Document ID: SEC-2018-1218-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq Stock Market, LLC
Posted Date: 2018-08-06T04:00Z

[Federal Register Volume 83, Number 151 (Monday, August 6, 2018)]
[Notices]
[Pages 38428-38434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16720]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83751; File No. SR-NASDAQ-2018-058]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Lower Fees and Administrative Costs for Distributors of Nasdaq Basic, 
Nasdaq Last Sale, NLS Plus and the Nasdaq Depth-of-Book Products 
Through a Consolidated Enterprise License

July 31, 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 July 17, 2018, 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 lower fees and administrative costs for 
Distributors of Nasdaq Basic, Nasdaq Last Sale (``NLS''), NLS Plus and 
the Nasdaq Depth-of-Book products (TotalView and Level 2) by 
introducing a consolidated enterprise license for the Display Usage of 
all five products. This market data enterprise license will allow 
Distributors who are broker-dealers or Investment Advisers to 
disseminate these products to a wide audience for a monthly fee of 
$600,000, with the opportunity to lower that fee further to $500,000 
per month if the Distributor contracts for twelve months of the service 
in advance. The proposed enterprise license will be introduced through 
an amendment to Rule \3\ 7032, which is currently reserved. The 
proposal is described in further detail below.
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    \3\ References to rules are to Nasdaq rules, unless otherwise 
noted.
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    This amendment is immediately effective upon filing.\4\
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    \4\ This proposed change was initially filed on July 3, 2018, 
and became immediately effective on that date. See SR-NASDAQ-2018-
055, available at http://nasdaq.cchwallstreet.com/. A firm eligible 
to purchase the proposed license may purchase it for the month of 
July, effective on July 3, 2018, and the monthly fee for the license 
will be prorated for the period July 3 through July 31, 2018. Any 
fees owed by the purchaser of the enterprise license for the use of 
Nasdaq Basic, NLS, NLS Plus and the Nasdaq Depth-of-Book products on 
July 1 and July 2, 2018, will also be prorated accordingly.
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    The text of the proposed rule change is available on the Exchange's 
website 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 lower fees and administrative costs for 
Distributors \5\ of Nasdaq Basic, NLS, NLS Plus and the Nasdaq Depth-
of-Book products (TotalView and Level 2) by introducing a consolidated 
enterprise license for the Display Usage \6\ of all five products. This 
license will allow Distributors who are broker-dealers or Investment 
Advisers \7\ to disseminate these products to a wide audience for a 
monthly fee of $600,000, with the opportunity to lower that fee further 
to $500,000 per month if they contract for twelve months of service in 
advance. No fees will increase as a result of this license. As 
discussed below, this fee reduction responds to competitive pressures 
exerted by other exchanges that sell market data.
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    \5\ ``Distributor'' will be defined in proposed Rule 7032(c)(3) 
by reference to Rules 7023(a)(4), 7039(f)(3), and 7047(d)(1) to 
reflect the current definitions of that term as set forth in each of 
these rules. Those definitions will continue to apply to each 
product, respectively. At a later date, Nasdaq will submit an 
additional proposed rule change to consolidate generally-applicable 
definitions and move these definitions to a new rule that will apply 
to all market data fee rules in the 7000 series.
    \6\ ``Display Usage'' will be defined in Rule 7032(c)(2) by 
reference to Rules 7023(a)(2), 7039(f)(2), and 7047(d)(2), to 
reflect the current definitions of that term as set forth in each of 
these rules. Those definitions will continue to apply to each 
product, respectively.
    \7\ ``Investment Adviser'' will be defined in proposed Rule 
7032(c)(4) by reference to Section 202(a)(11) of the Investment 
Advisers Act of 1940, as ``any person who, for compensation, engages 
in the business of advising others, either directly or through 
publications or writings, as to the value of securities or as to the 
advisability of investing in, purchasing, or selling securities, or 
who, for compensation and as part of a regular business, issues or 
promulgates analyses or reports concerning securities . . . .''
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Current Enterprise License Fees
    The Exchange currently offers enterprise licenses for Depth-of-Book 
products and Nasdaq Basic. There is no enterprise license for the 
distribution of NLS to the general investing public, but there is a cap 
of $41,500 per month on such fees, and NLS may also be distributed 
under one of the enterprise licenses for Nasdaq Basic.\8\
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    \8\ See Rule 7048(b)(5) (providing that a broker-dealer that 
purchases this enterprise license will also have the right to 
distribute NLS data to an unlimited number of Professional and Non-
Professional Subscribers who are natural persons and with whom the 
broker-dealer has a brokerage relationship). In addition, there is 
an enterprise license for specialized usage of NLS at Rule 
7039(c)(3), but specialized usage is not relevant to this proposal, 
which focuses on distribution to the general investing public and 
the professionals servicing retail investors through brokerage or 
retail advisory accounts.
