Document ID: SEC-2018-0178-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq BX, Inc.
Posted Date: 2018-01-29T05:00Z

[Federal Register Volume 83, Number 19 (Monday, January 29, 2018)]
[Notices]
[Pages 4092-4097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01534]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82567; File No. SR-BX-2018-005]

Self-Regulatory Organizations; Nasdaq BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Its Fees 
at Rule 7023

January 23, 2018.
    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 18, 2018, Nasdaq BX, Inc. (``BX'' 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 its fees at Rule 7023 to modify the 
fee schedule for BX TotalView to reflect substantial enhancements to 
this product since the current BX TotalView fees were set in 2010.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqbx.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

[[Page 4093]]

statements may be examined at the places specified in Item IV below. 
The Exchange has prepared summaries, set forth in sections A, B, and C 
below, of the most significant aspects of such statements.

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

1. Purpose
    The Exchange proposes to adjust the fee schedule for BX TotalView 
to reflect substantial enhancements to this product since the current 
non-display usage fees and enterprise license fees were set in 2010.\3\ 
Specifically, the Exchange proposes to: (i) Introduce a monthly non-
display usage \4\ fee of $55 per Professional Subscriber \5\ for BX 
TotalView based upon Direct Access; and (ii) increase the monthly 
enterprise license fee for non-display usage of BX TotalView based upon 
Direct Access from $16,000 to $20,000.
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    \3\ See Securities Exchange Act Release No. 62001 (April 29, 
2010), 75 FR 25014 (May 6, 2010) (SR-BX-2010-027).
    \4\ Non-Display usage is any method of accessing Exchange 
information that does not involve the display of such data on a 
screen or other mechanism designed for access or use by a natural 
person or persons. Non-Display usage applies to automated order 
generation and program trading, algorithmic trading and order 
routing, and back office processes such as surveillance, order 
verification, and risk management. See Id. (establishing a Non-
Display usage cap for internal distributors of BX TotalView).
    \5\ A ``Subscriber'' is any access that a distributor of data 
entitlement package(s) provides to: (1) Access the information in 
the data entitlement package(s); or (2) communicate with the 
distributor so as to cause the distributor to access the information 
in the data entitlement package(s). See BX Rule 7023(c).
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BX TotalView
    BX TotalView, like Nasdaq and PSX TotalView, is a real-time market 
data feed that provides access to every displayed quote and order at 
every price level in Nasdaq-, NYSE-, NYSE American-, NYSE Arca-, CBOE-, 
and IEX-listed securities. The product also provides anonymous interest 
and administrative messages relating to trading halts and symbol 
directory messages.\6\
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    \6\ Symbol directory messages include basic security data such 
as the market tier and Financial Status Indicator.
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    BX TotalView is available for a monthly per Subscriber fee of $20 
for either display or non-display usage of Nasdaq issues, and an 
additional monthly per Subscriber fee of $20 for NYSE and regional 
issues. A ``Subscriber'' is ``any access that a distributor of the data 
entitlement package(s) provides to: (1) Access the information in the 
data entitlement package(s); or (2) communicate with the distributor so 
as to cause the distributor to access the information in the data 
entitlement package(s).'' \7\ The current monthly charges are based on 
the number of Subscribers, without regard to whether a Subscriber is 
used for non-display or display usage.
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    \7\ See Note 5.
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    For firms that utilize BX TotalView internally for non-display 
purposes, the product may also be purchased through an enterprise 
license fee of $16,000 per month for unlimited internal use of non-
display data. This enterprise license, which provides an alternative to 
monthly per Subscriber fees, is designed to relieve firms with a large 
number of internal Subscribers from the administrative burden of 
identifying, tracking and reporting such Subscribers.
Proposed Changes
    BX TotalView is one of a number of market information services 
offered by the Exchange. Such services are inextricably connected to 
