisplay use include but are not limited 

to, auto-quoting, algorithmic trading, 

and risk management, even if that 

information is used to power the 

display. 

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74786 Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 

5Effective January 1, 2015, the fees for non-EDS 

Level 2 subscribers will be increasing from $45 to 

$50 per month. See SR–NASDAQ–2014–111, filed 

November 17, 2014. 

6 15 U.S.C. 78f. 

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

Finally, Distributors offering an 

Enhanced Display Solution have several 

administrative requirements. They must 

report the number of EDS Subscribers 

under new report titles and separately 

from controlled non-EDS products. 

Distributors must include EDS 

Subscribers under new products codes 

in the Detailed Usage Reporting. 

Distributors also assume the liability for 

any unauthorized use of NASDAQ 

Depth Information by EDS Subscribers. 

While there are more administrative 

requirements for this program for the 

Distributor, the industry administration 

burden is lessened, as downstream data 

feed recipient firms no longer need to go 

through the process of having data feeds 

approved or tracking and reporting 

usage. 

Effective January 1, 2015, NASDAQ 

will offer new pricing for the optional 

EDS program. If the Distributor offers 

multiple Enhanced Display Solutions, it 

would only be fee liable for one EDS 

Distribution fee. The simplified fees to 

be paid by Distributors offering EDS are 

as follows: 

Old fee for number of downstream subscribers New fee for number of downstream 

subscribers 

1–299 Subscribers = $2,000/month .................................................................................................. 1–399 Subscribers= $4,000/month. 

300–399 Subscribers = $3,000/month.

400–499 Subscribers = $4,000/month .............................................................................................. 400–999 Subscribers = $7,500/month. 

500–599 Subscribers = $5,000/month.

600–699 Subscribers = $6,000/month.

700–799 Subscribers = $7,000/month.

800–899 Subscribers = $8,000/month.

900–999 Subscribers = $9,000/month.

1,000 or more Subscribers = $10,000/month ................................................................................... 1,000 or more Subscribers = $15,000/month. 

With one exception, distributors 

opting for an Enhanced Display 

Solution are, in addition, liable for the 

applicable Professional or NonProfessional Subscriber fees for the 

underlying NASDAQ Depth Information 

products. Distributors opting for an 

Enhanced Display Solution that 

provides access to NASDAQ TotalView, 

NASDAQ Level 2 or OpenView will be 

charged a monthly fee of $74 per 

Professional EDS Subscriber of 

TotalView or Level 2 and $6 per 

Professional EDS Subscriber of 

OpenView. The fees otherwise 

applicable to such Subscribers would be 

$70 and $6 for TotalView and 

OpenView.5

NASDAQ is also creating a new 

Enterprise License option for EDS 

Distributors. Specifically, as set forth in 

new Rule 7026(a)(1)(C), an EDS 

Distributor may elect to purchase an 

Enterprise License for $30,000 per 

month. This Enterprise Licensee will 

permit the EDS Distributor to distribute 

to an unlimited number of Professional 

EDS Subscribers for $70 per month each 

for TotalView and Level 2 and $6 per 

month each for OpenView. The EDS 

Enterprise License does not modify the 

fees assessed for distribution to NonProfessional Subscribers. Distributors 

that subscribe to existing NASDAQ 

enterprise licenses set forth in Rule 

7023(c)(1–3) are not impacted by the 

new EDS Enterprise License and they 

remain exempt from the EDS Distributor 

fee as they are today. 

This new pricing and administrative 

option respond to industry demand, as 

well as to changes in the technology to 

distribute market data. By providing this 

new fee option, Distributors will have 

more administrative flexibility in their 

receipt and distribution of NASDAQ 

Depth Information. 

2. Statutory Basis 

NASDAQ believes that the proposed 

rule change is consistent with the 

provisions of Section 6 of the Act,6 in 

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

Act,7 in particular, in that it provides an 

equitable allocation of reasonable fees 

among users and recipients of NASDAQ 

Depth Information. 

NASDAQ believes that this proposal 

represents an equitable allocation of 

reasonable dues and fees, consistent 

with the requirements of the Act. The 

EDS Fee, which has been available as an 

option for two years, has reduced costs 

for Distributors and Subscriber firms 

that voluntarily opt for this service. The 

fee is tiered by number of subscribers, 

which has been found to be consistent 

with the Act in multiple contexts due to 

the economic efficiencies attributable to 

providing the same data elements to an 

increasing population of subscribers. 

