Document ID: SEC-2015-0884-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2015-05-21T04:00Z

[Federal Register Volume 80, Number 98 (Thursday, May 21, 2015)]
[Notices]
[Pages 29370-29376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12280]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74972; File No. SR-NASDAQ-2015-055]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change Regarding NASDAQ Last Sale 
Plus

May 15, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that, on May 11, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7039 (NASDAQ Last Sale Data 
Feed) with language regarding NASDAQ Last Sale (``NLS'') Plus (``NLS 
Plus''), a comprehensive data feed offered by NASDAQ OMX Information 
LLC.\3\ NLS Plus allows data distributors to access the three last sale 
products offered by each of NASDAQ OMX's three U.S. equity markets.\4\ 
NLS Plus also reflects cumulative consolidated volume (``consolidated 
volume'') of real-time trading activity across all U.S. exchanges for 
Tape C securities \5\ and 15-minute delayed information for Tape A and 
Tape B securities.\6\ Thus, in offering NLS Plus, NASDAQ OMX 
Information LLC is, as discussed below, acting as a redistributor of 
last sale products already offered by NASDAQ, BX, and PSX and volume 
information provided by the securities information processors for Tape 
A, B, and C. This proposal is being filed by the Exchange to explain 
the scope of the NLS Plus data feed offering and in light of a recent 
approval order on behalf of several affiliated exchanges regarding a 
similar data product.\7\
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    \3\ NASDAQ OMX Information LLC is a subsidiary of The NASDAQ OMX 
Group, Inc. (``NASDAQ OMX'').
    \4\ The NASDAQ OMX U.S. equity markets include The NASDAQ Stock 
Market (``NASDAQ''), NASDAQ OMX BX (``BX''), and NASDAQ OMX PSX 
(``PSX'') (together known as the ``NASDAQ OMX equity markets''). PSX 
and BX will shortly file companion proposals regarding NLS Plus. 
NASDAQ's last sale product, NASDAQ Last Sale, includes last sale 
information from the FINRA/NASDAQ Trade Reporting Facility (``FINRA/
NASDAQ TRF''), which is jointly operated by NASDAQ and the Financial 
Industry Regulatory Authority (``FINRA''). Accordingly, NASDAQ 
expects that FINRA will submit a proposed change to FINRA Rule 7640A 
with respect to NLS Plus. See Securities Exchange Act Release No. 
71350 (January 17, 2014), 79 FR 4218 (January 24, 2014) (SR-FINRA-
2014-002). For proposed rule changes submitted with respect to 
NASDAQ Last Sale, BX Last Sale, and PSX Last Sale, see, e.g., 
Securities Exchange Act Release Nos. 57965 (June 16, 2008), 73 FR 
35178, (June 20, 2008) (SR-NASDAQ-2006-060) (order approving NASDAQ 
Last Sale data feeds pilot); 61112 (December 4, 2009), 74 FR 65569, 
(December 10, 2009) (SR-BX-2009-077) (notice of filing and immediate 
effectiveness regarding BX Last Sale data feeds); and 62876 
(September 9, 2010), 75 FR 56624, (September 16, 2010) (SR-Phlx-
2010-120) (notice of filing and immediate effectiveness regarding 
PSX Last Sale data feeds).
    \5\ Tape C securities are disseminated pursuant to the NASDAQ 
Unlisted Trading Privileges (``UTP'') Plan.
    \6\ Tape A and Tape B securities are disseminated pursuant to 
the Security Industry Automation Corporation's (``SIAC'') 
Consolidated Tape Association Plan/Consolidated Quotation System, or 
CTA/CQS (``CTA'').
    \7\ See Securities Exchange Act Release No. 73918 (December 23, 
2014), 79 FR 78920 (December 31, 2014) (SR-BATS-2014-055; SR-BYX-
2014-030; SR-EDGA-2014-25; SR-EDGX-2014-25) (order approving market 
data product called BATS One Feed being offered by four affiliated 
exchanges). See also Securities Exchange Act Release No. 73553 
(November 6, 2014), 79 FR 67491 (November 13, 2014) (SR-NYSE-2014-
40) (order granting approval to establish the NYSE Best Quote & 
Trades (``BQT'') Data Feed).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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.