trade execution: Market information services require trade orders to 
provide useful information, and investors utilize market information to 
make trading decisions. Over the seven years that have elapsed since 
the current fee schedule for non-display usage and enterprise licenses 
for BX TotalView were introduced,\8\ the Exchange has invested in an 
array of upgrades to both its trade execution and market information 
services, which have increased the value of these services overall, and 
BX TotalView in particular.\9\
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    \8\ See Securities Exchange Act Release No. 62001 (April 29, 
2010), 75 FR 25014 (May 6, 2010) (SR-BX-2010-027).
    \9\ Many of these upgrades are common to several Nasdaq-
affiliated exchanges, as improvements to the products and services 
of one exchange are reproduced in other exchanges.
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    The Exchange proposes to adjust its fee schedule for BX TotalView 
to reflect the value of the many investments improving the product, 
which include:
     Glimpse Snapshot Facility. In 2013, the Exchange 
substantially updated the Glimpse snapshot facility, which allows firms 
to obtain a snapshot of the order book at any point during the trading 
day. The service may be used to validate order book displays or to 
recover from data gaps during the trading day.\10\
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    \10\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-33.
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     Enhanced Data Feed. In 2014, the Exchange enhanced the BX 
TotalView data feed by: (i) Converting to binary codes to make more 
efficient use of bandwidth and to provide greater timestamp 
granularity; (ii) adding a symbol directory message to identify a 
security and its key characteristics; and (iii) adding the Market Wide 
Circuit Breaker (``MWCB'') Decline Level message to inform recipients 
of the setting for MWCB breach points for the trading day, and an MWCB 
Status Level Message to inform data recipients when an MWCB has 
breached an established level.\11\
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    \11\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-45 and http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-33.
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     Reg SHO Circuit breaker. In 2010, the Exchange instituted 
a Regulation SHO restricted indicator message. This message is 
disseminated if the price of the security declines by 10 percent or 
more from the prior closing value during normal market hours.\12\
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    \12\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2010-023.
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     Geographic Diversity. In 2015, all of the Nasdaq Exchanges 
moved their Disaster Recovery (``DR'') center from Ashburn, Virginia, 
to Chicago, Illinois. As a result, customers can both receive market 
data and send orders through the Chicago facility, potentially reducing 
overall networking costs. Adding such geographic diversity helps 
protect the market in the event of a catastrophic event impacting the 
entire East Coast.\13\
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    \13\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2015-17.
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     Chicago ``B'' Feeds. In 2017, all of the Nasdaq exchanges 
added a multicast IP address for proprietary equity and options data 
feeds in Chicago, allowing firms the choice of having additional 
redundancy to ensure data continuity.\14\
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    \14\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2017-02.
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     Extended Transmission Hours. In 2014, the Exchange began 
to transmit data between 3:00 and 4:00 a.m. Eastern, approximately 
three hours earlier than previously, to provide customers with an 
opportunity to test connectivity before pre-market sessions open at 
7:00 a.m. Eastern.\15\
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    \15\ The extended schedule for data transmission did not extend 
pre-market trading hours. See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2014-08.
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    This proposed fee change for BX TotalView differs from the 
corresponding fee change recently proposed for PSX TotalView \16\ in 
that: (i) The monthly non-display usage fee for Professional 
Subscribers is proposed to be $50 for PSX TotalView, and $55 for BX 
TotalView, and (ii) the proposed monthly enterprise license fee for 
non-display usage of PSX TotalView is $17,000, while the corresponding 
fee proposal for BX TotalView is $20,000.

