Document ID: SEC-2017-1609-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2017-09-29T04:00Z

[Federal Register Volume 82, Number 188 (Friday, September 29, 2017)]
[Notices]
[Pages 45639-45643]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-20886]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81697; File No. SR-NASDAQ-2017-095]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Expand the Features of the Enterprise License Set Forth at Rule 7047

September 25, 2017.
    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 September 12, 2017, 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.
---------------------------------------------------------------------------

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

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

[[Page 45640]]

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

    The Exchange proposes to amend the Exchange's fees at Rule 7047 to 
expand the features of the enterprise license set forth at Rule 
7047(b)(5).
    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.

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

1. Purpose
    The Exchange proposes to amend its fees at Rule 7047 to expand the 
features of the enterprise license set forth at Rule 7047(b)(5). The 
proposed changes will: (i) Allow distribution of Nasdaq Basic data to 
certain Professional Subscribers that are currently excluded from the 
license; and (ii) permit the distribution of NLS data along with Nasdaq 
Basic data without paying per user, per query, per visitor or per 
household fees. This proposal, which also includes technical and 
conforming changes, will increase the features of this Nasdaq Basic 
enterprise license without changing its fee, thereby lowering the 
overall cost of the product.
Current Fee Structure
    Nasdaq Basic provides best bid and offer and last sale information 
from the Nasdaq Market Center and the FINRA/Nasdaq Trade Reporting 
Facility (``FINRA/Nasdaq TRF''). It is a ``non-core'' product that 
provides a subset of the ``core'' last-sale data provided by securities 
information processors (``SIPs'') under the CTA Plan and the Nasdaq UTP 
Plan. Data is taken from three sources, which may be purchased 
individually or in combination: (i) Nasdaq Basic for Nasdaq, which 
contains the best bid and offer on the Nasdaq Market Center and last 
sale trade reports for Nasdaq and the FINRA/Nasdaq TRF for Nasdaq-
listed stocks; (ii) Nasdaq Basic for NYSE, which contains the best bid 
and offer on the Nasdaq Market Center and last sale trade reports for 
Nasdaq and the FINRA/Nasdaq TRF for NYSE-listed stocks; and (iii) 
Nasdaq Basic for NYSE MKT, which contains the best bid and offer on the 
Nasdaq Market Center and last sale trade reports for Nasdaq and the 
FINRA/Nasdaq TRF for stocks listed on NYSE MKT and other listing venues 
whose quotes and trade reports are disseminated on Tape B.
    User fees for Nasdaq Basic may be paid through per Subscriber 
monthly charges, per query fees, or two types of enterprise licenses: 
An internal enterprise license for Professional Subscribers at Rule 
7047(b)(4) (for $365,000 per month); and an enterprise license for Non-
Professional and Professional Subscribers with whom the broker-dealer 
has a brokerage relationship at Rule 7047(b)(5) (for $100,000 per 
month). The Exchange proposes to modify the second of these two 
enterprise licenses, at Rule 7047(b)(5), which allows the distribution 
of Nasdaq Basic, or Derived Data therefrom, to Professional and Non-
Professional Subscribers who are natural persons and with whom the 
broker-dealer has a brokerage relationship. As a current condition of 
this license, Professional Users [sic] who receive data may not use 
that data within the scope of any professional engagement or 
registration. In addition, Nasdaq must approve any electronic system 
used to distribute such data, and a separate enterprise license must be 
purchased for each such system. Broker-dealers purchasing this license 
must also report the number of Subscribers at least once per year.
    As noted above, the Exchange proposes to add NLS data as an 
additional feature to the Nasdaq Basic enterprise license at Rule 
7047(b)(5). NLS provides real-time last sale information, including 
price, volume, and time of execution, for transactions on the Nasdaq 
Market Center or reported to the FINRA/Nasdaq TRF.\3\ It is, like 
Nasdaq Basic, a non-core product that provides a subset of the core 
data provided by the SIPs under the CTA Plan and the Nasdaq UTP Plan. 
NLS was designed to ``increase[ ] the availability of NASDAQ 
proprietary market data to individual investors.'' \4\ The Exchange 
does not explicitly offer an enterprise license for NLS, but has set a 
cap of $41,500 per month for NLS for Nasdaq and NLS for NYSE/NYSE MKT.
---------------------------------------------------------------------------

    \3\ See NASDAQ Rule 7039(a)-(c); see also Securities Exchange 
Act Release No. 71351 (January 17, 2014), 79 FR 4200 (Jan. 24, 2014) 
(SR-NASDAQ-2014-006) (notice of filing and immediate effectiveness 
regarding permanent approval of NLS).
    \4\ See SR-NASDAQ-2006-060 at 3 (Amendment No. 2, June 10, 2008) 
(available at http://nasdaq.cchwallstreet.com/NASDAQ/pdf/nasdaq-filings/2006/SR-NASDAQ-2006-060_Amendment_2.pdf); see also 
Securities Exchange Act Release No. 57965 (June 16, 2008), 73 FR 
35178 (June 20, 2008) (SR-NASDAQ-2006-060) (approving SR-NASDAQ-
2006-060, as amended by Amendment Nos. 1 and 2, to implement NLS on 
a pilot basis).
---------------------------------------------------------------------------