NASDAQ’s proposal to reduce the 

number of price tiers is also consistent 

with the Act in that it merely simplifies 

the existing tiers and only modestly 

adjusts the fees—some higher, some 

lower—of Distributors that opt for the 

program and that fall within the old and 

new tiers. 

NASDAQ’s proposal to increase by $4 

the monthly fee for EDS Subscribers 

with access to NASDAQ TotalView and 

Level 2 is also consistent with the Act 

in that it reflects an equitable allocation 

of reasonable fees. The Commission has 

long recognized the equitable nature of 

assessing different fees for Professional 

and Non-Professional users of the same 

data. NASDAQ also believes it is 

equitable to assess a higher fee per EDS 

Professional TotalView Subscriber than 

to an ordinary Professional TotalView 

Subscriber due to the enhanced 

flexibility and lower overall costs that 

the EDS program offers Distributors, as 

well as to the voluntary nature of the 

EDS program itself. 

Finally, NASDAQ believes that the 

new EDS Enterprise License is fair and 

equitable and not unreasonably 

discriminatory. Enterprise Licenses 

have long been accepted as an 

economically efficient form of volume 

discount for the heaviest users of market 

data (see Rule 7023 enterprise licenses). 

NASDAQ notes that the EDS Enterprise 

License Fee—and the entire EDS 

program—is entirely optional in that 

NASDAQ is not required to offer it and 

Distributors are not required to pay it. 

Accordingly, Distributors and users can 

discontinue use at any time and for any 

reason, including due to an assessment 

of the reasonableness of fees charged. 

NASDAQ continues to create new 

pricing policies aimed at increasing 

transparency in the market and believes 

this is another step in that direction. 

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 

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Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 74787 

8Securities Exchange Act Release No. 51808 

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

data available to consumers, and also 

spur innovation and competition for the 

provision of market data. 

The Commission concluded that 

Regulation NMS—by deregulating the 

market in proprietary data—would itself 

further the Act’s goals of facilitating 

efficiency and competition: 

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

prices, sizes, market center identifications of 

the NBBO and consolidated last sale 

information are not required to receive (and 

pay for) such data. The Commission also 

believes that efficiency is promoted when 

broker-dealers may choose to receive (and 

pay for) additional market data based on their 

own internal analysis of the need for such 

data.8

By removing ‘‘unnecessary regulatory 

restrictions’’ on the ability of exchanges 

to sell their own data, Regulation NMS 

advanced the goals of the Act and the 

principles reflected in its legislative 

history. If the free market should 

determine whether proprietary data is 

sold to broker-dealers at all, it follows 

that the price at which such data is sold 

should be set by the market as well. 

On July 21, 2010, President Barack 

Obama signed into law H.R. 4173, the 

Dodd- Frank Wall Street Reform and 

Consumer Protection Act of 2010 

(‘‘Dodd-Frank Act’’), which amended 

Section 19 of the Act. Among other 

things, Section 916 of the Dodd-Frank 

Act amended paragraph (A) of Section 

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

phrase ‘‘on any person, whether or not 

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

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

SRO rule proposals establishing or 

changing dues, fees, or other charges are 

immediately effective upon filing 

regardless of whether such dues, fees, or 

other charges are imposed on members 

of the SRO, non-members, or both. 

Section 916 further amended paragraph 

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

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. 

There is intense competition between 

trading platforms that provide 

transaction execution and routing 

services and proprietary data products. 

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74788 Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 

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 customers view the costs 

of transaction executions and of data as 

a unified cost of doing business with the 

exchange. A broker-dealer will direct 

orders to a particular exchange only if 

the expected revenues from executing 

trades on the exchange exceed net 

transaction execution costs and the cost 

of data that the broker-dealer chooses to 

buy to support its trading decisions (or 

those of its customers). The choice of 

data products is, in turn, a product of 

the value of the products in making 

profitable trading decisions. If the cost 

of the product exceeds its expected 

value, the broker-dealer will choose not 

to buy it. Moreover, as a broker-dealer 

chooses to direct fewer orders to a 

particular exchange, the value of the 

product to that broker-dealer decreases, 

for two reasons. First, the product will 

contain less information, because 

executions of the broker-dealer’s orders 

will not be reflected in it. Second, and 

perhaps more important, the product 

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

information about the venue to which it 

is directing its orders. Data from the 

competing venue to which the brokerdealer is directing orders will become 

correspondingly more valuable. 