[[Page 29371]]

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

1. Purpose
    The purpose of this proposal is to amend Rule 7039 by adding new 
section (d) regarding NLS Plus. NLS Plus allows data distributors to 
access last sale products offered by each of NASDAQ OMX's three equity 
exchanges. Thus, NLS Plus includes all transactions from all of NASDAQ 
OMX's equity markets, as well as FINRA/NASDAQ TRF data that is included 
in the current NLS product. In addition, NLS Plus features total cross-
market volume information at the issue level, thereby providing 
redistribution of consolidated volume information from the securities 
information processors (``SIPs'') for Tape A, B, and C securities.\8\ 
Thus, NLS Plus covers all securities listed on NASDAQ and New York 
Stock Exchange (``NYSE'') (now under the Intercontinental Exchange 
(``ICE'') umbrella), as well as US ``regional'' exchanges such as NYSE 
MKT, NYSE Arca, and BATS (also known as BATS/Direct Edge).\9\ The 
Exchange will, as discussed below, file a separate proposal regarding 
the NLS Plus fee structure.
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    \8\ This will reflect real-time trading activity for Tape C 
securities and 15-minute delayed information for Tape A and Tape B 
securities.
    \9\ Registered U.S. exchanges are listed at http://www.sec.gov/divisions/marketreg/mrexchanges.shtml.
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    NASDAQ has offered NLS Plus since 2010 via NASDAQ OMX Information 
LLC. NASDAQ OMX Information LLC is a subsidiary of NASDAQ OMX Group, 
Inc., separate and apart from The NASDAQ Stock Market LLC. As such, 
NASDAQ OMX Information LLC redistributes last sale data that has been 
the subject of a proposed rule change filed with the Commission at 
prices that also have been the subject of a proposed rule change filed 
with the Commission. As discussed below, NASDAQ OMX Information LLC 
distributes no data that is not equally available to all market data 
vendors.\10\
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    \10\ NLS Plus is and has been described online at http://nasdaqtrader.com/Trader.aspx?id=DPUSdata#ls. See also http://nasdaqtrader.com/content/technicalsupport/specifications/dataproducts/NLSPlusSpecification.pdf, which provides detail about 
how NLS Plus functions.
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    The primary purpose of NASDAQ OMX Information LLC is to combine 
publicly available data from the three filed last sale products of the 
NASDAQ OMX equity markets and from the network processors for the ease 
and convenience of market data users and vendors, and ultimately the 
investing public. In that role, the function of NASDAQ OMX Information 
LLC is analogous to that of other market data vendors, and it has no 
competitive advantage over other market data vendors. For example, 
NASDAQ OMX Information LLC receives data from the exchange that is 
available to other market data vendors, with the same information 
distributed to NASDAQ OMX Information LLC at the same time it is 
distributed to other vendors (that is, NASDAQ OMX Information LLC has 
neither a speed nor an information differential). Through this 
structure, NASDAQ OMX Information LLC performs precisely the same 
functions as Bloomberg, Thomson Reuters, and dozens of other market 
data vendors.
    The contents of NLS Plus in large part mimic those of NLS set forth 
in NASDAQ Rule 7039. Currently, NLS in Rule 7039 consists of two 
separate data products containing last sale activity within the NASDAQ 
market and reported to the jointly-operated FINRA/NASDAQ TRF; these 
products are available via two separate data channels. First, as 
described in Rule 7039, the ``NLS for NASDAQ'' data product is a real-
time data channel that provides real-time last sale information 
including execution price, volume, and time for executions occurring 
within the NASDAQ system as well as those reported to the FINRA/NASDAQ 
TRF. Second, the product known as ``NLS for NYSE/NYSE MKT'' provides 
real-time last sale information over a second data channel including 
execution price, volume, and time for NYSE- and NYSE MKT-securities 
executions occurring within the NASDAQ system as well as those reported 
to the FINRA/NASDAQ TRF. By contrast, the SIPs that provide ``core'' 
data consolidate last sale information from all exchanges and TRFs. 
Thus, NLS replicates a subset of the information provided by the SIPs. 
NASDAQ currently maintains several pricing models, for NLS, including 
an enterprise license. NLS Plus also includes comparable information 
from BX Last Sale (BX Rule 7039) and PSX Last Sale (NASDAQ OMX PSX Fees 
Chapter VIII).
The Proposal
    The Exchange proposes to add NLS Plus to Rule 7039, which currently 
describes the NLS data feed offering, to fully reflect NLS Plus. As 
described more fully below, NLS Plus is a comprehensive data feed 
offered by NASDAQ OMX Information LLC that disseminates last sale data 
as well as consolidated volume of NASDAQ equity markets and the TRF in 
real-time, and consolidated volume for Tape A and Tape B securities on 
a 15-minute delayed basis. Similar to NLS, NLS Plus offers data for all 
U.S. equities via two separate data channels: The first data channel 
reflects NASDAQ, BX, and PSX trades with real-time consolidated volume 
for NASDAQ-listed securities; and the second data channel reflects 
NASDAQ, BX, and PSX trades with delayed consolidated volume for NYSE, 
NYSE MKT, NYSE Arca and BATS-listed securities.\11\ NLS Plus, like NLS, 
is used by industry professionals and retail investors looking for a 
cost effective, easy-to-administer, high quality market data product 
with the characteristics of NLS Plus. The provision of multiple options 
for investors to receive market data was a primary goal of the market 
data amendments adopted by Regulation NMS.\12\ Finally, NLS Plus 
provides investors with options for receiving market data that parallel 
products currently offered by BATS and BATS Y, EDGA, and EDGX and NYSE 
equity exchanges.\13\
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    \11\ These NLS Plus channels are each made up of a series of 
sequenced messages so that each message is variable in length based 
on the message type and is typically delivered using a higher level 
protocol. NLS Plus Channel 1 contains NASDAQ trades with real time 
consolidated volume for NASDAQ listed (Tape C) securities. NLS Plus 
Channel 2 contains NASDAQ trades with delayed (15 minutes) 
consolidated volume for NYSE, NYSE Market, NYSE Arca, and BATS 
listed (Tape A and Tape B) securities.
    \12\ However, the Exchange notes that under Rule 603 of 
Regulation NMS, see 17 CFR 242.603(c), NLS Plus cannot be 
substituted for consolidated data in all instances in which 
consolidated data is used and certain subscribers are still required 
to purchase consolidated data for trading and order-routing 
purposes. See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, at 37503 (June 29, 2005) (Regulation NMS 
Adopting Release).
    \13\ See supra note 7.
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    In addition to last sale information, NLS Plus also disseminates 
the following data elements: Trade Price, Trade Size, Sale Condition 
Modifiers, Cumulative Consolidated Market Volume, End of Day Trade 
Summary, Adjusted Closing Price, IPO Information, and Bloomberg ID 
(together the ``data elements''). NLS Plus also features and 
disseminates the following messages: Market Wide Circuit Breaker, Reg 
SHO Short Sale Price Test Restricted Indicator, Trading Action, Symbol 
Directory, Adjusted Closing Price, and End of Day Trade Summary 
(together the ``messages'').\14\ The

