Document ID: SEC-2015-0049-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2015-01-08T05:00Z

[Federal Register Volume 80, Number 5 (Thursday, January 8, 2015)]
[Notices]
[Pages 1057-1062]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00051]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73978; File No. SR-NASDAQ-2014-125]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change to 
Impose a Minimum Fee for Execution Venues Operating a Trading Platform 
or Multiple Platforms That Utilize NASDAQ Proprietary Depth Data on a 
Non-Displayed Basis

January 2, 2015.
    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 2, 2015, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to impose a minimum fee for execution venues 
operating a trading platform or multiple platforms that utilize NASDAQ 
proprietary depth data on a non-displayed basis and that pay monthly 
aggregate NASDAQ market proprietary Depth-of-Book Data fees of less 
than $15,000.
    The text of the proposed rule change is below; proposed new 
language is in italics; proposed deletions are in brackets.
* * * * *

7023. NASDAQ Depth-of-Book Data

    (a) Definitions applicable to this rule.
    (1)-(6) No Change.
    (7) The term ``Trading Platform'' shall mean any execution platform 
operated as or by a registered National Securities Exchange (as defined 
in Section 3(a)(1) of the Exchange Act), an Alternative Trading System 
(as defined in Rule 300(a) of Regulation ATS), or an Electronic 
Communications Network (as defined by Rule 600(b)(23) of Regulation 
NMS).
    (b) No Change.
    (c) No Change.
    (d) Trading Platform Fee. There shall be a minimum monthly fee for 
entities that operate Trading Platforms that utilize NASDAQ Depth-of-
Book Data on a non-display basis and that pay less than $15,000 per 
month in aggregate fees for Depth-of-Book Data. The fee shall be $5,000 
per month per Trading Platform up to a maximum of three Trading 
Platforms.
    (e) [(d)] 30-Day Free-Trial Offer: NASDAQ shall offer all new 
individual Subscribers and potential new individual Subscribers a 30-
day waiver of the Subscriber fees for NASDAQ TotalView. This waiver 
shall not include the incremental fees assessed for the NASDAQ Level 2-
only service[, which are $30 for Professional Subscribers and $9 for 
Non-Professional Subscribers per month]. This fee waiver period shall 
be applied on a rolling basis, determined by the date on which a new 
individual Subscriber or potential individual Subscriber is first 
entitled by a Distributor to receive access to NASDAQ TotalView. A 
Distributor may only provide this waiver to a specific

[[Page 1058]]

individual Subscriber once. [For the period of the offer, the NASDAQ 
TotalView fee of $40 per Professional Subscriber and $5 per Non-
Professional Subscriber per month shall be waived.]
    (f) [(e)] Historical ModelView Information: NASDAQ will make 
historical ModelView information available via NASDAQTrader.com. 
ModelView contains historical information regarding aggregate displayed 
and reserve liquidity at each price level directly from the NASDAQ 
Market Center. ModelView is available for a subscription fee of $2,000 
per month.
* * * * *

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
    NASDAQ is proposing to amend NASDAQ Rule 7023 (NASDAQ Depth-of-Book 
Data) to modify the fees governing the use of NASDAQ TotalView, NASDAQ 
OpenView and NASDAQ Level 2 Information (collectively, ``NASDAQ Depth-
of-Book Data'') to increase the fairness and equity of the current fee 
schedule. Specifically, NASDAQ is amending Rule 7023(d) to establish a 
minimum level of fees for operators of Trading Platforms that utilize 
NASDAQ Depth-of-Book Data and that pay less than $15,000 per month for 
such usage. The Trading Platform Fee shall be $5,000 per month per 
Trading Platform up to a maximum of $15,000 per month, with such fees 
being offset once the total NASDAQ Depth-of-Book Data fees paid by such 
Trading Platform operator exceed $15,000 per month.
    Effective January 1, 2015, NASDAQ will impose a fee for operators 
of Trading Platforms that currently utilize NASDAQ Depth-of-Book Data 
and that pay less than $15,000 per month for such usage. Trading 
Platforms include registered National Securities Exchanges, Alternative 
Trading Systems (``ATSs''), and Electronic Communications Networks 
(``ECNS'') as those terms are defined in the Exchange Act and 
regulations and rules thereunder. The fee will be $5,000 per month per 
Trading Platform up to a maximum of three platforms operated by the 
same entity or affiliated entities.
    The fee will be assessed in addition to existing Distributor and 
Subscriber fees paid, but will be offset when the entity reaches the 
level of $15,000 per month. For example, if a Distributor already pays 
$15,000 or more in total monthly Distributor and Subscriber fees, the 
Trading Platform fee does not apply. Also, if a firm accrues $10,000 in 
Platform fees, and already pays $75,000 in Subscriber fees, the 
Distributor is responsible for the $75,000 fee and the Trading Platform 
fee does not apply. Additional scenarios are shown below:

----------------------------------------------------------------------------------------------------------------
                                                                                   Nasdaq depth
                                                                      Trading       non-display    Nasdaq depth
                   Number of trading platforms                     platform fee       fee per        total fee
                                                                                    subscriber
----------------------------------------------------------------------------------------------------------------
1...............................................................          $5,000          $3,300          $8,300
1...............................................................           5,000           9,000          14,000
1...............................................................           5,000          15,000          15,000
2...............................................................          10,000           9,000          19,000
2...............................................................          10,000          15,000          15,000
3...............................................................          15,000           9,000          24,000
4...............................................................          15,000           9,000          24,000
3...............................................................          15,000          15,000          15,000
4...............................................................          15,000          75,000          75,000
----------------------------------------------------------------------------------------------------------------

    Vendors offering Managed Data Solutions (``MDS'') to downstream 
Recipients pursuant to NASDAQ Rule 7026 are responsible for the payment 
of fees associated with this program. Furthermore, the MDS Vendor must 
count each Trading Platform operator separately; an MDS Vendor cannot 
avoid the three Trading Platform maximum by commingling multiple firms' 
Trading Platforms. For example, the MDS Vendor below has five customers 
that collectively operate 10 Trading Platforms:

------------------------------------------------------------------------
                                                              Trading
                                              Number of    platform fee
                    Firm                       trading     (owed by MDS
                                             platform(s)      vendor)
------------------------------------------------------------------------
a..........................................           0               $0
b..........................................           1             5000
c..........................................           2           10,000
d..........................................           3           15,000
e..........................................           4           15,000
                                            ----------------------------
    Total..................................  ...........          45,000
------------------------------------------------------------------------

    The Exchange believes that this proposal is reasonable, proper, and 
desirable. NASDAQ attempts to more equitably allocate fees among users 
with varying business models. As trading has become more electronic and 
automated, displayed and non-displayed usage has shifted dramatically. 
Use by individuals versus use by algorithms has shifted as well. NASDAQ 
attempts to ensure that its fee schedule tracks these shifts and that 
no category of users pays a disproportionately high or low amount 
relative to other categories of users.
    To accommodate new subparagraph (d), NASDAQ is renumbering current 
subparagraphs (d) and (e) to become new subparagraphs (e) and (f). 
Additionally, NASDAQ is eliminating pricing details from re-numbered 
paragraph (e) to eliminate specific information which is extraneous and 
subject to change.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements of Section 6(b) of the Act.\3\ In particular, the Exchange 
believes the proposed rule change is consistent with the Section

[[Page 1059]]

6(b)(5) \4\ requirements that the rules of an exchange be designed to 
promote just and equitable principles of trade, to prevent fraudulent 
and manipulative acts, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and to perfect the mechanism for a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
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    NASDAQ believes that this proposal represents an equitable 
allocation of reasonable dues and fees, consistent with the 
requirements of the Act. The MDS Fee, which has been available as an 
option for four years, has reduced costs for Distributors and 
Subscriber firms that voluntarily opt for this service. The fee 
currently includes a bas [sic] Distributor fee plus a fee per 
subscriber, which has been found to be consistent with the Act in 
multiple contexts due to the economic efficiencies attributable to 
providing the same data elements to an increasing population of 
subscribers.
    The Trading Platform fee is equitable and reasonable in that it 
ensures that heavy users of the NASDAQ Depth Information pay an 
equitable share of the total NASDAQ Depth Information fees. Currently, 
Professional Subscribers pay higher fees than Non-Professional 
Subscribers based on the calculated assumption of higher usage. 
Similarly, External Distributors pay higher fees than Internal 
Distributors, also based upon their assumed higher usage levels. NASDAQ 
believes that Trading Platforms are generally high users of the data, 
using it to power a matching engine for millions or even billions of 
trading messages per day. Additionally, the vast majority of operators 
of Trading Platforms that use NASDAQ Depth-of-Book Data already pay 
$15,000 per month or close to it. Those operators will pay no or little 
in additional fees.
    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations and broker-dealers increased authority and flexibility to 
offer new and unique market data to the public. It was believed that 
this authority would expand the amount of data available to consumers, 
and also spur innovation and competition for the provision of market 
data.
    The Commission concluded that Regulation NMS--by deregulating the 
market in proprietary data--would itself further the Act's goals of 
facilitating efficiency and competition:

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data. The Commission also believes that 
efficiency is promoted when broker-dealers may choose to receive 
(and pay for) additional market data based on their own internal 
analysis of the need for such data.\5\
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    \5\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496 (June 29, 2005).

By removing ``unnecessary regulatory restrictions'' on the ability of 
exchanges to sell their own data, Regulation NMS advanced the goals of 
the Act and the principles reflected in its legislative history. If the 
free market should determine whether proprietary data is sold to 
broker-dealers at all, it follows that the price at which such data is 
sold should be set by the market as well.
    On July 21, 2010, President Barack Obama signed into law H.R. 4173, 
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 
(``Dodd-Frank Act''), which amended Section 19 of the Act. Among other 
things, Section 916 of the Dodd-Frank Act amended paragraph (A) of 
Section 19(b)(3) of the Act by inserting the phrase ``on any person, 
whether or not the person is a member of the self-regulatory 
organization'' after ``due, fee or other charge imposed by the self-
regulatory organization.'' As a result, all SRO rule proposals 
establishing or changing dues, fees, or other charges are immediately 
effective upon filing regardless of whether such dues, fees, or other 
charges are imposed on members of the SRO, non-members, or both. 
Section 916 further amended paragraph (C) of Section 19(b)(3) of the 
Exchange Act to read, in pertinent part, ``At any time within the 60-
day period beginning on the date of filing of such a proposed rule 
change in accordance with the provisions of paragraph (1) [of Section 
19(b)], the Commission summarily may temporarily suspend the change in 
the rules of the self-regulatory organization made thereby, if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of this title. If the Commission takes 
such action, the Commission shall institute proceedings under paragraph 
(2)(B) [of Section 19(b)] to determine whether the proposed rule should 
be approved or disapproved.''
    NASDAQ believes that these amendments to Section 19 of the Act 
reflect Congress's intent to allow the Commission to rely upon the 
forces of competition to ensure that fees for market data are 
reasonable and equitably allocated. Although Section 19(b) had formerly 
authorized immediate effectiveness for a ``due, fee or other charge 
imposed by the self-regulatory organization,'' the Commission adopted a 
policy and subsequently a rule stipulating that fees for data and other 
products available to persons that are not members of the self-
regulatory organization must be approved by the Commission after first 
being published for comment. At the time, the Commission supported the 
adoption of the policy and the rule by pointing out that unlike 
members, whose representation in self-regulatory organization 
governance was mandated by the Act, non-members should be given the 
opportunity to comment on fees before being required to pay them, and 
that the Commission should specifically approve all such fees. NASDAQ 
believes that the amendment to Section 19 reflects Congress's 
conclusion that the evolution of self-regulatory organization 
governance and competitive market structure have rendered the 
Commission's prior policy on non-member fees obsolete. Specifically, 
many exchanges have evolved from member-owned not-for-profit 
corporations into for-profit investor-owned corporations (or 
subsidiaries of investor-owned corporations). Accordingly, exchanges no 
longer have narrow incentives to manage their affairs for the exclusive 
benefit of their members, but rather have incentives to maximize the 
appeal of their products to all customers, whether members or non-
members, so as to broaden distribution and grow revenues. Moreover, we 
believe that the change also reflects an endorsement of the 
Commission's determinations that reliance on competitive markets is an 
appropriate means to ensure equitable and reasonable prices. Simply 
put, the change reflects a presumption that all fee changes should be 
permitted to take effect immediately, since the level of all fees are 
constrained by competitive forces.
    The recent decision of the United States Court of Appeals for the 
District of Columbia Circuit in NetCoaliton v. SEC, No. 09-1042 (D.C. 
Cir. 2010), although reviewing a Commission decision made prior to the 
effective date of the Dodd-Frank Act, upheld the Commission's reliance 
upon competitive markets to set reasonable and equitably allocated fees 
for market data. ``In fact, the legislative history indicates that the 
Congress intended that the market system `evolve through the interplay 
of competitive forces as unnecessary regulatory restrictions are

