Federal Register / Vol. 80, No. 5 / Thursday, January 8, 2015 / Notices 1057 

12For purposes only of waiving the operative 

delay, the Commission has considered the proposed 

rule’s impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

13 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

operative delay period after which a 

proposed rule change under Rule 19b– 

4(f)(6) becomes operative so that the 

pilot may continue without 

interruption. The Commission believes 

that waiver of the 30-day operative 

delay is consistent with the protection 

of investors and the public interest 

because it will allow the pilot to 

continue uninterrupted, thereby 

avoiding any potential investor 

confusion that could result from a 

temporary interruption in the pilot and 

allowing members to continue to benefit 

from the program. Based on the 

foregoing, the Commission hereby 

waives the 30-day operative delay and 

designates the proposal operative upon 

filing.12

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 will institute proceedings 

to determine whether the proposed rule 

change should be approved or 

disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSEMKT–2014–117 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSEMKT–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 will also be available for 

inspection and copying at the NYSE’s 

principal office and on its Internet Web 

site at www.nyse.com. 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– 

NYSEMKT–2014–117 and should be 

submitted on or before January 29, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–00049 Filed 1–7–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73978; File No. SR– 

NASDAQ–2014–125] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change to Impose a 

Minimum Fee for Execution Venues 

Operating a Trading Platform or 

Multiple Platforms That Utilize 

NASDAQ Proprietary Depth Data on a 

Non-Displayed Basis 

January 2, 2015. 

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 January 2, 

2015, The NASDAQ Stock Market LLC 

(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘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 

The Exchange proposes to impose a 

minimum fee for execution venues 

operating a trading platform or multiple 

platforms that utilize NASDAQ 

proprietary depth data on a nondisplayed basis and that pay monthly 

aggregate NASDAQ market proprietary 

Depth-of-Book Data fees of less than 

$15,000. 

The text of the proposed rule change 

is below; proposed new language is in 

italics; proposed deletions are in 

brackets. 

* * * * * 

7023. NASDAQ Depth-of-Book Data 

(a) Definitions applicable to this rule. 

(1)–(6) No Change. 

(7) The term ‘‘Trading Platform’’ shall 

mean any execution platform operated 

as or by a registered National Securities 

Exchange (as defined in Section 3(a)(1) 

of the Exchange Act), an Alternative 

Trading System (as defined in Rule 

300(a) of Regulation ATS), or an 

Electronic Communications Network (as 

defined by Rule 600(b)(23) of Regulation 

NMS). 

(b) No Change. 

(c) No Change. 

(d) Trading Platform Fee. There shall 

be a minimum monthly fee for entities 

that operate Trading Platforms that 

utilize NASDAQ Depth-of-Book Data on 

a non-display basis and that pay less 

than $15,000 per month in aggregate 

fees for Depth-of-Book Data. The fee 

shall be $5,000 per month per Trading 

Platform up to a maximum of three 

Trading Platforms. 

(e) [(d)] 30-Day Free-Trial Offer: 

NASDAQ shall offer all new individual 

Subscribers and potential new 

individual Subscribers a 30-day waiver 

of the Subscriber fees for NASDAQ 

TotalView. This waiver shall not 

include the incremental fees assessed 

for the NASDAQ Level 2-only service[, 

which are $30 for Professional 

Subscribers and $9 for Non-Professional 

Subscribers per month]. This fee waiver 

period shall be applied on a rolling 

basis, determined by the date on which 

a new individual Subscriber or potential 

individual Subscriber is first entitled by 

a Distributor to receive access to 

NASDAQ TotalView. A Distributor may 

only provide this waiver to a specific 


tkelley on DSK3SPTVN1PROD with NOTICES
1058 Federal Register / Vol. 80, No. 5 / Thursday, January 8, 2015 / Notices 

3 15 U.S.C. 78f(b). 

individual Subscriber once. [For the 

period of the offer, the NASDAQ 

TotalView fee of $40 per Professional 

Subscriber and $5 per Non-Professional 

Subscriber per month shall be waived.] 

(f) [(e)] Historical ModelView 

Information: NASDAQ will make 

historical ModelView information 

available via NASDAQTrader.com. 

ModelView contains historical 

information regarding aggregate 

displayed and reserve liquidity at each 

price level directly from the NASDAQ 

Market Center. ModelView is available 

for a subscription fee of $2,000 per 

month. 

* * * * * 

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 these 

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 aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

NASDAQ is proposing to amend 

NASDAQ Rule 7023 (NASDAQ Depthof-Book Data) to modify the fees 

governing the use of NASDAQ 

TotalView, NASDAQ OpenView and 

NASDAQ Level 2 Information 

(collectively, ‘‘NASDAQ Depth-of-Book 

Data’’) to increase the fairness and 

equity of the current fee schedule. 