[[Page 4094]]

These differences are justified by differences in the usage of the two 
exchanges, as well as certain network investments that are unique to 
BX.
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    \16\ See SR-PHLX-2018-10.
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    BX has approximately 25 percent more market participants than PSX, 
as measured by Market Participant Identifier (``MPID''). This greater 
number of market participants results in more trades: BX processed 
approximately twice the number of trading messages as PSX in 2017, and, 
as of February 2017, BX had nearly 5 times more add/remove liquidity 
than PSX. These differences in usage are reflected in significantly 
different growth rates: The peak one second transaction rate for BX 
increased by 78 percent between 2012 and 2017, while the same measure 
for PSX increased by only 20 percent over the same period.
    BX also has invested in two network enhancements that are unique to 
that Exchange:
     Price Improvement Indicator. In 2014, the Exchange 
introduced a Price Improvement Indicator (``PII'') \17\ message. The 
purpose of this indicator is to denote when a Retail Price Improvement 
order better than the best displayed bid and/or offer price for a given 
security is available.\18\
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    \17\ See Securities Exchange Act Release No. 73410 (October 23, 
2014), 79 FR 64447 (October 29, 2014) (SR-BX-2014-048).
    \18\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2014-18.
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     Additional Data Feed at Carteret. In 2017, the Exchange 
added a new source IP address for the BX data feeds at its Carteret 
facility, providing additional redundancy to ensure data 
continuity.\19\
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    \19\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2017-16.
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    The proposed price increases are also justified by the fact that, 
while usage of the BX exchange increased and the Exchange invested in a 
number of enhancements to its data feed, fees for BX fell in real terms 
as a result of price inflation.\20\ The proposed increase to the 
monthly non-display usage fee amounts to an annual increase of 
approximately 4.65 percent over the relevant period, and the proposed 
enterprise license fee increase translates to an annual increase of 
approximately 3.24 percent over the relevant period, both of which are 
partially offset by inflation.
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    \20\ The Consumer Price Index indicates a price increase of 
approximately 13 percent between April 2010 and November 2017. See 
https://www.bls.gov/data/inflation_calculator.htm.
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    As a result of these substantial upgrades, the Exchange proposes 
two substantive changes to the BX TotalView fee schedule: (i) Introduce 
a monthly non-display usage fee of $55 per Subscriber based upon Direct 
Access; and (ii) increase the monthly enterprise license fee for non-
display usage based upon Direct Access from $16,000 to $20,000.\21\
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    \21\ In addition to these two substantive changes, the Exchange 
proposes four technical changes. First, the Exchange proposes to add 
the phrase ``for display usage'' to Rule 7023(a)(1) to distinguish 
between display usage fees, which shall remain unchanged, and non-
display usage fees, which will increase. Second, the Exchange 
proposes to change the reference to per Subscriber fees in new Rule 
7023(a)(3) from (a)(1) to (a)(2) because non-display fees have been 
moved from section (a)(1) to (a)(2) for Professionals that take the 
feed through Direct Access. Third, the Exchange proposes to renumber 
former Rules 7023(a)(2) and (a)(3) to Rules 7023(a)(3) and (a)(4), 
respectively, to reflect the introduction of new Rule 7023(a)(2). 
Fourth, the Exchange proposes to revise proposed Rule 7023(a)(4) 
(``Free-Trial Offers'') to reflect the new fee set forth in proposed 
Rule 7023(a)(2).
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    The current fee structure allows firms to purchase BX TotalView for 
all issues for display or non-display usage by professionals for a per 
Subscriber monthly charge of $40 ($20 for Nasdaq issues and $20 for 
NYSE and regional issues). The Exchange proposes to remove non-display 
usage based upon Direct Access from those fees, and institute a 
separate fee for non-display usage based upon Direct Access for all 
Nasdaq, NYSE and regional issues.\22\ Fees for non-professionals will 
not change. The effect of this proposal would be to leave the total 
fees for display usage and non-display usage not based upon Direct 
Access by professionals for all issues unchanged at $40, but to 
increase the monthly fee to $55 per month for non-display usage by 
professionals based upon Direct Access.\23\ With this change, the 
pricing structure for BX TotalView will conform to the pricing 
structure for Nasdaq TotalView (which has differential fees for display 
and non-display usage),\24\ the proposed pricing structure for PSX 
TotalView (proposed in a separate filing for the PSX Exchange),\25\ as 
well as the non-display fee structure for NYSE and other exchanges.\26\ 
As noted elsewhere, differential pricing for display and non-display 
usage has become the industry norm.
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    \22\ Any Subscriber within a firm that obtains Exchange data 
through a Subscriber from that same firm with Direct Access has 
obtained such data ``based upon Direct Access.''
    \23\ ``Direct Access'' means a telecommunications interface with 
the Exchange for receiving Exchange data, or receiving an Exchange 
data feed within the Exchange co-location facility, or receiving 
Exchange data via an Extranet access provider or other such provider 
that is fee-liable under Rule 7025. See BX Rule 7019(c).
    \24\ See Nasdaq Rule 7023(b)(2).
    \25\ See SR-PHLX-2018-10. BX fees are higher than PSX fees 
because of differences in usage between the two exchanges, as well 
as differences in infrastructure investments, as described above.
    \26\ See, e.g., NYSE PDP Market Data Pricing (November 3, 2017), 
found at https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf.
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    The second proposal will increase the monthly enterprise license 
fee for internal non-display usage based upon Direct Access from 
$16,000 to $20,000.
    BX TotalView is optional in that the Exchange is not required to 
offer it and broker-dealers are not required to purchase it. Firms can 
discontinue use at any time and for any reason, including an assessment 
of the fees charged.
    The proposed change does not change the cost of any other Exchange 
product.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\27\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\28\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(4) and (5).
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    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \29\
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    \29\ Securities Exchange Act Release No. 51808 (June 9, 2005), 
70 FR 37496, 37499 (June 29, 2005).
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    Likewise, in NetCoalition v. Securities and Exchange Commission 
\30\ (``NetCoalition'') the D.C. Circuit upheld the Commission's use of 
a market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\31\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \32\
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    \30\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \31\ See NetCoalition, at 534-535.
    \32\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.'

