Document ID: SEC-2011-1435-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2011-09-26T04:00Z

[Federal Register Volume 76, Number 186 (Monday, September 26, 2011)]
[Notices]
[Pages 59466-59470]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24607]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65362; File No. SR-NASDAQ-2011-010]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Disapproving a Proposed Rule Change To Link Market Data Fees and 
Transaction Execution Fees

September 20, 2011.

I. Introduction

    On January 10, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to discount certain market data 
fees and increase certain liquidity provider credits for members that 
both (1) Execute specified levels of transaction volume on NASDAQ as a 
liquidity provider, and (2) purchase specified levels of market data 
from NASDAQ. The proposed rule change was immediately effective upon 
filing with the Commission pursuant to Section 19(b)(3)(A) of the 
Act.\3\ Notice of filing of the proposed rule change was published in 
the Federal Register on January 27, 2011.\4\ The Commission suspended 
the proposed rule change and instituted proceedings to determine 
whether to disapprove the proposed rule change in an order published in 
the Federal Register on February 3, 2011.\5\ The Commission received 
three comment letters on the proposed rule change.\6\ On April 4, 2011, 
NASDAQ submitted a response letter to the comments.\7\ This order 
disapproves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ See Securities Exchange Act Release No. 63745 (January 20, 
2011) 76 FR 4970 (``Notice'').
    \5\ See Securities Exchange Act Release No. 63796 (January 28, 
2011) 76 FR 6165 (``Order Instituting Disapproval Proceedings'').
    \6\ See Letter dated January 13, 2011 from William O'Brien, 
Chief Executive Officer, Direct Edge to Florence E. Harmon, Deputy 
Secretary, Commission (the ``Direct Edge Letter''); Letter dated 
January 31, 2011 from Christopher Nagy, Managing Director Order 
Strategy, and Richard P. Urian, Global Head of Market Data, TD 
Ameritrade Inc. to Elizabeth M. Murphy, Secretary, Commission (the 
``TD Ameritrade Letter''); and Letter dated March 21, 2011 from Ira 
D. Hammerman, Senior Managing Director and General Counsel, SIFMA, 
and Markham Erickson, Executive Director and General Counsel, 
NetCoalition to Elizabeth M. Murphy, Secretary, Commission (the 
``SIFMA/NetCoalition Letter'').
    \7\ See Letter dated April 4, 2011 from Joan Conley, Senior Vice 
President, NASDAQ OMX Group, Inc. to Elizabeth M. Murphy, Secretary, 
Commission (the ``NASDAQ Response Letter''). In addition, on August 
2, 2011, counsel for NASDAQ submitted a brief letter. See Letter 
dated August 1, 2011 from Eugene Scalia, Gibson, Dunn & Crutcher LLP 
to Elizabeth M. Murphy, Secretary, Commission (the ``NASDAQ Counsel 
Letter'').
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II. Description of the Proposal

    NASDAQ proposes to provide a discount on non-professional market 
data fees for NASDAQ Depth Data \8\ (``NASDAQ Depth Data Product 
Fees'') charged to a member that provides liquidity through the NASDAQ 
Market Center and incurs NASDAQ Depth Data Product Fees at certain 
specified levels.\9\ Specifically, a member would qualify as a:
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    \8\ NASDAQ Depth Data includes National Quotation Data Service 
(individual market maker quotation data), TotalView (depth-of-book 
data for NASDAQ-listed securities), and OpenView (depth-of-book data 
for non-NASDAQ-listed securities) data products.
    \9\ For a more detailed description of the proposed rule change, 
see Notice, supra note 4.
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     ``Tier 1 Firm'' for purposes of pricing during a 
particular month if it (i) Has an average daily volume of 12 million 
shares or more of liquidity provided through the NASDAQ Market Center 
in all securities during the month; and (ii) incurs NASDAQ Depth Data 
Product Fees during the month of $150,000 or more.
     ``Tier 2 Firm'' for purposes of pricing during a 
particular month if it (i) Has an average daily volume of 35 million or 
more shares of liquidity provided through the NASDAQ Market Center in 
all securities during the month; and (ii) incurs NASDAQ Depth Data 
Product Fees during the month of $300,000 or more.
     ``Tier 3 Firm'' for purposes of pricing during a 
particular month if it (i) Has an average daily volume of 65 million or 
more shares of liquidity provided through the NASDAQ Market Center in 
all securities during the month; and (ii) incurs NASDAQ Depth Data 
Product Fees during the month of $500,000 or more.
    Tier 1 Firms would receive a 15% discount on NASDAQ Depth Data 
Product Fees charged to them, Tier 2 Firms would receive a 35% discount 
on NASDAQ Depth Data Product Fees charged to them, and Tier 3 Firms 
would receive a 50% discount on NASDAQ Depth Data Product Fees charged 
to them.\10\ In addition, Tier 1 Firms would receive an increased 
liquidity provider credit for transactions executed on NASDAQ. 
Specifically, Tier 1 Firms would receive a credit of $0.0028 per share 
for displayed liquidity and $0.0015 per share for non-displayed 
liquidity, compared to the current liquidity provider credit of $0.0020 
per share of displayed liquidity and $0.0010 per share of non-displayed 
liquidity applicable to these firms. There is no proposed enhancement 
to the existing liquidity provider credits at this time for Tier 2 and 
Tier 3 firms.
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    \10\ A NASDAQ member incurs non-professional fees when it offers 
NASDAQ Depth Data to natural persons that are not acting in a 
capacity that subjects them to financial industry regulation (e.g., 
retail customers).
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III. Summary of Comment Letters and NASDAQ's Response