[[Page 29372]]

overwhelming majority of these data elements and messages are exactly 
the same as, and in fact are sourced from, NLS, BX Last Sale, and PSX 
Last Sale. Only two data elements (consolidated volume and Bloomberg 
ID) are, as discussed below, sourced from other publicly accessible or 
obtainable resources.
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    \14\ The Reg SHO Short Sale Price Test Restricted Indicator 
message is disseminated intra-day when a security has a price drop 
of 10% or more from the adjusted prior day's NASDAQ Official Closing 
Price. Trading Action indicates the current trading status of a 
security to the trading community, and indicates when a security is 
halted, paused, released for quotation, and released for trading. 
Symbol Directory is disseminated at the start of each trading day 
for all active NASDAQ and non-NASDAQ-listed security symbols. 
Adjusted Closing Price is disseminated at the start of each trading 
day for all active symbols in the NASDAQ system, and reflects the 
previous trading day's official closing price adjusted for any 
applicable corporate actions; if there were no corporate actions, 
however, the previous day's official closing price is used. End of 
Day Trade Summary is disseminated at the close of each trading day, 
as a summary for all active NASDAQ- and non-NASDAQ-listed 
securities. IPO Information reflects IPO general administrative 
messages from the UTP and CTA Level 1 feeds for Initial Public 
Offerings for all NASDAQ- and non-NASDAQ-listed securities.
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    Consolidated volume reflects the consolidated volume at the time 
that the NLS Plus trade message is generated, and includes the volume 
for the issue symbol as reported on the consolidated market data feed. 
The consolidated volume is based on the real-time trades reported via 
the UTP Trade Data Feed (``UTDF'') and delayed trades reported via CTA. 
NASDAQ OMX calculates the real-time trading volume for its trading 
venues, and then adds the real-time trading volume for the other (non-
NASDAQ OMX) trading venues as reported via the UTDF data feed. For non-
NASDAQ-listed issues, the consolidated volume is based on trades 
reported via SIAC's Consolidated Tape System (``CTS'') for the issue 
symbol. The Exchange calculates the real-time trading volume for its 
trading venues, and then adds the 15-minute delayed trading volume for 
the other (non-NASDAQ OMX) trading venues as reported via the CTS data 
feed.\15\ The second data point that is not sourced from NLS, BX Last 
Sale, and PSX Last Sale is Bloomberg ID. This composite ID is a 
component of Bloomberg's Open Symbology and acts as a global security 
identifier that Bloomberg assigns to securities, and is available free 
of charge.\16\
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    \15\ In order to distribute data derived from UTDF and CTA, 
NASDAQ OMX must pay monthly redistributor fees. However, because 
these fees are paid on an enterprise-wide basis and NASDAQ OMX 
includes such derived data in other data products, the use of the 
data in NLS Plus does not result in an additional incremental cost.
    \16\ See http://bsym.bloomberg.com/sym/pages/bbgid-fact-sheet.pdf; http://bsym.bloomberg.com/sym/pages/NASDAQ_Adopts_BSYM.pdf.
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    NLS Plus may be received by itself or in combination with NASDAQ 
Basic.\17\ In the latter case, the subscriber receives all of the 
elements contained in NLS Plus as well as the best bid and best offer 
information provided by NASDAQ Basic.
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    \17\ As provided in Rule 7047, NASDAQ Basic provides the 
information contained in NLS, together with NASDAQ's best bid and 
best offer.
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    The Exchange believes that market data distributors may use the NLS 
Plus data feed to feed stock tickers, portfolio trackers, trade alert 
programs, time and sale graphs, and other display systems.
    The Exchange also proposes two housekeeping changes. In the Rule 
7039 title, the Exchange adds the phrase ``and NASDAQ Last Sale Plus'' 
to make it clear that the rule refers to NLS and NLS Plus. And in 