[[Page 4095]]

. . . As the SEC explained, `[i]n the U.S. national market system, 
buyers and sellers of securities, and the broker-dealers that act as 
their order-routing agents, have a wide range of choices of where to 
route orders for execution'; [and] `no exchange can afford to take its 
market share percentages for granted' because `no exchange possesses a 
monopoly, regulatory or otherwise, in the execution of order flow from 
broker dealers'. . . .'' \33\
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    \33\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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    The Exchange believes that the proposed fee changes are equitable 
allocations of reasonable dues, fees and other charges in accordance 
with Section 6(b)(4) of the Act, and not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers in 
accordance with Section 6(b)(5) of the Act. Both the monthly non-
display per Subscriber usage fee and the monthly enterprise license fee 
for non-display usage are equitable allocations because, as has been 
widely recognized, display and non-display functions provide different 
value to the consumer, and it has become standard industry practice to 
charge differing fees for these two different modes of data 
consumption. In addition, discounts based on high levels of usage such 
as the enterprise license for non-display usage have routinely been 
adopted by exchanges and approved as equitable allocations of 
reasonable dues, fees and other charges.\34\ As such, the proposed fees 
vary solely based on reasonable and well-established industry norms 
regarding types of data usage, as discussed above.
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    \34\ For example, the Commission has approved pricing discounts 
for market data under Nasdaq Rule 7023.
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    The proposed changes do not permit unfair discrimination between 
customers, issuers, brokers, or dealers because the Exchange makes all 
services and products subject to these fees available on a non-
discriminatory basis to similarly-situated recipients. The proposed 
fees are structured in a manner comparable to the corresponding fees of 
Nasdaq already in effect, and compare favorably to fees charged by 
Nasdaq for the same product. The fees are uniform except with respect 
to reasonable and well-established distinctions among classes of data 
as discussed above.
    The Exchange also distinguishes between usage based on Direct 
Access and other methods of connection: Non-display usage that is based 
upon Direct Access will be charged $55 per month, while other non-
display usage will be charged a total of $40 per month for all issues. 
This distinction is an equitable allocation of reasonable dues, fees 
and other charges because Direct Access provides the customer with 
source information in the original raw format, which provides customers 
with certainty that they are receiving data without conflation or 
manipulation. This distinction does not permit unfair discrimination 
between customers, issuers, brokers, or dealers because the price 
differential is based on the difference in value to the customer.
    In addition, the Exchange proposes to introduce clarifying language 
stating that the enterprise license for non-display data will be 
available only to firms with Direct Access. This is an equitable 
allocation of reasonable dues, fees and other charges because firms 
with sufficient activity to purchase an enterprise license have a 
Direct Access connection. As such, the proposed language simply 
clarifies how the enterprise license will be used with respect to 
Direct Access, in a similar manner to the way that Direct Access is 
addressed in proposed Rules 7023(a)(1) and (a)(2), without affecting 
the service of any specific customer. This proposed change does not 
permit unfair discrimination between customers, issuers, brokers, or 
dealers for the same reason: The proposed language is simply a 
clarification that will not lead to any actual difference in usage.
    The Act does not prohibit all distinctions among customers, but 
rather discrimination that is unfair. As the Commission has recognized, 
``[i]f competitive forces are operative, the self-interest of the 
exchanges themselves will work powerfully to constrain unreasonable or 
unfair behavior.'' \35\ Accordingly, ``the existence of significant 
competition provides a substantial basis for finding that the terms of 
an exchange's fee proposal are equitable, fair, reasonable, and not 
unreasonably or unfairly discriminatory.'' \36\ The proposed fees, like 
all market data fees, are constrained by the Exchange's need to compete 
for order flow as discussed below, and are subject to competition from 
other exchanges and among broker-dealers for customers. If the Exchange 
is incorrect in its assessment of price, it may lose market share as a 
result.
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    \35\ Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \36\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    BX TotalView is a type of depth-of-book product, which consists of 
``outstanding limit orders to buy stock at prices lower than, or to 
sell stocks at prices higher than, the best prices on each exchange.'' 
\37\ The question of whether the prices of depth-of-book products are 
constrained by competitive forces was examined in 2016 by an 
Administrative Law Judge in an application for review by the Securities 
Industry and Financial Markets Association of actions taken by Self-
Regulatory Organizations.\38\ After a four-day hearing and presentation 
of substantial evidence, the administrative law judge stated that 
``competition plays a significant role in restraining exchange pricing 
of depth-of-book products'' \39\ because ``depth-of-book products from 
different exchanges function as substitutes for each other,'' \40\ and, 
as such, ``the threat of substitution from depth-of-book customers 
constrains their depth-of-book prices.'' \41\ As a result, ``[s]hifts 
in order flow and threats of shifting order flow provide a significant 
competitive force in the