    The Commission received three comment letters objecting to the 
proposed rule change.\11\ Shortly after NASDAQ filed the proposed rule 
change with the Commission, Direct Edge urged the Commission to suspend 
the proposed rule change and to institute proceedings to determine 
whether to approve or disapprove the proposal.\12\ TD Ameritrade \13\ 
and SIFMA/NetCoalition believe that the

[[Page 59467]]

filing should be disapproved by the Commission.
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    \11\ See supra, note 6.
    \12\ See Direct Edge Letter, supra note 6 at 1.
    \13\ See TD Ameritrade Letter, supra note 6 at 1.
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Evidence of Costs

    SIFMA/NetCoalition argue that NASDAQ's proposal is deficient 
because NASDAQ does not provide any evidence of the costs of collecting 
and distributing market data to support the fairness and reasonableness 
of its fees.\14\ SIFMA/NetCoalition believe that NASDAQ's general 
contention that it incurs high fixed costs to operate its securities 
platform is inadequate to justify its proposed market data fees because 
SIFMA/NetCoalition believe those costs are driven principally, if not 
totally, by its trading services.\15\ DirectEdge and TD Ameritrade also 
argue that NASDAQ failed to provide necessary evidence of the costs of 
producing its market data as support for the fairness and 
reasonableness of its fees.\16\
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    \14\ See SIFMA/NetCoalition Letter, supra note 6 at 2-3.
    \15\ See SIFMA/NetCoalition Letter, supra note 6 at 3.
    \16\ See Direct Edge Letter and TD Ameritrade Letter, supra note 
6.
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    NASDAQ responds that there is no legitimate basis for the demand 
that an exchange submit evidence on the marginal costs of collecting 
and distributing market data to prove a market data fee is ``fair and 
reasonable.'' \17\ NASDAQ asserts that the Commission has already 
considered and rejected a cost-of-service ratemaking approach to 
setting market data fees, instead adopting an approach that relies on 
market forces to determine the prices of depth-of-book products.\18\ 
NASDAQ acknowledges that cost data could be relevant in determining 
reasonableness, but takes the position that the fixed costs of market 
data production are inseparable from the fixed costs of providing 
NASDAQ's trading platform.\19\
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    \17\ See NASDAQ Response Letter, supra note 7 at 15.
    \18\ See NASDAQ Response Letter, supra note 7 at 15.
    \19\ See NASDAQ Response Letter, supra note 7 at 15-6.
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Joint Products

