Document ID: SEC-2012-0101-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2012-01-23T05:00Z

[Federal Register Volume 77, Number 14 (Monday, January 23, 2012)]
[Notices]
[Pages 3313-3318]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-1232]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66165; File No. SR-NASDAQ-2012-005]

Self-Regulatory Organizations; the NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Establish an Enhanced Display Distributor Fee

January 17, 2012.
    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 5, 2012, 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 Nasdaq. 
The Commission is publishing this notice to solicit comments on the 
proposed rule from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to establish an optional tiered distributor fee for 
enhanced displays (the ``Enhanced Display Distributor Fee'').
    The text of the proposed rule change is below. Proposed new 
language is italicized; proposed deletions are in brackets.\3\
---------------------------------------------------------------------------

    \3\ Changes are marked to the rule text that appears in the 
electronic Nasdaq Manual found at http://nasdaqomx.cchwallstreet.com.
---------------------------------------------------------------------------

* * * * *

7026. Distribution Models

    (a) Display Solutions [Reserved]
    (1) Enhanced Displays (optional delivery method)
    (A) The charges to be paid by Distributors for offering subscribers 
of Nasdaq Depth data controlled display products along with access to 
an API or similar solution shall be:

------------------------------------------------------------------------
                                                 Number of downstream
                                                     subscribers
------------------------------------------------------------------------
Monthly Enhanced Display Solution Fee per    1-299 users = $2,000/month.
 Distributor for right to display products   300-399 users = $3,000/
 containing API or similar solution \*\.      month.
                                             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.
                                             1,000 users or more =
                                              $10,000/month.
------------------------------------------------------------------------
* Customers 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 subscriber 
for utilizing Nasdaq TotalView or Nasdaq OpenView data on a controlled 
display product with access to an API or similar solution through that 
display is the applicable 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.
    (2) The term ``non-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.
* * * * *

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

    In its filing with the Commission, Nasdaq included statements 
concerning the purpose of and basis for the proposed rule change 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. Nasdaq 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 7026 (Distribution Models) 
to establish an optional Enhanced Display Solution Fee to further the 
distribution of Nasdaq TotalView, Nasdaq OpenView and/or Nasdaq Level 2 
Information (collectively, ``Nasdaq Depth Information''). The new data 
distribution model (an ``Enhanced Display Solution'') offers a delivery 
method available to firms seeking simplified market data administration 
and may be offered by Distributors to external subscribers that are 
using the Nasdaq Depth Information internally.
    The proposed optional Enhanced Display Solution Fee is intended to 
provide a new pricing option for Distributors who provide a controlled 
display product along with an Application Programming Interface

[[Page 3314]]

(``API'') or similar solution to subscribers. Non-display use is not 
permitted under the Enhanced Display Solution Fee structure. To ensure 
compliance with this new fee, Distributors must monitor for any non-
display or excessive use suggesting that the subscriber is not in 
compliance. The Distributor is liable for any unauthorized use by the 
Enhanced Data subscribers under the Enhanced Display Solution. This 
proposed optional new fee only applies to external Distributors 
offering any Nasdaq Depth Information and who opt for an Enhanced 
Display option.
    This new pricing and administrative option is in response to 
industry demand, as well as due 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. Distributors opting for the 
Enhanced Display Solution Fee would still be fee liable for the 
applicable Professional or Non-Professional subscriber fees for Nasdaq 
TotalView and Nasdaq OpenView, as described in Nasdaq Rule 7023.\4\ 
Nasdaq proposes to permit Distributors to select the Enhanced Display 
Solution Fee at a minimum rate of $2,000 per month for up to 299 
subscribers, and each tier of 100 users will be at an additional 
incremental rate of $1,000 per month up to a maximum of $10,000 per 
month for 1,000 or more subscribers per month. The Enhanced Display 
Solution Fee is independent from the applicable subscriber fees as 
described above. These new Enhanced Display Solution Fees will become 
fee liable for the billing month of April 2012.
---------------------------------------------------------------------------

    \4\ Subscribers redistributing Nasdaq Level 2 information under 
the proposed fee change will pay underlying Nasdaq TotalView or 
Nasdaq OpenView rates. A Subscriber redistributing Nasdaq Level 2 
for Nasdaq-listed securities will pay the underlying Nasdaq 
TotalView rates and a customer redistributing Nasdaq Level 2 for 
NYSE, AMEX or regional listed securities will pay the underlying 
Nasdaq OpenView rates.
---------------------------------------------------------------------------