[[Page 1060]]

removed' and that the SEC wield its regulatory power `in those 
situations where competition may not be sufficient,' such as in the 
creation of a `consolidated transactional reporting system.' 
NetCoaltion, at 15 (quoting H.R. Rep. No. 94-229, at 92 (1975), as 
reprinted in 1975 U.S.C.C.A.N. 321, 323). The court's conclusions about 
Congressional intent are therefore reinforced by the Dodd-Frank Act 
amendments, which create a presumption that exchange fees, including 
market data fees, may take effect immediately, without prior Commission 
approval, and that the Commission should take action to suspend a fee 
change and institute a proceeding to determine whether the fee change 
should be approved or disapproved only where the Commission has 
concerns that the change may not be consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDAQ does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. Notwithstanding its 
determination that the Commission may rely upon competition to 
establish fair and equitably allocated fees for market data, the 
NetCoaltion court found that the Commission had not, in that case, 
compiled a record that adequately supported its conclusion that the 
market for the data at issue in the case was competitive. For the 
reasons discussed above, NASDAQ believes that the Dodd-Frank Act 
amendments to Section 19 materially alter the scope of the Commission's 
review of future market data filings, by creating a presumption that 
all fees may take effect immediately, without prior analysis by the 
Commission of the competitive environment. Even in the absence of this 
important statutory change, however, NASDAQ believes that a record may 
readily be established to demonstrate the competitive nature of the 
market in question.
    There is intense competition between trading platforms that provide 
transaction execution and routing services and proprietary data 
products. Transaction execution and proprietary data products are 
complementary in that market data is both an input and a byproduct of 
the execution service. In fact, market data and trade execution are a 
paradigmatic example of joint products with joint costs. The decision 
whether and on which platform to post an order will depend on the 
attributes of the platform where the order can be posted, including the 
execution fees, data quality and price and distribution of its data 
products. Without the prospect of a taking order seeing and reacting to 
a posted order on a particular platform, the posting of the order would 
accomplish little. Without trade executions, exchange data products 
cannot exist. Data products are valuable to many end users only insofar 
as they provide information that end users expect will assist them or 
their customers in making trading decisions.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. The total return that a 
trading platform earns reflects the revenues it receives from both 
products and the joint costs it incurs. Moreover, an exchange's 
customers view the costs of transaction executions and of data as a 
unified cost of doing business with the exchange. A broker-dealer will 
direct orders to a particular exchange only if the expected revenues 
from executing trades on the exchange exceed net transaction execution 
costs and the cost of data that the broker-dealer chooses to buy to 
support its trading decisions (or those of its customers). The choice 
of data products is, in turn, a product of the value of the products in 
making profitable trading decisions. If the cost of the product exceeds 
its expected value, the broker-dealer will choose not to buy it. 
Moreover, as a broker-dealer chooses to direct fewer orders to a 
particular exchange, the value of the product to that broker-dealer 
decreases, for two reasons. First, the product will contain less 
information, because executions of the broker-dealer's orders will not 
be reflected in it. Second, and perhaps more important, the product 
will be less valuable to that broker-dealer because it does not provide 
information about the venue to which it is directing its orders. Data 
from the competing venue to which the broker-dealer is directing orders 
will become correspondingly more valuable.
    Thus, a super-competitive increase in the fees charged for either 
transactions or data has the potential to impair revenues from both 
products. ``No one disputes that competition for order flow is 
`fierce'.'' NetCoalition at 24. However, the existence of fierce 
competition for order flow implies a high degree of price sensitivity 
on the part of broker-dealers with order flow, since they may readily 
reduce costs by directing orders toward the lowest-cost trading venues. 
A broker-dealer that shifted its order flow from one platform to 
another in response to order execution price differentials would both 
reduce the value of that platform's market data and reduce its own need 
to consume data from the disfavored platform. Similarly, if a platform 
increases its market data fees, the change will affect the overall cost 
of doing business with the platform, and affected broker-dealers will 
assess whether they can lower their trading costs by directing orders 
elsewhere and thereby lessening the need for the more expensive data.
    Analyzing the cost of market data distribution in isolation from 
the cost of all of the inputs supporting the creation of market data 
will inevitably underestimate the cost of the data. Thus, because it is 
impossible to create data without a fast, technologically robust, and 
well-regulated execution system, system costs and regulatory costs 
affect the price of market data. It would be equally misleading, 
however, to attribute all of the exchange's costs to the market data 
portion of an exchange's joint product. Rather, all of the exchange's 
costs are incurred for the unified purposes of attracting order flow, 
executing and/or routing orders, and generating and selling data about 
market activity. The total return that an exchange earns reflects the 
revenues it receives from the joint products and the total costs of the 
joint products.
    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products, but different platforms may choose from a range of possible, 
and equally reasonable, pricing strategies as the means of recovering 
total costs. For example, some platform may choose to pay rebates to 
attract orders, charge relatively low prices for market information (or 
provide information free of charge) and charge relatively high prices 
for accessing posted liquidity. Other platforms may choose a strategy 
of paying lower rebates (or no rebates) to attract orders, setting 
relatively high prices for market information, and setting relatively 
low prices for accessing posted liquidity. In this environment, there 
is no economic basis for regulating maximum prices for one of the joint 
products in an industry in which suppliers face competitive constraints 
with regard to the joint offering. This would be akin to strictly 
regulating the price that an automobile manufacturer can charge for car 
sound systems despite the existence of a highly competitive market for 
cars and the