    In its proposed rule change, NASDAQ argues that trade executions 
and market data are ``joint products'' which require NASDAQ to incur 
joint costs.\20\ NASDAQ further states that these costs are inseparable 
because they are not uniquely incurred on behalf of either service 
provided by NASDAQ.\21\ Accordingly, NASDAQ is of the view that, given 
the joint nature of trade executions and market data, a bundled 
discount that is linked to total spending across the joint products is 
economically sensible.\22\
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    \20\ See Notice, supra note 4 at 4972.
    \21\ See id.
    \22\ Id.
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    SIFMA/NetCoalition believe that NASDAQ's ``joint products'' theory 
is fundamentally flawed, and cannot support the conclusion that the 
proposed fees are fair and reasonable.\23\ In their view, just because 
products are bundled together does not mean that the individual 
components are competitively priced or constrained by competitive 
forces.\24\ SIFMA/NetCoalition also allege that NASDAQ offers no 
support for the conclusion that exchange competition constrains market 
data prices.\25\ Further, SIFMA/NetCoalition argue that NASDAQ's joint 
products ``platform competition theory'' is flawed as a matter of 
economics, because order-execution services and market data are bought 
and sold separately, at different times, in different proportions and 
by different consumers.\26\ Accordingly, in SIFMA/NetCoalition's view, 
the price of order execution services and market data is a result of 
distinct competitive conditions confronting each product, and 
competition for one does not constrain the pricing of the other.\27\ In 
addition, SIFMA/NetCoalition argue that NASDAQ's theory incorrectly 
assumes that traders could readily switch orders to another platform in 
response to a price increase in market data, and thereby lower their 
trading costs, because the decision to purchase the data is made before 
and independent of the decision to trade.\28\ And for those investors 
who purchase only market data from a platform and no other services, 
their only choice is to pay the non-discounted data prices imposed by 
the exchange--prices that in SIMFA/NetCoalition's view subsidize other 
exchange costs--or stop buying the data entirely.\29\ Finally, SIFMA/
NetCoalition argue that NASDAQ provided no actual evidence to support 
its platform competition theory.\30\
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    \23\ See SIFMA/NetCoalition Letter, supra note 6 at 4.
    \24\ See id.
    \25\ See SIFMA/NetCoalition Letter, supra note 6 at 5.
    \26\ See id.
    \27\ See SIFMA/NetCoalition Letter, supra note 6 at 5.
    \28\ See SIFMA/NetCoalition Letter, supra note 6 at 5.
    \29\ See SIFMA/NetCoalition Letter, supra note 6 at 5.
    \30\ See SIFMA/NetCoalition Letter, supra note 6 at 6. 
Similarly, DirectEdge is of the view that NASDAQ's arguments about 
the intermingled nature of the data- and transaction-services costs 
of operating an exchange platform are insufficient to satisfy its 
cost-justification obligations. See Direct Edge Letter, supra note 6 
at 1.
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    NASDAQ responds that SIFMA/NetCoalition simply ignore the nature of 
competition among trading platforms, and states that customers can and 
do switch their trading volume from platform to platform, including in 
response to the total costs of trading on a particular platform.\31\ 
NASDAQ further believes that the evidence shows that NASDAQ does in 
fact compete for order flow by enhancing the quality of its data 
products and/or lowering the price of its data products.\32\
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    \31\ See NASDAQ Response Letter, supra note 7 at 7.
    \32\ See NASDAQ Response Letter, supra note 7 at 7.
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    In addition, NASDAQ argues that the proposed discount is not a 
``tying arrangement,'' and even if it could be fairly characterized as 
such, presents no meaningful risk of harm to competition, consumers, or 
the efficient function of the markets.\33\ Instead, NASDAQ takes the 
position that the proposed discount is an attempt by NASDAQ to provide 
incentives to its best customers to purchase two NASDAQ products in 
high volumes, and to use market data discounts as a ``carrot'' to 
attract additional retail order flow to the exchange.\34\ NASDAQ 
believes that the potential competitive harm characterized by a tying 
arrangement, which arises from a seller's exploitation of its control 
over the tying product to force the buyer into the purchase of a tied 
product that the buyer either did not want or might have preferred to 
purchase elsewhere on different terms, does not arise from the NASDAQ 
proposal.\35\ Even if the proposal was fairly characterized as a tying 
arrangement, NASDAQ believes the intensely competitive nature of the 
marketplace would remove any concerns, and argues that competitive 
forces ensure that its proposal is equitable, fair, and not 
unreasonably discriminatory.\36\ Finally, NASDAQ stresses that it 
continues to offer all of its products separately at prices

[[Page 59468]]

approved by the Commission as fair and reasonable.\37\
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    \33\ See NASDAQ Response Letter, supra note 7 at 9.
    \34\ See NASDAQ Response Letter, supra note 7 at 2.
    \35\ See NASDAQ Response Letter, supra note 7 at 9. NASDAQ also 
does not believe that the proposal involves a tying arrangement 
because customers are not required to purchase a tied product from 
NASDAQ, nor are they required to forgo purchases of any product from 
any competitor. See NASDAQ Response Letter, supra note 7 at 10. See 
also NASDAQ Counsel Letter, supra note 7.
    \36\ See NASDAQ Response Letter, supra note 7 at 2-3.
    \37\ See NASDAQ Response Letter, supra note 7 at 10.
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Constraints on Market Data Pricing