section (a), the Exchange adds the phrase ``NASDAQ Last Sale'' to make 
it clear that section (a) ([sic] like sections (b) and (c) refers to 
NLS. These changes are non-substantive.
    With respect to latency, the path for distribution by the Exchange 
of NLS Plus is not faster than the path for distribution that would be 
used by a market data vendor to distribute an independently created NLS 
Plus-like product. As such, the proposed NLS Plus data feed is a data 
product that a competing market data vendor could create and sell 
without being in a disadvantaged position relative to the Exchange. In 
recognition that the Exchange is the source of its own market data and 
with BX and PSX being equity markets owned by NASDAQ OMX, the Exchange 
represents that the source of the market data it would use to create 
proposed NLS Plus is available to other vendors. In fact, the 
overwhelming majority of the data elements and messages \18\ in NLS 
Plus are exactly the same as, and in fact are sourced from, NLS, BX 
Last Sale, and PSX Last Sale, each of which is available to other 
market data vendors.\19\ The Exchange, BX, and PSX will continue to 
make available these individual underlying data elements, and thus, the 
source of the market data that the Exchange would use to create the 
proposed NLS Plus is the same as what is available to other market data 
vendors.
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    \18\ See text related to note 14 supra.
    \19\ Only two data elements are, as discussed above, sourced 
from other publicly accessible or obtainable resources.
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    In order to create NLS Plus, the system creating and supporting NLS 
Plus receives the individual data feeds from each of the NASDAQ OMX 
equity markets and, in turn, aggregates and summarizes that data to 
create NLS Plus and then distribute it to end users. This is the same 
process that a competing market data vendor would undergo should it 
want to create a market data product similar to NLS Plus to distribute 
to its end users. A competing market data vendor could receive the 
individual data feeds from each of the NASDAQ OMX equity markets at the 
same time the system creating and supporting NLS Plus would for it to 
create NLS Plus. Therefore, a competing market data vendor could, as 
discussed, obtain the underlying data elements from the NASDAQ OMX 
equity markets on the same latency basis as the system that would be 
performing the aggregation and consolidation of proposed NLS Plus, and 
provide a similar product to its customers with the same latency they 
could achieve by purchasing NLS Plus from the Exchange. As such, the 
Exchange would not have any unfair advantage over competing market data 
vendors with respect to NLS Plus. Moreover, in terms of NLS itself, the 
Exchange would access the underlying feed from the same point as would 
a market data vendor; as discussed, the Exchange would not have a speed 
advantage. Likewise, NLS Plus would not have any speed advantage vis-
[agrave]-vis competing market data vendors with respect to access to 
end user customers.
    With regard to cost, upon approval of this NLS Plus proposal the 
Exchange will file a separate proposal with the Commission regarding 
fees, which would be designed to ensure that vendors could compete with 
the Exchange by creating a similar product as NLS Plus. The Exchange 
expects that the pricing will reflect the incremental cost of the 
aggregation and consolidation function for NLS Plus, and would not be 
lower than the cost to a vendor creating a competing product, including 
the cost of receiving the underlying data feeds. The pricing the 
Exchange would charge clients for NLS Plus would enable a vendor to 
receive the underlying data feeds and offer a similar product on a 
competitive basis and with no greater cost than the Exchange. For these 
reasons, the Exchange believes that vendors could readily offer a 
product similar to NLS Plus on a competitive basis at a similar cost.
    As described in more detail below, the Exchange believes that the 
NLS Plus data offering benefits the public and investors and that the 
proposal is consistent with the Act.
 2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\20\ in general, and with 
Section 6(b)(5) of the