[[Page 1061]]

availability of after-market alternatives to the manufacturer-supplied 
system.
    The market for market data products is competitive and inherently 
contestable because there is fierce competition for the inputs 
necessary to the creation of proprietary data and strict pricing 
discipline for the proprietary products themselves. Numerous exchanges 
compete with each other for listings, trades, and market data itself, 
providing virtually limitless opportunities for entrepreneurs who wish 
to produce and distribute their own market data. This proprietary data 
is produced by each individual exchange, as well as other entities, in 
a vigorously competitive market.
    Broker-dealers currently have numerous alternative venues for their 
order flow, including ten self-regulatory organization (``SRO'') 
markets, as well as internalizing broker-dealers (``BDs'') and various 
forms of alternative trading systems (``ATSs''), including dark pools 
and electronic communication networks (``ECNs''). Each SRO market 
competes to produce transaction reports via trade executions, and two 
FINRA-regulated Trade Reporting Facilities (``TRFs'') compete to 
attract internalized transaction reports. Competitive markets for order 
flow, executions, and transaction reports provide pricing discipline 
for the inputs of proprietary data products.
    The large number of SROs, TRFs, BDs, and ATSs that currently 
produce proprietary data or are currently capable of producing it 
provides further pricing discipline for proprietary data products. Each 
SRO, TRF, ATS, and BD is currently permitted to produce proprietary 
data products, and many currently do or have announced plans to do so, 
including NASDAQ, NYSE, NYSE Amex, NYSEArca, and BATS.
    Any ATS or BD can combine with any other ATS, BD, or multiple ATSs 
or BDs to produce joint proprietary data products. Additionally, order 
routers and market data vendors can facilitate single or multiple 
broker-dealers' production of proprietary data products. The potential 
sources of proprietary products are virtually limitless.
    The fact that proprietary data from ATSs, BDs, and vendors can by-
pass SROs is significant in two respects. First, non-SROs can compete 
directly with SROs for the production and sale of proprietary data 
products, as BATS and Arca did before registering as exchanges by 
publishing proprietary book data on the Internet. Second, because a 
single order or transaction report can appear in an SRO proprietary 
product, a non-SRO proprietary product, or both, the data available in 
proprietary products is exponentially greater than the actual number of 
orders and transaction reports that exist in the marketplace.
    Market data vendors provide another form of price discipline for 
proprietary data products because they control the primary means of 
access to end users. Vendors impose price restraints based upon their 
business models. For example, vendors such as Bloomberg and Thomson 
Reuters that assess a surcharge on data they sell may refuse to offer 
proprietary products that end users will not purchase in sufficient 
numbers. Internet portals, such as Google, impose a discipline by 
providing only data that will enable them to attract ``eyeballs'' that 
contribute to their advertising revenue. Retail broker-dealers, such as 
Schwab and Fidelity, offer their customers proprietary data only if it 
promotes trading and generates sufficient commission revenue. Although 
the business models may differ, these vendors' pricing discipline is 
the same: They can simply refuse to purchase any proprietary data 
product that fails to provide sufficient value. NASDAQ and other 
producers of proprietary data products must understand and respond to 
these varying business models and pricing disciplines in order to 
market proprietary data products successfully.
    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid, inexpensive, and profitable. 
The history of electronic trading is replete with examples of entrants 
that swiftly grew into some of the largest electronic trading platforms 
and proprietary data producers: Archipelago, Bloomberg Tradebook, 
Island, RediBook, Attain, TracECN, BATS Trading and Direct Edge. A 
proliferation of dark pools and other ATSs operate profitably with 
fragmentary shares of consolidated market volume.
    Regulation NMS, by deregulating the market for proprietary data, 
has increased the contestability of that market. While broker-dealers 