[[Page 4096]]

pricing of . . . depth-of-book data.'' \42\ The judge concluded that 
``[u]nder the standards articulated by the Commission and D.C. Circuit, 
the Exchanges have shown that they are subject to significant 
competitive forces in setting fees for depth-of-book data: The 
availability of alternatives to the Exchanges' depth-of-book products, 
and the Exchanges' need to attract order flow from market participants 
constrains prices.'' \43\
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    \37\ Securities Industry and Financial Markets Association, 
Initial Decision Release No. 1015, 2016 SEC LEXIS 2278 at 4 (A.L.J. 
June 1, 2016) (quoting NetCoalition v. SEC, 615F3d 525, 529-30 (D.C. 
Cir. 2010)).
    \38\ Id.
    \39\ Id. at 92.
    \40\ Id.
    \41\ Id. at 93.
    \42\ Id. at 104.
    \43\ Id. at 86.
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    The proposed changes will: (i) Introduce a monthly non-display 
usage fee of $55 per Subscriber for BX TotalView based upon Direct 
Access; and (ii) increase the monthly enterprise license fee for non-
display usage of BX TotalView based upon Direct Access from $16,000 to 
$20,000. These proposed price changes will not impose any burden on 
competition because market data fees are but one aspect of the overall 
competition among exchanges to solicit order flow; if the overall price 
of interacting with the Exchange rises above competitive levels because 
of market data fees, market forces would cause the Exchange to lose 
market share.
    Market forces constrain fees for BX TotalView, as well as other 
market data fees, in the competition among exchanges and other entities 
to attract order flow and in the competition among Distributors for 
customers. Order flow is the ``life blood'' of the exchanges. Broker-
dealers currently have numerous alternative venues for their order 
flow, including 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. The existence of fierce competition 
for order flow implies a high degree of price sensitivity on the part 
of BDs, which may readily reduce costs by directing orders toward the 
lowest-cost trading venues.
    The level of competition and contestability in the market for order 
flow is demonstrated by the numerous 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. For a variety of 
reasons, competition from new entrants, especially for order execution, 
has increased dramatically over the last decade.
    Each SRO, TRF, ATS, and BD that competes for order flow is 
permitted to produce proprietary data products. Many currently do or 
have announced plans to do so, including NYSE, NYSE American, NYSE 
Arca, CBOE, and IEX. This is because Regulation NMS deregulated the 
market for proprietary data. While BDs had 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. Order routers and market data vendors can 
facilitate production of proprietary data products for single or 
multiple BDs. The potential sources of proprietary products are 
virtually limitless.
    The markets for order flow and proprietary data are inextricably 
linked: A trading platform cannot generate market information unless it 
receives trade orders. As a result, the competition for order flow 
constrains the prices that platforms can charge for proprietary data 
products. Firms make decisions on how much and what types of data to 
consume based on the total cost of interacting with BX and other 
exchanges. Data fees are but one factor in a total platform analysis. 
If the cost of the product exceeds its expected value, the broker-
dealer will choose not to buy it. A supracompetitive increase in the 
fees charged for either transactions or proprietary data has the 
potential to impair revenues from both products. In this manner, the 
competition for order flow will constrain prices for proprietary data 
products.
    Competition among Distributors provides another form of price 
discipline for proprietary data products. If the price of BX TotalView 
were set above competitive levels, Distributors purchasing BX TotalView 
would be at a disadvantage relative to their competitors, and would 
therefore either curtail their purchase or forego the product 
altogether.
    Market forces constrain the price of depth-of-book data such as BX 
TotalView through the competition for order flow and in the competition 
among vendors for customers. If the changes proposed herein are 
unattractive to market participants, it is likely that the Exchange 
will lose market share as a result. Accordingly, the Exchange does not 
believe that the proposed changes will impair the ability of members or 
competing order execution venues to maintain their competitive standing 
in the financial markets.

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.\44\
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    \44\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BX-2018-005 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-BX-2018-005. 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 website (http://www.sec.gov/rules/sro.shtml). 
Copies of the

[[Page 4097]]

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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-BX-2018-005 and should be submitted on 
or before February 20, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
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    \45\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01534 Filed 1-26-18; 8:45 am]
 BILLING CODE 8011-01-P