[[Page 29373]]

Act,\21\ in particular, in that the proposal is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \20\ 15 U.S.C. 78f.
    \21\ 15 U.S.C. 78f(b)(5).
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    The purpose of the proposed rule change is to add section (d) to 
Rule 7039 regarding the NLS Plus data offering. NASDAQ believes that 
the proposal facilitates transactions in securities, removes 
impediments to and perfects the mechanism of a free and open market and 
a national market system, and, in general, protects investors and the 
public interest by making permanent the availability of an additional 
means by which investors may access information about securities 
transactions, thereby providing investors with additional options for 
accessing information that may help to inform their trading decisions. 
Given that Section 11A the Act \22\ requires the dissemination of last 
sale reports in core data, NASDAQ believes that the inclusion of the 
same data in NLS Plus is also consistent with the Act.
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    \22\ 15 U.S.C. 78k-1.
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    NASDAQ notes that the Commission has recently approved a data 
product on several exchanges that is similar to NLS Plus, and 
specifically determined that the approved data product was consistent 
with the Act.\23\ NLS Plus simply provides market participants with an 
additional option for receiving market data that has already been the 
subject of a proposed rule change and that is available from myriad 
market data vendors.
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    \23\ See supra note 7.
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    In adopting Regulation NMS, the Commission granted SROs and broker-
dealers (``BDs'') increased authority and flexibility to offer new and 
unique market data to the public. It was believed that this authority 
would expand the amount of data available to consumers, and also spur 
innovation and competition for the provision of market data. NASDAQ 
believes that its NLS Plus market data product is precisely the sort of 
market data product that the Commission envisioned when it adopted 
Regulation NMS. 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.\24\
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    \24\ See 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 BDs at 
all, it follows that the price at which such data is sold should be set 
by the market as well.
    NASDAQ will file a separate proposal regarding NLS Plus fees.\25\ 
The decision of the United States Court of Appeals for the District of 
Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010) 
(``NetCoalition I''), 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.' NetCoalition I, at 535 (quoting H.R. 
Rep. No. 94-229, at 92 (1975), as reprinted in 1975 U.S.C.C.A.N. 321, 
323). The court agreed with the Commission's conclusion that ``Congress 
intended that `competitive forces should dictate the services and 
practices that constitute the U.S. national market system for trading 
equity securities.' '' \26\
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    \25\ The Exchange expects that the fee structure for NLS Plus 
will reflect an amount that is no less than the cost to a market 
data vendor to obtain all the underlying feeds, plus an amount to be 
determined that would reflect the value of the aggregation and 
consolidation function.
    \26\ NetCoalition I, at 535.
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    The Court in NetCoalition I, while upholding the Commission's 
conclusion that competitive forces may be relied upon to establish the 
fairness of prices, nevertheless concluded that the record in that case 
did not adequately support the Commission's conclusions as to the 
competitive nature of the market for NYSE Arca's data product at issue 
in that case. As explained below in NASDAQ's Statement on Burden on 
Competition, however, NASDAQ believes that there is substantial 
evidence of competition in the marketplace for data that was not in the 
record in the NetCoalition I case, and that the Commission is entitled 
to rely upon such evidence in concluding fees are the product of 
competition, and therefore in accordance with the relevant statutory 
standards.\27\ Moreover, NASDAQ further notes that the product at issue 
in this filing--a last sale data product that replicates a subset of 
the information available through ``core'' data products whose fees 
have been reviewed and approved by the SEC--is quite different from the 
NYSE Arca depth-of-book data product at issue in NetCoalition I. 
Accordingly, any findings of the court with respect to that product may 
not be relevant to the product at issue in this filing.
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    \27\ It should also be noted that Section 916 of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank 
Act'') has amended paragraph (A) of Section 19(b)(3) of the Act, 15 
U.S.C. 78s(b)(3), to make it clear that all exchange fees, including 
fees for market data, may be filed by exchanges on an immediately 
effective basis. See also NetCoalition v. SEC, 715 F.3d 342 (D.C. 
Cir. 2013) (``NetCoalition II'') (finding no jurisdiction to review 
Commission's non-suspension of immediately effective fee changes).
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    Moreover, data products such as NLS Plus are a means by which 
exchanges compete to attract order flow. To the extent that exchanges 
are successful in such competition, they earn trading revenues and also 
enhance the value of their data products by increasing the amount of 
data they are able to provide. Conversely, to the extent that exchanges 
are unsuccessful, the inputs needed to add value to data products are 
diminished. Accordingly, the need to compete for order flow places 
substantial pressure upon exchanges to keep their fees for both 
executions and data reasonable.
    The Exchange believes that, for the reasons given, the proposal is 
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. As is true of all 
NASDAQ's non-core data products, NASDAQ's ability to offer and price 
NLS Plus is constrained by: (1) Competition between exchanges and other 
trading platforms that compete with each other in a variety of 
dimensions; (2) the existence of