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Depth-of-Book Products
    Nasdaq offers two Depth-of-Book products, TotalView and Level 2.\9\ 
TotalView, Nasdaq's premier Depth-of-Book product, provides complete, 
real-time depth data for Nasdaq and non-

[[Page 38429]]

Nasdaq-listed securities, including all orders and quotes from all 
Nasdaq members displayed in the Nasdaq Market Center, the aggregate 
size of such orders and quotes, and Net Order Imbalance Information, 
which supplies data on the daily auctions that take place at the open 
and close of the market, as well as in the context of an IPO or after a 
halt.\10\ Nasdaq Level 2, which will be retired as a separate product 
after transition to TotalView is complete for all Distributors,\11\ 
provides the best-priced orders from each Nasdaq member on the Nasdaq 
Market Center for Nasdaq-listed securities.
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    \9\ See Rule 7023(a)(1). The Exchange proposes to incorporate 
the definition of Depth-of-Book data currently set forth at Rule 
7023(a)(1) by reference at proposed Rule 7032(c)(1). Rule 7023(a)(1) 
defines Depth-of-Book as ``data feeds containing price quotations at 
more than one price level''; the Depth-of-Book data feeds are Nasdaq 
Level 2, which means ``with respect to stocks listed on Nasdaq, the 
best-priced orders or quotes from each Nasdaq member displayed in 
the Nasdaq Market Center,'' and Nasdaq TotalView, which means ``with 
respect to stocks listed on Nasdaq and on an exchange other than 
Nasdaq, all orders and quotes from all Nasdaq members displayed in 
the Nasdaq Market Center as well as the aggregate size of such 
orders and quotes at each price level in the execution functionality 
of the Nasdaq Market Center.''
    \10\ See Securities Exchange Act Release No. 79863 (January 23, 
2017), 82 FR 8632 (January 27, 2017) (SR-NASDAQ-2017-004). Net Order 
Imbalance Information refers to data relating to buy and sell 
interest at the open and close of the trading day, in the context of 
an Initial Public Offering, and after a trading halt. See Securities 
Exchange Act Release No. 80891 (June 8, 2017), 82 FR 27318 (June 14, 
2017) (SR-NASDAQ-2017-054).
    \11\ See Securities Exchange Act Release No. 79863 (January 23, 
2017) 82 FR 8632 (January 27, 2017) (SR-NASDAQ-2017-004) (explaining 
that Level 2 will be retired as a separate product).
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    The Exchange offers three enterprise licenses for its Depth-of-Book 
products. The first allows a Distributor that is also a broker-dealer 
to pay a monthly fee of $25,000, plus $9 per month for each Non-
Professional Subscriber and $60 per month for each Professional 
Subscriber, for the right to distribute Nasdaq TotalView internally for 
Display Usage or externally to Non-Professional Subscribers with whom 
the firm has a brokerage relationship.\12\
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    \12\ See Rule 7023(c)(1).
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    The second allows a Distributor that is also a broker-dealer to pay 
a monthly fee of $100,000, plus $9 per month for each Non-Professional 
Subscriber and $60 per month for each Professional Subscriber, for the 
right to distribute TotalView for Display Usage internally, or 
externally to both Professional and Non-Professional Subscribers with 
whom the firm has a brokerage relationship.\13\
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    \13\ See Rule 7023(c)(2). Note that the $100,000 license at 
paragraph (c)(2) allows for external distribution to both 
Professional and Non-Professional Subscribers with whom the firm has 
a brokerage relationship, while the $25,000 license at paragraph 
(c)(1) is limited to Non-Professional Subscribers.
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    The third allows a Distributor that is also a broker-dealer to pay 
a monthly fee of $500,000 to provide Nasdaq Level 2 or Nasdaq TotalView 
for Display Usage by Non-Professional Subscribers with whom the firm 
has a brokerage relationship, with no additional per Subscriber fees, 
albeit with Distributor fees.\14\
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    \14\ See Rule 7023(c)(3).