    This delivery option assesses a new fee schedule to Distributors of 
Nasdaq Depth Information that provide an API or similar solution from a 
controlled display. The Distributor must first 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 subscriber to access an API or similar solution 
from that display product. The subscriber of an Enhanced Display may 
use the Nasdaq Depth Information for the subscriber's own purposes and 
may not redistribute the information outside of their organization. The 
subscriber may not redistribute the data internally to other users in 
the same organization.
    In the past, Nasdaq has considered this type of retransmission to 
be an uncontrolled display since the Distributor does not control both 
the entitlements and the display of the information. Over the last ten 
years, Distributors have improved the technical delivery and monitoring 
of data and the Enhanced Display offering responds to an industry need 
to administer these new types of technical deliveries.
    Some Distributors believe that an API or other distribution from a 
display is a better controlled product than a data feed and as such 
should not be subject to the same rates as a data feed. The offering of 
a new pricing option for an Enhanced Display would not only result in 
Nasdaq offering lower fees for certain existing Distributors, but will 
allow new Distributors to deliver Enhanced Displays to new clients, 
thereby increasing transparency of the market. Nasdaq continues to 
create new pricing policies aimed at increasing transparency in the 
market and believes this is another step in that direction. This 
includes the Enhanced Display Solution as well as the Managed Data 
Solution.
    Accordingly, Nasdaq is establishing the Enhanced Display Solution 
Fee for Distributors who are seeking simplified market data 
administration and would like to offer Nasdaq Depth Information to 
subscribers that are using the Nasdaq Depth Information internally. The 
Nasdaq Enhanced Display Solution Fee is optional for firms providing a 
controlled display product containing Nasdaq Depth Information where 
the Distributor controls a display of Nasdaq Depth Information, but 
allows the subscriber to access an API or similar solution from that 
display product since these firms can choose to pay the data feed fees. 
The new Nasdaq Enhanced Display Solution Fee is designed to allow 
TotalView subscribers to redistribute data via a terminal without 
paying a higher fee for an attached API. As a result, it does not 
impact individual usage fees for TotalView or in any way increase the 
costs of any user of the TotalView data product. For subscribers 
wanting to use this same functionality for other products, they would 
be able to do so by paying the applicable TotalView rates.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\5\ in general, and with Section 
6(b)(4) of the Act,\6\ in particular, in that it provides an equitable 
allocation of reasonable fees among users and recipients of Nasdaq 
data. In adopting Regulation NMS, the Commission granted self-
regulatory organizations and broker-dealers increased authority and 
flexibility to offer new and unique market data to the public. It was 
believed that this authority would expand the amount of data available 
to consumers, and also spur innovation and competition for the 
provision of market data.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    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 broker-dealers 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.\7\
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496 (June 29, 2005).

    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 self-regulatory 
organization'' after ``due, fee or other charge imposed by the self-
regulatory 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

[[Page 3315]]

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 self-regulatory 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 self-
regulatory 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 self-regulatory 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-for-profit 
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 [sic], 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 [sic], 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.
    NASDAQ believes that this proposal is in keeping with those 
principles by promoting increased transparency through the offering of 
a new pricing option for an Enhanced Display, which would not only 
result in Nasdaq offering lower fees for certain existing Distributors, 
but will allow new Distributors to deliver Enhanced Displays to new 
clients, thereby increasing transparency of the market. Additionally, 
the proposal provides for simplified market data administration and may 
be offered by Distributors to external subscribers that are using the 
Nasdaq Depth Information internally. Nasdaq notes also that this filing 
proposes to distribute no additional data elements and that the 
Enhanced Display Solution Fee is optional. 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.

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 [sic] 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 Dodd-Frank 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

[[Page 3316]]

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 broker-dealer because it does not provide 
information about the venue to which it is directing its orders. Data 
from the competing venue to which the broker-dealer is directing orders 
will become correspondingly more valuable.
    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 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

[[Page 3317]]

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 
depth-of-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 broker-
dealers 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 zero-priced 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 \8\. At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(3)(a)(ii).
---------------------------------------------------------------------------

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-2012-005 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

[[Page 3318]]

All submissions should refer to File Number SR-NASDAQ-2012-005. 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 on official business 
days between the hours of 10 a.m. and 3 p.m. Copies of such filing also 
will be available for inspection and copying at the principal offices 
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-2012-005, and should be submitted on or before February 13, 
2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-1232 Filed 1-20-12; 8:45 am]
BILLING CODE 8011-01-P