Proposed Changes
    As explained above, the proposed changes will expand the features 
of the enterprise license set forth at Rule 7047(b)(5) by: (i) Allowing 
distribution of Nasdaq Basic data to certain Professional Users [sic] 
that are currently excluded from the license; and (ii) permitting the 
distribution of NLS data, along with Nasdaq Basic data, without paying 
per user, per query, per visitor or per household fees. The proposal 
will also include technical and conforming changes as described below.
    The enterprise license at Rule 7047(b)(5) currently allows 
distribution of data to Professionals in the context of a brokerage 
relationship with the broker-dealer, and explicitly prohibits 
Professionals who receive data under that license from using it within 
the scope of a professional engagement or registration. The Exchange 
proposes to loosen that restriction by allowing the broker-dealer to 
make Nasdaq Basic data available to up to and including 4,500 internal 
Subscribers operating on approved electronic system for use by 
Professionals who work for the broker-dealer and use that data to 
provide brokerage services to investors. Use of the license for 
internal Subscribers will be limited to Professionals providing 
brokerage services to investors, but will not be available to any 
Professionals involved in proprietary trading, surveillance activities, 
or performing any other function solely for the benefit of the broker-
dealer. Internal Subscribers may operate only on an approved electronic 
system to ensure that appropriate controls are in place to prevent use 
of the data by unauthorized personnel or for impermissible purposes. 
Any distribution to over 4,500 internal Subscribers, or any usage by 
Professional Users [sic] not in support of brokerage services to 
investors on an approved platform, would be subject to the applicable 
fees set forth in Rule 7047(b).
    The difference between internal distribution of Nasdaq Basic 
through the

[[Page 45641]]

newly proposed $100,000 enterprise license at Rule 7047(b)(5), and 
internal distribution under the existing $365,000 license under Rule 
7047(b)(4), is of magnitude and scope. The new license will be limited 
to 4,500 internal Professional Subscribers, whereas the number of 
internal Subscribers able to obtain data under the $365,000 enterprise 
license is not so limited.\5\ In addition, use of the data by internal 
Professional Users [sic] under the proposed license will be limited to 
the provision of brokerage services to investors, whereas use of the 
data through the $365,000 license under Rule 7047(b)(4) is not limited 
to such services. Under the proposed rule, Professional Subscribers who 
do not obtain Nasdaq Basic through internal distribution, but rather 
through their own brokerage relationship with the broker-dealer, will 
still be prohibited from using such data within the scope of any 
professional engagement.
---------------------------------------------------------------------------

    \5\ The enterprise license at Rule 7047(b)(4) allows 
distribution to 16,000 internal Professional Subscribers for no 
additional cost, with an additional charge of $2 for each internal 
Professional Subscriber above that level, provided that the broker-
dealer obtains the license through an External Distributor that 
controls display of the product, and the broker-dealer obtains a 
separate license for each such External Distributor.
---------------------------------------------------------------------------

    In addition to allowing distribution for up to 4,500 internal 
Subscribers, the Exchange also proposes to permit distribution of NLS 
data without paying the fees set forth in Rule 7039(b).\6\ The Exchange 
does not currently offer an enterprise license for NLS, although there 
is a maximum distributor fee for any Distributor using the per user, 
per query, per visitor or per household pricing models of $41,500 per 
month. There are no additional restrictions on the use of NLS data 
under this license, although all other fees and restrictions other than 
the fees set forth in Rule 7039(b) will continue to apply.
---------------------------------------------------------------------------

    \6\ The Exchange anticipates filing changes to Rule 7039 that 
would eliminate Distributor fees under Rule 7039(c) for any firm 
paying such a fee for Nasdaq Basic, effectively eliminating all NLS 
fees with the purchase of this enterprise license.
---------------------------------------------------------------------------

    The technical and conforming changes proposed by the Exchange are 
to: (i) Require broker-dealers purchasing the enterprise license at 
Rule 7047(b)(5) to report the number of Professional Subscribers on a 
monthly basis; (ii) clarify that Professional Users [sic] receiving 
Nasdaq Basic data through internal Subscribers (not in the context of 
their own brokerage relationship with the broker-dealer) are not 
prohibited from using the data within the scope of any professional 
engagement or registration; and (iii) replace references to ``NASDAQ,'' 
with all letters capitalized, with ``Nasdaq,'' in which only the first 
letter of the company is capitalized. All of these changes are 
necessary to support the primary fee changes sought by the Exchange, or 
to correct technical errors. The change in reporting is necessary to 
monitor the number of internal Subscribers receiving data. The 
clarification to the ability of Professionals to utilize Nasdaq Basic 
data is necessary to allow Professionals to effectively use the data in 
support of providing brokerage services to investors. The change from 
NASDAQ to Nasdaq is necessary to replace an older version of the 
Exchange's name.
    The purpose of the proposed changes is to make the purchase of the 
enterprise license at Rule 7047(b)(5) more attractive to broker-dealers 
by adding features without increasing fees. The cost of the license 
will remain $100,000 per month, but services will be augmented by 
allowing internal distribution to up to 4,500 Professionals and 
including distribution of NLS to private investors. The proposal will 
lower the costs to broker-dealers of distributing Nasdaq Basic and NLS, 
thereby encouraging the dissemination of such data to individual 
investors.
    The enterprise license at Rule 7047(b)(5) is optional in that 
Nasdaq 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 Nasdaq 
product.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\8\ 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.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    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.'' \9\
---------------------------------------------------------------------------