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Nasdaq Basic
    Nasdaq Basic is a real-time market data product that offers best 
bid and offer and last sale information for all U.S. exchange-listed 
securities from the Nasdaq Market Center and the FINRA/Nasdaq Trade 
Reporting Facility (``TRF'').\15\ It is comprised of three components, 
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 transaction reports for Nasdaq and the FINRA/
Nasdaq TRF for Nasdaq-listed stocks; (ii) Nasdaq Basic for NYSE, which 
covers NYSE-listed stocks, and (iii) Nasdaq Basic for NYSE American 
(formerly NYSE MKT), which provides data on stocks listed on NYSE 
American and other listing venues whose quotes and trade reports are 
disseminated on Tape B. Nasdaq Basic provides customers with: (i) 
Nasdaq Basic Quotes (``QBBO''), the best bid and offer and associated 
size available in the Nasdaq Market Center, as well as last sale 
transaction reports; (ii) Nasdaq opening and closing prices, as well as 
IPO and trading halt cross prices; and (iii) general Exchange 
information, including systems status reports, trading halt 
information, and a stock directory.
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    \15\ The Exchange proposes to use the same definition for 
``Nasdaq Basic'' currently set forth in Rule 7047(a), incorporated 
by reference in proposed Rule 7032(c)(5). Rule 7047(a) defines 
Nasdaq Basic as ``proprietary data feeds containing real-time market 
information from the Nasdaq Market Center and the FINRA/Nasdaq Trade 
Reporting Facility (`TRF'). (1) `Nasdaq Basic for Nasdaq' shall 
contain Nasdaq's best bid and offer and last sale for Nasdaq-listed 
stocks from Nasdaq and the FINRA/Nasdaq TRF; and (2) `Nasdaq Basic 
for NYSE' shall contain Nasdaq's best bid and offer and last sale 
for NYSE-listed stocks from Nasdaq and the FINRA/Nasdaq TRF. (3) 
`Nasdaq Basic for NYSE MKT' shall contain Nasdaq's best bid and 
offer and last sale for stocks listed on NYSE MKT and other Tape B 
listing venues from Nasdaq and the FINRA/Nasdaq TRF.''
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    The Exchange offers two enterprise licenses for Nasdaq Basic. The 
first is aimed primarily at internal distribution for professionals, 
allowing the dissemination of Nasdaq Basic or Derived Data therefrom 
for a fee of $365,000 per month, provided that if the broker-dealer 
obtains the license for usage of Nasdaq Basic provided by an External 
Distributor that controls display of the product, the fee will be 
$365,000 per month for up to 16,000 internal Professional Subscribers, 
plus $2 for each additional internal Professional Subscriber over 
16,000.\16\ This license includes access to NLS for the Distributor's 
own securities and those of up to ten of its competitors or peers for 
Display Usage on the broker-dealer's internal website.\17\
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    \16\ See Rule 7047(b)(4).
    \17\ Distributor fees at Rule 7047(c)(1) are excluded from this 
license.
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    The second is directed primarily at external distribution to 
investors with brokerage relationships. Nasdaq Basic or Derived Data 
therefrom, as well as NLS, may be distributed to an unlimited number of 
Professional and Non-Professional Subscribers who are natural persons 
and who have a brokerage relationship with the broker-dealer for a 
monthly fee of $100,000.\18\ Information also may be distributed to 
4,500 internal Professional Subscribers, provided that the information 
may only be used to support brokerage services,\19\ and any internal 
electronic system used to distribute such information must be approved 
by Nasdaq.\20\ The license does not cover the Distributor fee for 
Nasdaq Basic,\21\ and is subject to reporting requirements regarding 
the number of Professional and Non-Professional Subscribers.
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    \18\ See Rule 7047(b)(5).
    \19\ Such information may not be used in support of proprietary 
trading, surveillance activities, or other functions solely for the 
benefit of the broker-dealer. Also, a Professional Subscriber who 
obtains Nasdaq Basic through his or her own brokerage relationship 
with the broker-dealer may not use that data within the scope of any 
professional engagement or registration. See Rule 7047(b)(5).
    \20\ A separate enterprise license is required for each discrete 
electronic system that is approved by Nasdaq and used by the broker-
dealer. See Rule 7047(b)(5).
    \21\ See Rule 7047(c)(1).