Thus, a super-competitive increase in 

the fees charged for either transactions 

or data has the potential to impair 

revenues from both products. ‘‘No one 

disputes that competition for order flow 

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

the existence of fierce competition for 

order flow implies a high degree of price 

sensitivity on the part of broker-dealers 

with order flow, since they may readily 

reduce costs by directing orders toward 

the lowest-cost trading venues. A 

broker-dealer that shifted its order flow 

from one platform to another in 

response to order execution price 

differentials would both reduce the 

value of that platform’s market data and 

reduce its own need to consume data 

from the disfavored platform. Similarly, 

if a platform increases its market data 

fees, the change will affect the overall 

cost of doing business with the 

platform, and affected broker-dealers 

will assess whether they can lower their 

trading costs by directing orders 

elsewhere and thereby lessening the 

need for the more expensive data. 

Analyzing the cost of market data 

distribution in isolation from the cost of 

all of the inputs supporting the creation 

of market data will inevitably 

underestimate the cost of the data. Thus, 

because it is impossible to create data 

without a fast, technologically robust, 

and well-regulated execution system, 

system costs and regulatory costs affect 

the price of market data. It would be 

equally misleading, however, to 

attribute all of the exchange’s costs to 

the market data portion of an exchange’s 

joint product. Rather, all of the 

exchange’s costs are incurred for the 

unified purposes of attracting order 

flow, executing and/or routing orders, 

and generating and selling data about 

market activity. The total return that an 

exchange earns reflects the revenues it 

receives from the joint products and the 

total costs of the joint products. 

Competition among trading platforms 

can be expected to constrain the 

aggregate return each platform earns 

from the sale of its joint products, but 

different platforms may choose from a 

range of possible, and equally 

reasonable, pricing strategies as the 

means of recovering total costs. For 

example, some platform may choose to 

pay rebates to attract orders, charge 

relatively low prices for market 

information (or provide information free 

of charge) and charge relatively high 

prices for accessing posted liquidity. 

Other platforms may choose a strategy 

of paying lower rebates (or no rebates) 

to attract orders, setting relatively high 

prices for market information, and 

setting relatively low prices for 

accessing posted liquidity. In this 

environment, there is no economic basis 

for regulating maximum prices for one 

of the joint products in an industry in 

which suppliers face competitive 

constraints with regard to the joint 

offering. This would be akin to strictly 

regulating the price that an automobile 

manufacturer can charge for car sound 

systems despite the existence of a highly 

competitive market for cars and the 

availability of after-market alternatives 

to the manufacturer-supplied system. 

The market for market data products 

is competitive and inherently 

contestable because there is fierce 

competition for the inputs necessary to 

the creation of proprietary data and 

strict pricing discipline for the 

proprietary products themselves. 

Numerous exchanges compete with 

each other for listings, trades, and 

market data itself, providing virtually 

limitless opportunities for entrepreneurs 

who wish to produce and distribute 

their own market data. This proprietary 

data is produced by each individual 

exchange, as well as other entities, in a 

vigorously competitive market. 

Broker-dealers currently have 

numerous alternative venues for their 

order flow, including ten self-regulatory 

organization (‘‘SRO’’) markets, as well 

as internalizing broker-dealers (‘‘BDs’’) 

and various forms of alternative trading 

systems (‘‘ATSs’’), including dark pools 

and electronic communication networks 

(‘‘ECNs’’). Each SRO market competes to 

produce transaction reports via trade 

executions, and two FINRA-regulated 

Trade Reporting Facilities (‘‘TRFs’’) 

compete to attract internalized 

transaction reports. Competitive markets 

for order flow, executions, and 

transaction reports provide pricing 

discipline for the inputs of proprietary 

data products. 

The large number of SROs, TRFs, BDs, 

and ATSs that currently produce 

proprietary data or are currently capable 

of producing it provides further pricing 

discipline for proprietary data products. 

Each SRO, TRF, ATS, and BD is 

currently permitted to produce 

proprietary data products, and many 

currently do or have announced plans to 

do so, including NASDAQ, NYSE, 

NYSE Amex, NYSEArca, and BATS. 

Any ATS or BD can combine with any 

other ATS, BD, or multiple ATSs or BDs 

to produce joint proprietary data 

products. Additionally, order routers 

and market data vendors can facilitate 

single or multiple broker-dealers’ 

production of proprietary data products. 

The potential sources of proprietary 

products are virtually limitless. 

The fact that proprietary data from 

ATSs, BDs, and vendors can by-pass 

SROs is significant in two respects. 

First, non-SROs can compete directly 

with SROs for the production and sale 

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Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 74789 

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

10 17 CFR 240.19b–4(f)(2). 