Specifically, NASDAQ is amending 

Rule 7023(d) to establish a minimum 

level of fees for operators of Trading 

Platforms that utilize NASDAQ Depthof-Book Data and that pay less than 

$15,000 per month for such usage. The 

Trading Platform Fee shall be $5,000 per 

month per Trading Platform up to a 

maximum of $15,000 per month, with 

such fees being offset once the total 

NASDAQ Depth-of-Book Data fees paid 

by such Trading Platform operator 

exceed $15,000 per month. 

Effective January 1, 2015, NASDAQ 

will impose a fee for operators of 

Trading Platforms that currently utilize 

NASDAQ Depth-of-Book Data and that 

pay less than $15,000 per month for 

such usage. Trading Platforms include 

registered National Securities 

Exchanges, Alternative Trading Systems 

(‘‘ATSs’’), and Electronic 

Communications Networks (‘‘ECNS’’) as 

those terms are defined in the Exchange 

Act and regulations and rules 

thereunder. The fee will be $5,000 per 

month per Trading Platform up to a 

maximum of three platforms operated 

by the same entity or affiliated entities. 

The fee will be assessed in addition 

to existing Distributor and Subscriber 

fees paid, but will be offset when the 

entity reaches the level of $15,000 per 

month. For example, if a Distributor 

already pays $15,000 or more in total 

monthly Distributor and Subscriber fees, 

the Trading Platform fee does not apply. 

Also, if a firm accrues $10,000 in 

Platform fees, and already pays $75,000 

in Subscriber fees, the Distributor is 

responsible for the $75,000 fee and the 

Trading Platform fee does not apply. 

Additional scenarios are shown below: 

Number of trading platforms Trading platform fee 

Nasdaq depth 

non-display 

fee per subscriber 

Nasdaq depth 

total fee 

1 ................................................................................................................................................... $5,000 $3,300 $8,300 

1 ................................................................................................................................................... 5,000 9,000 14,000 

1 ................................................................................................................................................... 5,000 15,000 15,000 

2 ................................................................................................................................................... 10,000 9,000 19,000 

2 ................................................................................................................................................... 10,000 15,000 15,000 

3 ................................................................................................................................................... 15,000 9,000 24,000 

4 ................................................................................................................................................... 15,000 9,000 24,000 

3 ................................................................................................................................................... 15,000 15,000 15,000 

4 ................................................................................................................................................... 15,000 75,000 75,000 

Vendors offering Managed Data 

Solutions (‘‘MDS’’) to downstream 

Recipients pursuant to NASDAQ Rule 

7026 are responsible for the payment of 

fees associated with this program. 

Furthermore, the MDS Vendor must 

count each Trading Platform operator 

separately; an MDS Vendor cannot 

avoid the three Trading Platform 

maximum by commingling multiple 

firms’ Trading Platforms. For example, 

the MDS Vendor below has five 

customers that collectively operate 10 

Trading Platforms: 

Firm 

Number 

of trading 

platform(s) 

Trading 

platform fee 

(owed by 

MDS vendor) 

a ........................ 0 $0 

b ........................ 1 5000 

Firm 

Number 

of trading 

platform(s) 

Trading 

platform fee 

(owed by 

MDS vendor) 

c ........................ 2 10,000 

d ........................ 3 15,000 

e ........................ 4 15,000 

Total ........... ................ 45,000 

The Exchange believes that this 

proposal is reasonable, proper, and 

desirable. NASDAQ attempts to more 

equitably allocate fees among users with 

varying business models. As trading has 

become more electronic and automated, 

displayed and non-displayed usage has 

shifted dramatically. Use by individuals 

versus use by algorithms has shifted as 

well. NASDAQ attempts to ensure that 

its fee schedule tracks these shifts and 

that no category of users pays a 

disproportionately high or low amount 

relative to other categories of users. 

To accommodate new subparagraph 

(d), NASDAQ is renumbering current 

subparagraphs (d) and (e) to become 

new subparagraphs (e) and (f). 

Additionally, NASDAQ is eliminating 

pricing details from re-numbered 

paragraph (e) to eliminate specific 

information which is extraneous and 

subject to change. 

2. Statutory Basis 

The Exchange believes the proposed 

rule change is consistent with the Act 

and the rules and regulations 

thereunder, including the requirements 

of Section 6(b) of the Act.3 In particular, 

the Exchange believes the proposed rule 

change is consistent with the Section 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 5 / Thursday, January 8, 2015 / Notices 1059 

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

5Securities Exchange Act Release No. 51808 

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

6(b)(5) 4 requirements that the rules of 

an exchange be designed to promote just 

and equitable principles of trade, to 

prevent fraudulent and manipulative 

acts, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, to 

remove impediments to and to perfect 

the mechanism for a free and open 

market and a national market system, 

and, in general, to protect investors and 

the public interest. 