have previously published their proprietary data individually, 
Regulation NMS encourages market data vendors and broker-dealers to 
produce proprietary products cooperatively in a manner never before 
possible. Multiple market data vendors already have the capability to 
aggregate data and disseminate it on a profitable scale, including 
Bloomberg, and Thomson Reuters.
    The court in NetCoalition concluded that the Commission had failed 
to demonstrate that the market for market data was competitive based on 
the reasoning of the Commission's NetCoalition order because, in the 
court's view, the Commission had not adequately demonstrated that the 
depth-of-book data at issue in the case is used to attract order flow. 
NASDAQ believes, however, that evidence not before the court clearly 
demonstrates that availability of data attracts order flow. For 
example, as of July 2010, 92 of the top 100 broker-dealers by shares 
executed on NASDAQ consumed Level 2/NQDS and 80 of the top 100 broker-
dealers consumed TotalView. During that month, the Level 2/NQDS-users 
were responsible for 94.44% of the orders entered into NASDAQ and 
TotalView users were responsible for 92.98%.
    Competition among platforms has driven NASDAQ continually to 
improve its platform data offerings and to cater to customers' data 
needs. For example, NASDAQ has developed and maintained multiple 
delivery mechanisms (IP, multi-cast, and compression) that enable 
customers to receive data in the form and manner they prefer and at the 
lowest cost to them. NASDAQ offers front end applications such as its 
``Bookviewer'' to help customers utilize data. NASDAQ has created new 
products like TotalView Aggregate to complement TotalView ITCH and 
Level 2/NQDS, because offering data in multiple formatting allows 
NASDAQ to better fit customer needs. NASDAQ offers data via multiple 
extranet providers, thereby helping to reduce network and total cost 
for its data products. NASDAQ has developed an online administrative 
system to provide customers transparency into their data feed requests 
and streamline data usage reporting. NASDAQ has also expanded its 
Enterprise License options that reduce the administrative burden and 
costs to firms that purchase market data.
    Despite these enhancements and a dramatic increase in message 
traffic, NASDAQ's fees for market data have remained flat. In fact, as 
a percent of total customer costs, NASDAQ data fees have fallen 
relative to other data usage costs--including bandwidth, programming, 
and infrastructure--that have risen. The same holds true for execution 
services; despite numerous enhancements to NASDAQ's trading platform, 
absolute and relative trading costs have declined. Platform competition 
has intensified as new entrants have emerged, constraining prices for 
both executions and for data.
    The vigor of competition for depth information is significant and 
the Exchange believes that this proposal

[[Page 1062]]

clearly evidences such competition. NASDAQ is offering a new pricing 
model in order to keep pace with changes in the industry and evolving 
customer needs. It is entirely optional and is geared towards 
attracting new customers, as well as retaining existing customers.
    The Exchange has witnessed competitors creating new products and 
innovative pricing in this space over the course of the past year. 
NASDAQ continues to see firms challenge its pricing on the basis of the 
Exchange's explicit fees being higher than the zero-priced fees from 
other competitors such as BATS. In all cases, firms make decisions on 
how much and what types of data to consume on the basis of the total 
cost of interacting with NASDAQ or other exchanges. Of course, the 
explicit data fees are but one factor in a total platform analysis. 
Some competitors have lower transactions fees and higher data fees, and 
others are vice versa. The market for this depth information is highly 
competitive and continually evolves as products develop and change.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\6\
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    \6\ 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-2014-125 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-2014-125. 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-2014-125 and 
should be submitted on or before January 29, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00051 Filed 1-7-15; 8:45 am]
BILLING CODE 8011-01-P