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. 

Market data vendors provide another 

form of price discipline for proprietary 

data products because they control the 

primary means of access to end users. 

Vendors impose price restraints based 

upon their business models. For 

example, vendors such as Bloomberg 

and Thomson 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 varying business models and 

pricing disciplines in order to market 

proprietary data products successfully. 

In addition to the competition and 

price discipline described above, the 

market for proprietary data products is 

also highly contestable because market 

entry is rapid, inexpensive, and 

profitable. The history of electronic 

trading is replete with examples of 

entrants that swiftly grew into some of 

the largest electronic trading platforms 

and proprietary data producers: 

Archipelago, Bloomberg Tradebook, 

Island, RediBook, Attain, TracECN, 

BATS Trading and Direct Edge. A 

proliferation of dark pools and other 

ATSs operate profitably with 

fragmentary shares of consolidated 

market volume. 

Regulation NMS, by deregulating the 

market for proprietary data, has 

increased the contestability of that 

market. While broker-dealers have 

previously published their proprietary 

data individually, Regulation NMS 

encourages market data vendors and 

broker-dealers to produce proprietary 

products cooperatively in a manner 

never before possible. Multiple market 

data vendors already have the capability 

to aggregate data and disseminate it on 

a profitable scale, including Bloomberg, 

and Thomson Reuters. 

The court in NetCoalition concluded 

that the Commission had failed to 

demonstrate that the market for market 

data was competitive based on the 

reasoning of the Commission’s 

NetCoalition order because, in the 

court’s view, the Commission had not 

adequately demonstrated that the depthof-book data at issue in the case is used 

to attract order flow. NASDAQ believes, 

however, that evidence not before the 

court clearly demonstrates that 

availability of data attracts order flow. 

For example, as of July 2010, 92 of the 

top 100 broker-dealers by shares 

executed on NASDAQ consumed Level 

2/NQDS and 80 of the top 100 brokerdealers consumed TotalView. During 

that month, the Level 2/NQDS-users 

were responsible for 94.44% of the 

orders entered into NASDAQ and 

TotalView users were responsible for 

92.98%. 

Competition among platforms has 

driven NASDAQ continually to improve 

its platform data offerings and to cater 

to customers’ data needs. For example, 

NASDAQ has developed and 

maintained multiple delivery 

mechanisms (IP, multi-cast, and 

compression) that enable customers to 

receive data in the form and manner 

they prefer and at the lowest cost to 

them. NASDAQ offers front end 

applications such as its ‘‘Bookviewer’’ 

to help customers utilize data. NASDAQ 

has created new products like 

TotalView Aggregate to complement 

TotalView ITCH and Level 2/NQDS, 

because offering data in multiple 

formatting allows NASDAQ to better fit 

customer needs. NASDAQ offers data 

via multiple extranet providers, thereby 

helping to reduce network and total cost 

for its data products. NASDAQ has 

developed an online administrative 

system to provide customers 

transparency into their data feed 

requests and streamline data usage 

reporting. NASDAQ has also expanded 

its Enterprise License options that 

reduce the administrative burden and 

costs to firms that purchase market data. 

Despite these enhancements and a 

dramatic increase in message traffic, 

NASDAQ’s fees for market data have 

remained flat. In fact, as a percent of 

total customer costs, NASDAQ data fees 

have fallen relative to other data usage 

costs—including bandwidth, 

programming, and infrastructure—that 

have risen. The same holds true for 

execution services; despite numerous 

enhancements to NASDAQ’s trading 

platform, absolute and relative trading 

costs have declined. Platform 

competition has intensified as new 

entrants have emerged, constraining 

prices for both executions and for data. 

The vigor of competition for depth 

information is significant and the 

Exchange believes that this proposal 

clearly evidences such competition. 

NASDAQ is offering a new pricing 

model in order to keep pace with 

changes in the industry and evolving 

customer needs. It is entirely optional 

and is geared towards attracting new 

customers, as well as retaining existing 

customers. 