[[Page 29374]]

inexpensive real-time consolidated data and market-specific data and 
free delayed consolidated data; and (3) the inherent contestability of 
the market for proprietary last sale data.
    In addition, as described in detail above, NLS Plus competes 
directly with a myriad of similar products and potential products of 
market data vendors. NASDAQ OMX Information LLC was constructed 
specifically to establish a level playing field with market data 
vendors and to preserve fair competition between them. Therefore, 
NASDAQ OMX Information LLC receives NLS, BX Last Sale, and PSX Last 
Sale from each NASDAQ-operated exchange in the same manner, at the same 
speed, and reflecting the same fees as for all market data vendors. 
Therefore, NASDAQ Information LLC has no competitive advantage with 
respect to these last sale products and NASDAQ commits to maintaining 
this level playing field in the future. In other words, NASDAQ will 
continue to disseminate separately the underlying last sale products to 
avoid creating a latency differential between NASDAQ OMX Information 
LLC and other market data vendors, and to avoid creating a pricing 
advantage for NASDAQ OMX Information LLC.
    NLS Plus joins the existing market for proprietary last sale data 
products that is currently competitive and inherently contestable 
because there is fierce competition for the inputs necessary to the 
creation of proprietary data and strict pricing discipline for the 
proprietary products themselves. Numerous exchanges compete with each 
other for listings, trades, and market data itself, providing virtually 
limitless opportunities for entrepreneurs who wish to produce and 
distribute their own market data. This proprietary data is produced by 
each individual exchange, as well as other entities, in a vigorously 
competitive market. Similarly, with respect to the FINRA/NASDAQ TRF 
data that is a component of NLS and NLS Plus, allowing exchanges to 
operate TRFs has permitted them to earn revenues by providing 
technology and data in support of the non-exchange segment of the 
market. This revenue opportunity has also resulted in fierce 
competition between the two current TRF operators, with both TRFs 
charging extremely low trade reporting fees and rebating the majority 
of the revenues they receive from core market data to the parties 
reporting trades.
    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 trade executions, exchange data products cannot 
exist. Moreover, 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, the operation of the 
exchange is characterized by high fixed costs and low marginal costs. 
This cost structure is common in content and content distribution 
industries such as software, where developing new software typically 
requires a large initial investment (and continuing large investments 
to upgrade the software), but once the software is developed, the 
incremental cost of providing that software to an additional user is 
typically small, or even zero (e.g., if the software can be downloaded 
over the internet after being purchased).\28\ In NASDAQ's case, it is 
costly to build and maintain a trading platform, but the incremental 
cost of trading each additional share on an existing platform, or 
distributing an additional instance of data, is very low. Market 
information and executions are each produced jointly (in the sense that 
the activities of trading and placing orders are the source of the 
information that is distributed) and are each subject to significant 
scale economies. In such cases, marginal cost pricing is not feasible 
because if all sales were priced at the margin, NASDAQ would be unable 
to defray its platform costs of providing the joint products. 
Similarly, data products cannot make use of TRF trade reports without 
the raw material of the trade reports themselves, and therefore 
necessitate the costs of operating, regulating,\29\ and maintaining a 
trade reporting system, costs that must be covered through the fees 
charged for use of the facility and sales of associated data.
---------------------------------------------------------------------------