    SIFMA/NetCoalition do not believe that NASDAQ provides sufficient 
support for its argument that alternative sources of information act to 
constrain the prices it can charge for depth-of-book market data.\38\ 
SIFMA/NetCoalition argue that investors need depth-of-book data from 
all exchanges with substantial trading in a particular security in 
order to have a reasonably comprehensive picture of liquidity below the 
top of the book in that security. Accordingly, in SIFMA/NetCoalition's 
view, any institutional investor or informed or active retail investor 
who trades or holds multiple equity securities must buy NASDAQ's 
available market data as a matter of necessity.\39\ Thus, SIFMA/
NetCoalition argue that the availability of depth-of-book data from 
other venues does not effectively constrain the prices that NASDAQ can 
charge for depth-of-book data.\40\
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    \38\ See SIFMA/NetCoalition Letter, supra note 6 at 6-7.
    \39\ See SIFMA/NetCoalition Letter, supra note 6 at 7.
    \40\ See SIFMA/NetCoalition Letter, supra note 6 at 7.
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    NASDAQ responds that the market for depth-of-book data products is 
fluid and robust, and that consumers of NASDAQ's depth-of-book product 
have different data needs, subscribe at different levels, and are 
sensitive to changes in price.\41\ NASDAQ further argues that the high 
degree of turnover that they have had in market data customers and the 
variation in subscription levels among users of NASDAQ data indicate 
that access to NASDAQ market data is not essential.\42\
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    \41\ See NASDAQ Response Letter, supra note 7 at 19.
    \42\ See NASDAQ Response Letter, supra note 7 at 19.
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    SIFMA/NetCoalition also argue that there is no evidence that 
competition for order flow constrains the price of market data, and 
suggests the data cited by NASDAQ in this regard is inadequate.\43\ 
NASDAQ responds that competition for order flow can act as a 
significant constraint on depth-of-book data fees if those who purchase 
depth-of-book data direct a substantial volume of orders to the 
exchange, and presents evidence that it believes demonstrates this 
currently is the case at NASDAQ.\44\
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    \43\ See SIFMA Letter/NetCoalition, supra note 6 at 7-8.
    \44\ See NASDAQ Response Letter, supra note 7 at 20-21.
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Unfair Discrimination

    Finally, SIFMA/NetCoalition argue that the NASDAQ proposal is 
unfairly discriminatory because the proposed fee discounts are 
unavailable to firms that serve professional investors, or those that 
serve retail investors and purchase depth-of-book data but do not 
provide order execution services.\45\
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    \45\ See SIFMA/NetCoalition Letter, supra note 6 at 8-9.
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    NASDAQ responds that differential pricing in response to 
competitive market conditions does not unreasonably discriminate 
between market participants.\46\ NASDAQ notes that the Commission has 
accepted certain differential pricing structures, such as those based 
on volume or whether the recipient is a professional or non-
professional.\47\ NASDAQ takes the position that there is no evidence 
that the proposed discount would impair the functioning of the national 
market system or result in predatory prices, or threaten to injure 
competition among exchanges or customers.\48\
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    \46\ See NASDAQ Response Letter, supra note 7 at 11.
    \47\ See NASDAQ Response Letter, supra note 7 at 11, 13-14.
    \48\ See NASDAQ Response Letter, supra note 7 at 14.
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IV. Discussion