NASDAQ believes that this proposal 

represents an equitable allocation of 

reasonable dues and fees, consistent 

with the requirements of the Act. The 

MDS Fee, which has been available as 

an option for four years, has reduced 

costs for Distributors and Subscriber 

firms that voluntarily opt for this 

service. The fee currently includes a bas 

[sic] Distributor fee plus a fee per 

subscriber, 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. 

The Trading Platform fee is equitable 

and reasonable in that it ensures that 

heavy users of the NASDAQ Depth 

Information pay an equitable share of 

the total NASDAQ Depth Information 

fees. Currently, Professional Subscribers 

pay higher fees than Non-Professional 

Subscribers based on the calculated 

assumption of higher usage. Similarly, 

External Distributors pay higher fees 

than Internal Distributors, also based 

upon their assumed higher usage levels. 

NASDAQ believes that Trading 

Platforms are generally high users of the 

data, using it to power a matching 

engine for millions or even billions of 

trading messages per day. Additionally, 

the vast majority of operators of Trading 

Platforms that use NASDAQ Depth-ofBook Data already pay $15,000 per 

month or close to it. Those operators 

will pay no or little in additional fees. 

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. 

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.5

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 


tkelley on DSK3SPTVN1PROD with NOTICES
1060 Federal Register / Vol. 80, No. 5 / Thursday, January 8, 2015 / Notices 

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. 

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 


tkelley on DSK3SPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 5 / Thursday, January 8, 2015 / Notices 1061 

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 

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 


tkelley on DSK3SPTVN1PROD with NOTICES
1062 Federal Register / Vol. 80, No. 5 / Thursday, January 8, 2015 / Notices 

6 15 U.S.C. 78s(b)(3)(A)(ii). 7 17 CFR 200.30–3(a)(12). 

1 12 U.S.C. 5465(e)(1). The Financial Stability 

Oversight Council designated OCC a systemically 

important financial market utility on July 18, 2012. 

See Financial Stability Oversight Council 2012 

Annual Report, Appendix A, http://

www.treasury.gov/initiatives/fsoc/Documents/

2012%20Annual%20Report.pdf. Therefore, OCC is 

required to comply with the Clearing Supervision 

Act and file advance notices with the Commission. 

See 12 U.S.C. 5465(e). 

2 17 CFR 240.19b–4(n)(1)(i). 

3Securities Exchange Act Release No. 73726 

(December 3, 2014), 79 FR 73116 (December 9, 

2014) (SR–OCC–2014–809). 

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.6

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: (i) necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) otherwise in 

furtherance of the purposes of the Act. 

If the Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml ); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2014–125 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NASDAQ–2014–125. 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 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–2014–125 and 

should be submitted on or before 

January 29, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.7

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–00051 Filed 1–7–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73979; File No. SR–OCC– 

2014–809] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of No Objection to Advance Notice 

Concerning the Implementation of a 

Committed Master Repurchase 

Agreement Program as Part of OCC’s 

Overall Liquidity Plan 

January 2, 2015. 

On November 6, 2014, The Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) advance 

notice SR–OCC–2014–809 (‘‘Advance 

Notice’’) pursuant to Section 806(e)(1) of 

the Payment, Clearing, and Settlement 

Supervision Act of 2010 (‘‘Clearing 

Supervision Act’’ or ‘‘Title VIII’’) 1 and 

Rule 19b–4(n)(1)(i) under the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’).2 The Advance Notice was 

published for comment in the Federal 

Register on December 9, 2014.3 The 

Commission did not receive any 

comments on the Advance Notice 

publication. This publication serves as a 

notice of no objection to the Advance 

Notice. 

I. Description of the Advance Notice 

a. Background 

The purpose of the proposed change 

is to allow OCC to implement a 

committed master repurchase agreement 

program (‘‘MRA Program’’) in order to 

access an additional committed source 

of liquidity to meet its settlement 

obligations in a manner that does not 

increase the concentration of OCC’s 

counterparty exposure, given OCC’s 

existing affiliations between a number 

of commercial banking institutions and 

OCC’s clearing members. According to 

OCC, the MRA Program will take the 

form of OCC entering into a committed 

master repurchase agreement and 

related confirmations (together, the 

‘‘Master Repurchase Agreement’’) with 

one or more non-bank, non-clearing 


tkelley on DSK3SPTVN1PROD with NOTICES