    \28\ See William J. Baumol and Daniel G. Swanson, ``The New 
Economy and Ubiquitous Competitive Price Discrimination: Identifying 
Defensible Criteria of Market Power,'' Antitrust Law Journal, Vol. 
70, No. 3 (2003).
    \29\ It should be noted that the costs of operating the FINRA/
NASDAQ TRF borne by NASDAQ include regulatory charges paid by NASDAQ 
to FINRA.
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    An exchange's BD customers view the costs of transaction executions 
and of data as a unified cost of doing business with the exchange. A BD 
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 BD 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 BD will choose not to buy it. Moreover, as a BD 
chooses to direct fewer orders to a particular exchange, the value of 
the product to that BD decreases, for two reasons. First, the product 
will contain less information, because executions of the BD's trading 
activity will not be reflected in it. Second, and perhaps more 
important, the product will be less valuable to that BD because it does 
not provide information about the venue to which it is directing its 
orders. Data from the competing venue to which the BD is directing 
orders will become correspondingly more valuable.
    Similarly, in the case of products such as NLS Plus that are 
distributed through market data vendors, the vendors provide price 
discipline for proprietary data products because they control the 
primary means of access to end users. Vendors impose price restraints 
based upon their business models. For example, vendors such as 
Bloomberg and Reuters that assess a surcharge on data they sell may 
refuse to offer proprietary products that end users will not purchase 
in sufficient numbers. Internet portals, such as Google, impose a 
discipline by providing only data that will enable them to attract 
``eyeballs'' that contribute to their advertising revenue. Retail BDs, 
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. 
Exchanges,

[[Page 29375]]

TRFs, 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. Moreover, 
NASDAQ believes that products such as NLS Plus can enhance order flow 
to NASDAQ by providing more widespread distribution of information 
about transactions in real time, thereby encouraging wider 
participation in the market by investors with access to the internet or 
television. Conversely, the value of such products to distributors and 
investors decreases if order flow falls, because the products contain 
less content.
    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. NASDAQ pays rebates to attract orders, charges relatively 
low prices for market information and charges relatively high prices 
for accessing posted liquidity. Other platforms may choose a strategy 
of paying lower liquidity rebates to attract orders, setting relatively 
low prices for accessing posted liquidity, and setting relatively high 
prices for market information. Still others may provide most data free 
of charge and rely exclusively on transaction fees to recover their 
costs. Finally, some platforms may incentivize use by providing 
opportunities for equity ownership, which may allow them to charge 
lower direct fees for executions and data.
    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. Such regulation is unnecessary because an ``excessive'' price 
for one of the joint products will ultimately have to be reflected in 
lower prices for other products sold by the firm, or otherwise the firm 
will experience a loss in the volume of its sales that will be adverse 
to its overall profitability. In other words, an increase in the price 
of data will ultimately have to be accompanied by a decrease in the 
cost of executions, or the volume of both data and executions will 
fall.
    The level of competition and contestability in the market is 
evident in the numerous alternative venues that compete for order flow, 
including eleven SRO markets, as well as internalizing 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 TRFs compete to attract internalized transaction 
reports. It is common for BDs to further and exploit this competition 
by sending their order flow and transaction reports to multiple 
markets, rather than providing them all to a single market. Competitive 
markets for order flow, executions, and transaction reports provide 
pricing discipline for the inputs of proprietary data products.
    The large number of SROs, TRFs, BDs, and ATSs that currently 
produce proprietary data or are currently capable of producing it 
provides further pricing discipline for proprietary data products. Each 
SRO, TRF, ATS, and BD is currently permitted to produce proprietary 
data products, and many currently do or have announced plans to do so, 
including NASDAQ, NYSE, NYSE MKT, NYSE Arca, and BATS/Direct Edge.
    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 BDs' 
production of proprietary data products. The potential sources of 
proprietary products are virtually limitless. Notably, the potential 
sources of data include the BDs that submit trade reports to TRFs and 
that have the ability to consolidate and distribute their data without 
the involvement of FINRA or an exchange-operated TRF.
    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 NYSE 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 a core data product, 
an SRO proprietary product, and/or a non-SRO proprietary product, the 
data available in proprietary products is exponentially greater than 
the actual number of orders and transaction reports that exist in the 
marketplace. Indeed, in the case of NLS Plus, the data provided through 
that product appears both in (i) real-time core data products offered 
by the SIPs for a fee, (ii) free SIP data products with a 15-minute 
time delay, and (iii) individual exchange data products, and finds a 
close substitute in last-sale products of competing venues.
    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 BATS/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 BDs have 
previously published their proprietary data individually, Regulation 
NMS encourages market data vendors and BDs 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. In Europe, Cinnober aggregates and disseminates data from over 
40 brokers and multilateral trading facilities.\30\
---------------------------------------------------------------------------