    Under Section 19(b)(2)(C) of the Act, the Commission shall approve 
a proposed rule change of a self-regulatory organization if it finds 
that such proposed rule change is consistent with the requirements of 
the Act, and the rules and regulations thereunder that are applicable 
to such organization.\49\ The Commission shall disapprove a proposed 
rule change if it does not make such a finding.\50\ The Commission's 
Rules of Practice, under Rule 700(b)(3), state that the ``burden to 
demonstrate that a proposed rule change is consistent with the Exchange 
Act and the rules and regulations issued thereunder * * * is on the 
self-regulatory organization that proposed the rule change'' and that a 
``mere assertion that the proposed rule change is consistent with those 
requirements * * * is not sufficient.''\51\
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    \49\ See 15 U.S.C. 78s(b)(2)(C)(i).
    \50\ See 15 U.S.C. 78s(b)(2)(C)(ii); see also 17 CFR 
201.700(b)(3) and note 62 infra, and accompanying text.
    \51\ See 17 CFR 201.700. The description of a proposed rule 
change, its purpose and operation, its effect, and a legal analysis 
of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative 
Commission finding. See id. Any failure of a self-regulatory 
organization to provide the information elicited by Form 19b-4 may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with 
the Act and the rules and regulations issued thereunder that are 
applicable to the self-regulatory organization. Id.
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    After careful consideration, the Commission does not find that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\52\ In particular, the Commission does not find 
that the proposed rule change is consistent with: (1) Section 6(b)(4) 
of the Act which, among other things, requires that the rules of a 
national securities exchange ``provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other persons using its facilities;'' \53\ (2) Section 6(b)(5) of 
the Act which, among other things, requires that the rules of a 
national securities exchange be ``not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers;'' 
\54\(3) Section 6(b)(8) of the Act, which requires that the rules of a 
national securities exchange ``not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of [the Act];'' 
\55\ and (4) Section 11A of the Act and Rules 603(a)(1) and 603(a)(2) 
of Regulation NMS which, among other things, require NASDAQ to 
distribute market data on terms that are ``not unreasonably 
discriminatory.'' \56\
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    \52\ In disapproving the proposed rule change, the Commission 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. See 15 U.S.C. 78c(f).
    \53\ 15 U.S.C. 78f(b)(4).
    \54\ 15 U.S.C. 78f(b)(5).
    \55\ 15 U.S.C. 78f(b)(8).
    \56\ 15 U.S.C. 78k-1(a)(1)(C)(i)-(iv), 17 CFR 242.603(a)(1), and 
17 CFR 242.603(a)(2).
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    NASDAQ proposes to link the level of fees that a market participant 
would be charged for obtaining NASDAQ market data to the extent of that 
market participant's trading in the NASDAQ market. In addition, the 
level of transaction credits that a market participant receives for 
trading on NASDAQ would in some cases be linked to the level of NASDAQ 
market data that it purchases. In the Order Instituting Disapproval 
Proceedings, the Commission highlighted the statutory provisions and 
rules referenced above, and expressed concern, among other things, that 
NASDAQ's proposal may fail to satisfy the standards under the Act and 
the rules thereunder that require market data fees to be equitable, 
fair, and not unreasonably discriminatory.\57\ In addition, the 
Commission noted that it previously had stated that the Act precludes

[[Page 59469]]