The Exchange has witnessed 

competitors creating new products and 

innovative pricing in this space over the 

course of the past year. NASDAQ 

continues to see firms challenge its 

pricing on the basis of the Exchange’s 

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

as BATS. In all cases, firms make 

decisions on how much and what types 

of data to consume on the basis of the 

total cost of interacting with NASDAQ 

or other exchanges. Of course, the 

explicit data fees are but one factor in 

a total platform analysis. Some 

competitors have lower transactions fees 

and higher data fees, and others are vice 

versa. The market for this depth 

information is highly competitive and 

continually evolves as products develop 

and change. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act 9 and paragraph 

(f)(2) of Rule 19b–4 thereunder.10 At any 

time within 60 days of the filing of the 

proposed rule change, the Commission 

summarily may temporarily suspend 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

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74790 Federal Register / Vol. 79, No. 241 / Tuesday, December 16, 2014 / Notices 

11 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The MBSD Rules define a ‘‘SBO-Destined 

Trade’’ as a to-be-announced (‘‘TBA’’) transaction in 

the clearing system intended for TBA Netting in 

accordance with the provisions of the Rules. MBSD 

Rule 1, Definitions. In a TBA transaction, members 

agree on a sale price, quantity, and the 

characteristics of the securities being sold, but they 

do not specify which particular securities will be 

delivered on the settlement date. 

4 In the case of GSD locked-in trades, comparison 

occurs upon receipt of the trade data submitted to 

FICC from the locked-in trade source. GSD Rule 6C. 

5See GSD Rule 11B and MBSD Rule 5. 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2014–117 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2014–117. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at the principal 

office of NASDAQ. 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–2014–117 and should be 

submitted on or before January 6, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–29362 Filed 12–15–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73805; File No. SR–FICC– 

2014–11] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Proposed Rule Change To 

Amend the Government Securities 

Division Rulebook and the Mortgage 

Backed Securities Clearing Rules In 

Order To Move the Time of Novation 

With Respect to Certain Trades, 

Include Rules To Reflect Existing 

Processes, and Clarify Certain Rules 

To Reflect Current Practices 

December 10, 2014. 

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

Securities Exchange Act of 1934 (the 

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

hereby given that on December 2, 2014, 

Fixed Income Clearing Corporation 

(‘‘FICC’’) 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 FICC. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Proposed 

Rule Change 

FICC is proposing to (1) move the 

time of novation for netting eligible 

transactions submitted to the 

Government Securities Division 

(‘‘GSD’’) in accordance with the GSD 

Rulebook (‘‘GSD Rules’’) and for SBODestined Trades 3 submitted to the 

Mortgage-Backed Securities Division 

(‘‘MBSD’’) in accordance with the 

MBSD Clearing Rules (‘‘MBSD Rules’’) 

in order to provide members with 

additional legal certainty that FICC will 

be the legal counterparty with respect to 

their guaranteed trades for purposes of 

regulatory capital requirements, (2) 

include rules to reflect existing 

processes, and (3) clarify certain rules to 

reflect current practices. 

II. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change 

In its filing with the Commission, 

FICC included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. FICC has prepared 

summaries, set forth in sections A, B 

and C below, of the most significant 

aspects of such statements. 

A. Clearing Agency’s Statement of the 

Purpose of, and Statutory Basis for, the 

Proposed Rule Change. 

1. Purpose 

FICC is proposing to move the time of 

novation applicable to certain 

transactions submitted to the GSD and 

MBSD to earlier in the clearing process 

in order to provide members with 

additional legal certainty that FICC will 

be their legal counterparty with respect 

to their guaranteed trades for purposes 

of members’ regulatory capital 

requirements. 

Currently, GSD and MBSD guarantee 

the settlement of a trade upon 

comparison, which generally occurs 

when FICC issues initial ‘‘output’’ to 

GSD netting members or MBSD clearing 

members, as applicable, indicating that 

their trades have compared,4 provided 

that the trade meets the requirements of 

the GSD Rules or the MBSD Rules, as 

applicable.5 This means that FICC is 

responsible for settling the guaranteed 

trades, even if one of the members who 

submitted the trade becomes insolvent. 

Novation, which refers to the 

termination of delivery, receive and 

related payment obligations between the 

original parties to the contract and the 

replacement of such obligations with 

identical obligations between each party 

and FICC, currently does not occur until 

later in the clearing and settlement 

process than comparison. In GSD, 

novation currently occurs when 

subsequent ‘‘netting output’’ is issued to 

netting members (usually the day before 

settlement); in MBSD, novation 

currently occurs when subsequent ‘‘pool 

netting output’’ is issued to clearing 

members (usually the day before 

settlement). 

Because there is a legal distinction 

between the concept of ‘‘guarantee’’ and 

‘‘novation’’, and this legal distinction 

may have a bearing on how members 

calculate their capital requirement, FICC 

proposes to move the time of novation 

(i.e. the point that FICC becomes the 

legal counterparty) so that it occurs at 

the time of the trade guarantee. 

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