    \30\ See http://www.cinnober.com/boat-trade-reporting.
---------------------------------------------------------------------------

    In the case of TRFs, the rapid entry of several exchanges into this 
space in 2006-2007 following the development and Commission approval of 
the TRF structure demonstrates the contestability of this aspect of the 
market.\31\ Given the demand for trade reporting services that is 
itself a by-product of the fierce competition for transaction 
executions--characterized notably by a proliferation of ATSs and BDs 
offering internalization--any supra-competitive increase in the fees 
associated with trade reporting or TRF data would shift trade report 
volumes from one of the existing TRFs to the other \32\ and create 
incentives for other TRF operators to enter the space. Alternatively, 
because BDs reporting to TRFs are themselves free to consolidate the 
market data that they report, the market for over-the-counter data 
itself, separate and apart from the markets for execution and trade 
reporting services--is fully contestable.
---------------------------------------------------------------------------

    \31\ The low cost exit of two TRFs from the market is also 
evidence of a contestable market, because new entrants are reluctant 
to enter a market where exit may involve substantial shut-down 
costs.
    \32\ It should be noted that the FINRA/NYSE TRF has, in recent 
weeks, received reports for almost 10% of all over-the-counter 
volume in NMS stocks.
---------------------------------------------------------------------------

    Moreover, consolidated data provides two additional measures of 
pricing discipline for proprietary data products

[[Page 29376]]

that are a subset of the consolidated data stream. First, the 
consolidated data is widely available in real-time at $1 per month for 
non-professional users. Second, consolidated data is also available at 
no cost with a 15- or 20- minute delay. Because consolidated data 
contains marketwide information, it effectively places a cap on the 
fees assessed for proprietary data (such as last sale data) that is 
simply a subset of the consolidated data. The mere availability of low-
cost or free consolidated data provides a powerful form of pricing 
discipline for proprietary data products that contain data elements 
that are a subset of the consolidated data, by highlighting the 
optional nature of proprietary products.
    The competitive nature of the market for products such as NLS Plus 
is borne out by the performance of the market. In May 2008, the 
internet portal Yahoo! began offering its Web site viewers real-time 
last sale data (as well as best quote data) provided by BATS. In 
response, in June 2008, NASDAQ launched NLS, which was initially 
subject to an ``enterprise cap'' of $100,000 for customers receiving 
only one of the NLS products, and $150,000 for customers receiving both 
products. The majority of NASDAQ's sales were at the capped level. In 
early 2009, BATS expanded its offering of free data to include depth-
of-book data. Also in early 2009, NYSE Arca announced the launch of a 
competitive last sale product with an enterprise price of $30,000 per 
month. In response, NASDAQ combined the enterprise cap for the NLS 
products and reduced the cap to $50,000 (i.e., a reduction of $100,000 
per month). Although each of these products offers only a specific 
subset of data available from the SIPs, NASDAQ believes that the 
products are viewed as substitutes for each other and for core last-
sale data, rather than as products that must be obtained in tandem. For 
example, while Yahoo! and Google now both disseminate NASDAQ's product, 
several other major content providers, including MSN and Morningstar, 
use the BATS product. Moreover, further evidence of competition can be 
observed in the recently-developed BATS One Feed and BQT feed.\33\
---------------------------------------------------------------------------

    \33\ See supra note 7.
---------------------------------------------------------------------------

    In this environment, 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 I at 539. The existence of 
fierce competition for order flow implies a high degree of price 
sensitivity on the part of BDs with order flow, since they may readily 
reduce costs by directing orders toward the lowest-cost trading venues. 
A BD that shifted its order flow from one platform to another in 
response to order execution price differentials would both reduce the 
value of that platform's market data and reduce its own need to consume 
data from the disfavored platform. If a platform increases its market 
data fees, the change will affect the overall cost of doing business 
with the platform, and affected BDs will assess whether they can lower 
their trading costs by directing orders elsewhere and thereby lessening 
the need for the more expensive data. Similarly, increases in the cost 
of NLS Plus would impair the willingness of distributors to take a 
product for which there are numerous alternatives, impacting NLS Plus 
data revenues, the value of NLS Plus as a tool for attracting order 
flow, and ultimately, the volume of orders routed to NASDAQ and the 
value of its other data products.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-2015-055 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-2015-055. 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-2015-055 and should 
be submitted on or before June 11, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-12280 Filed 5-20-15; 8:45 am]
BILLING CODE 8011-01-P