exchanges from adopting terms for market data distribution that 
unfairly discriminate by favoring participants in an exchange's market 
or penalizing participants in other markets, and expressed particular 
concern that NASDAQ's proposal may be inconsistent with that 
standard.\58\ The Commission raised similar concerns with respect to 
NASDAQ's proposal to tie the level of transaction credits paid to 
market participants to the amount of market data they purchase.\59\
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    \57\ See Order Instituting Disapproval Proceedings at 4.
    \58\ See Order Instituting Disapproval Proceedings at 5-6.
    \59\ See Order Instituting Disapproval Proceedings at 6.
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    The Commission does not believe NASDAQ has demonstrated that the 
incremental step of linking the pricing of trade executions and market 
data will not unnecessarily or inappropriately burden competition. As 
noted above, NASDAQ takes the position that trade executions and market 
data are ``joint products,'' with joint costs, and that a bundled 
discount that is linked to total spending across both products is 
economically sensible. NASDAQ argues it currently faces intense 
competition for both trade executions and market data, and that its 
proposal is simply an attempt to incent its best customers to purchase 
both products in high volumes, and use market data discounts as a 
``carrot'' to attract additional retail order flow to the exchange.
    The Commission, however, does not believe that NASDAQ has 
adequately articulated why the linking of market data fees to execution 
volume, and the linking of transaction credits to market data 
purchases, will not negatively impact the competition that exists today 
in these two markets. In fact, the Commission believes that preventing 
the linking of market data fees to trade executions will help bolster 
competitive forces in the area of market data, because exchange market 
data fees must appeal simultaneously to market participants that trade 
directly on an exchange and those that do not trade directly on an 
exchange. The Commission notes that competition in the market for 
depth-of-book market data is significant, but is not as intense as 
competition for transaction services. This is at least in part due to 
the difficulty of attracting a sufficiently large volume of orders to 
generate valuable market data streams that a wide range of market 
participants will want to obtain, as opposed to the relative ease of 
establishing trading platforms. The Commission believes it is important 
to preserve competitive forces for market data as much as possible.
    The Commission is similarly concerned about placing an undue burden 
on competition in the execution services market. NASDAQ's proposal 
would allow it to use significant discounts on fees for its market data 
products as an inducement to attract order flow rather than relying on 
the quality of its transaction services and the level of its 
transaction fees to compete for orders. NASDAQ argues that any 
competitor exchange could choose to respond to the proposed pricing by 
NASDAQ by offering its own discounts on its data products.\60\ However, 
exchanges that do not provide market data, or that already do not 
charge any participant for market data, would not be able to respond to 
NASDAQ's proposal with a similar pricing scheme. New exchanges 
generally do not have established market data streams and their market 
data is often free. Thus, new exchanges would not be able to offer a 
pricing scheme similar to NASDAQ's proposal because they will not have 
established market data streams they can offer at reduced rates to 
entice participants to execute trades on their new platforms.
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    \60\ See NASDAQ Response Letter, supra note 7 at 14.
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    The Commission also does not believe NASDAQ has demonstrated that 
the incremental step of linking the pricing of trade executions and 
market data is an equitable allocation of fees, or is not unfairly or 
unreasonably discriminatory. As noted above, NASDAQ believes the 
marketplace is intensely competitive, and argues that competitive 
forces ensure that its proposal is equitable, fair and not unreasonably 
discriminatory. NASDAQ's proposal, however, could result in market 
participants purchasing the same market data from NASDAQ paying 
different fees depending on the volume of transactions they execute on 
NASDAQ. NASDAQ's proposal also could result in market participants 
executing the same volume of transactions on NASDAQ receiving different 
transaction credits depending on the amount of market data they 
purchase from NASDAQ.
    The Commission is concerned that the proposal would result in an 
inequitable allocation of fees, and unfairly or unreasonably 
discriminate against market participants who are large users of market 
data but not execution services, or who are large users of execution 
services but not market data. This could include, for example, market 
participants who need to divide their order flow among multiple 
exchanges that trade NMS stocks, or that utilize market data but do not 
trade on NASDAQ, and thus do not provide sufficient transaction volume 
to NASDAQ to qualify for a larger market data discount or any discount 
at all. In this regard, the Commission is concerned that linking market 
data fees to transaction volume would essentially allow NASDAQ to 
charge significantly higher fees for market data to market participants 
that choose to trade at other exchanges, by providing discounts to 
those market participants that provide order flow to NASDAQ.\61\ As 
noted above, Rule 700(b)(3) of the Commission's Rules of Practice 
states that ``[t]he burden to demonstrate that a proposed rule change 
is consistent with the Exchange Act and the rules and regulations 
issued thereunder * * * is on the self-regulatory organization that 
proposed the rule change'' and that a ``mere assertion that the 
proposed rule change is consistent with those requirements * * * is not 
sufficient.'' \62\ For the reasons set forth above, the Commission does 
not believe that NASDAQ has met its burden to demonstrate that the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder.
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    \61\ ``[A]n exchange proposal that seeks to penalize market 
participants for trading in markets other than the proposing 
exchange would present a substantial countervailing basis for 
finding unreasonable and unfair discrimination and likely would 
prevent the Commission from approving an exchange proposal.'' See 
Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 
74770, 74791 (December 9, 2008) (SR-NYSEArca-2006-21) (Order Setting 
Aside Action by Delegated Authority and Approving Proposed Rule 
Change Relating to NYSE Arca Data), vacated and remanded by 
NetCoalition v. SEC, No. 09-1042 (DC Cir. 2010) but on other 
grounds.
    \62\ 17 CFR 201.700(b)(3).
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V. Conclusion

    For the foregoing reasons, the Commission does not find that the 
proposed rule change is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities association, 
and, in particular, with Sections 6(b)(4), 6(b)(5), 6(b)(8) and 11A of 
the Act and with Rule 603(a)(1) and (2) of Regulation NMS thereunder.
    It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (SR-NASDAQ-2011-010) be, and hereby is, 
disapproved.

[[Page 59470]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\63\
Elizabeth M. Murphy,
Secretary.
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    \63\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-24607 Filed 9-23-11; 8:45 am]
BILLING CODE 8011-01-P