    \9\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Likewise, in NetCoalition v. Securities and Exchange Commission 
\10\ (``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.\11\ 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.'' \12\
---------------------------------------------------------------------------

    \10\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \11\ Id. at 534-535.
    \12\ Id. at 537.
---------------------------------------------------------------------------

    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . 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'. . . .'' \13\
---------------------------------------------------------------------------

    \13\ 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)).
---------------------------------------------------------------------------

    The Exchange believes that the proposal to expand the features of 
the enterprise license set forth at Rule 7047(b)(5) without increasing 
fees is an equitable allocation 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. As described 
above, the proposed changes will: (i) Allow distribution of Nasdaq 
Basic data to certain Professional Subscribers that are currently 
excluded from the license; and (ii) permit the distribution of NLS data 
along with Nasdaq Basic data without paying per user, per query, per 
visitor or per household fees. The proposal will provide greater value 
to the broker-dealers purchasing the enterprise license, and increase 
market transparency by lowering the cost of distributing both NLS and 
Basic to

[[Page 45642]]

investors. The proposal is an equitable allocation of reasonable dues, 
fees and other charges because the services will be the same for all 
broker-dealers that purchase the license. The services are not designed 
to permit unfair discrimination because all broker-dealers will be able 
to purchase the same license at the same price. As is the case for the 
current enterprise licenses, offering the enterprise license only to 
broker-dealers is not unfair discrimination because the license is 
primarily designed to allow data distribution to investors, and 
investors execute trades through broker-dealers. It is reasonable to 
limit use of the expanded enterprise license to internal Subscribers 
operating on approved platforms to ensure that the data is being used 
to support brokerage services for investors, rather than any other 
purpose. Moreover, enterprise license fees, like all market data fees, 
are constrained by the Exchange's need to compete for order flow, and 
are subject to competition from other exchanges and among broker-
dealers for customers. If Nasdaq is incorrect in its assessment of 
price, it may lose market share as a result.

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.
    The proposed changes will effectively lower the cost to broker-
dealers to distribute NLS and Nasdaq Basic by expanding the features of 
the enterprise license set forth at Rule 7047(b)(5) without increasing 
fees. This proposal to lower costs is itself evidence of the need to 
maintain low prices is [sic] a competitive marketplace. 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.
    Market forces constrain the prices for NLS and Nasdaq Basic in two 
respects. First, market data fees are one element of the total cost of 
interacting with the Exchange and, if the price of these products were 
set above competitive levels, competition for order flow would be 
harmed. Second, the competition among broker-dealers for customers will 
provide another constraint on the cost of NLS and Nasdaq Basic.
Competition for Order Flow
    Market data fees are constrained by competition among exchanges and 
other entities seeking to attract order flow. 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 
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. The existence of fierce competition for order flow 
implies a high degree of price sensitivity on the part of broker-
dealers, 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 broker-dealer 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 Amex, NYSE Arca, 
BATS, and IEX. This is because Regulation NMS deregulated the market 
for proprietary data. While broker-dealers had previously published 
their proprietary data individually, Regulation NMS encourages market 
data vendors and broker-dealers to produce proprietary products 
cooperatively in a manner never before possible. Order routers and 
market data vendors can facilitate production of proprietary data 
products for single or multiple broker-dealers. 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 Nasdaq and other 
exchanges. The cost of market data is one factor in this total platform 
analysis. A supracompetitive price for NLS and Nasdaq Basic has the 
potential to impair competition for order flow, and the need to compete 
effectively for order flow will constrain its price.
Competition for Customers
    Broker-dealers that purchase NLS and Nasdaq Basic are in 
competition for customers. If the price of these products were set 
above competitive levels, the broker-dealers that purchase these 
products would be at a disadvantage relative to their competitors. As 
such, they may lower costs by curtailing their purchases of Nasdaq 
products, thereby providing a constraint on the price of NLS and Nasdaq 
Basic.
    In summary, market forces constrain the price of NLS and Nasdaq 
Basic through competition for order flow and in the competition among 
broker-dealers for customers. For these reasons, the Exchange has 
provided a substantial basis for demonstrating that the fee is 
equitable, fair, reasonable, and not unreasonably discriminatory, and 
that it is therefore consistent with and in furtherance of the purposes 
of the Exchange Act

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.

[[Page 45643]]

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.\14\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2017-095 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2017-095. 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-2017-095 and should 
be submitted on or before October 20, 2017.
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-20886 Filed 9-28-17; 8:45 am]
 BILLING CODE 8011-01-P