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NLS
    NLS is composed of two proprietary data feeds containing real-time 
last sale information for trades executed on the Nasdaq exchange or 
reported to the FINRA/Nasdaq TRF: (i) NLS for Nasdaq, which contains 
transaction reports for Nasdaq-listed stocks, and (ii) NLS for NYSE/
NYSE American, which contains transaction reports for NYSE-listed 
stocks and stocks listed on NYSE American and other Tape B listing 
venues.\22\
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    \22\ The Exchange proposes to use the definition for ``NLS'' 
currently set forth at Rule 7039(a), incorporated by reference in 
proposed Rule 7032(c)(6). Rule 7039(a) defines NLS as ``two 
proprietary data feeds containing real-time last sale information 
for trades executed on Nasdaq or reported to the FINRA/Nasdaq Trade 
Reporting Facility. `Nasdaq Last Sale for Nasdaq' contains all such 
transaction reports for Nasdaq-listed stocks, and `Nasdaq Last Sale 
for NYSE/NYSE American' contains all such transaction reports for 
NYSE-listed stocks and stocks listed on NYSE American and other Tape 
B listing venues.''
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    NLS is designed to enable market data Distributors to provide 
access to Exchange information to millions of individual investors 
through website

[[Page 38430]]

distribution.\23\ This design is reflected in the pricing schedule, in 
which one set of prices is dedicated to distribution to the general 
investing public, and another for specialized usage by Professionals, 
or usage that otherwise does not fit within the models for distribution 
to the general investing public.\24\
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    \23\ See 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).
    \24\ See Securities Exchange Act Release No. 82723 (February 15, 
2018), 83 FR 7812 (February 22, 2018) (SR-NASDAQ-2018-010) 
(describing the NLS fee schedules).
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    There is no enterprise license for distribution to the general 
investing public, but such dissemination is subject to a fee cap of 
$41,500 per month.\25\ Distributors under the specialized fee schedule, 
however, may purchase an enterprise license for a monthly fee of 
$365,000 per month,\26\ which is patterned after a similar enterprise 
license for Nasdaq Basic.\27\
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    \25\ See Rule 7039(b)(4) (identifying the fee cap); Rule 
7039(b)(1)-(3) (identifying fees for the Per User, Per Query and Per 
Device fee models).
    \26\ See Rule 7039(c)(3).
    \27\ See Rule 7047(b)(4) (setting forth an enterprise license 
for Nasdaq Basic for $365,000 per month).
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NLS Plus
    NLS Plus provides last sale information and consolidated volume 
data for the Nasdaq Stock Market, Nasdaq BX, Nasdaq PSX and the FINRA/
Nasdaq TRF, and cumulative volume for real-time trading activity across 
all U.S. exchanges.\28\ It may be purchased by itself or in combination 
with Nasdaq Basic. NLS Plus provides customers with Trade Price, Trade 
Size, Sale Condition Modifiers, Cumulative Consolidated Market Volume, 
End of Day Trade Summary, Adjusted Closing Price, IPO information, 
Bloomberg ID, and regulatory information such as Market Wide Circuit 
Breaker, Regulation SHO Short Sale Price Test Restricted Indicator, 
Trading Action, and Symbol Directory.
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    \28\ The Exchange proposes that ``NLS Plus'' in proposed Rule 
7032 have the same meaning as currently set forth at Rule 7039(e), 
to be incorporated by reference in proposed Rule 7032(c)(7). Rule 
7039(e) defines NLS Plus in part as ``a comprehensive data feed 
produced by Nasdaq Information LLC. It provides last sale data as 
well as consolidated volume of Nasdaq U.S. equity markets (The 
Nasdaq Stock Market (`Nasdaq'), Nasdaq BX (`BX'), and Nasdaq PSX 
(`PSX')) and the FINRA/Nasdaq Trade Reporting Facility (`TRF'). 
Nasdaq Last Sale Plus also reflects cumulative volume real-time 
trading activity across all U.S. exchanges for Tape C securities. . 
. . ''
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    Fees for NLS Plus are based on the fees for its underlying 
components, as well as a Distributor fee,\29\ a data consolidation fee 
of $350 per month, and administrative fees for Nasdaq, BX, and PSX data 
feeds as set forth in their respective rule books.\30\ There is no 
enterprise license for NLS Plus, but the distribution fees for the 
general investing public are capped at $41,500, under the same cap that 
applies to NLS.
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    \29\ See Rule 7039(d).
    \30\ See Nasdaq Rule 7035; BX Rule 7035; and Phlx Pricing 
Schedule Sec.  VIII. All administrative fees are charged on a per 
Distributor, rather than a per product, basis. Currently, there are 
no user or Distributor fees applicable to BX Last Sale or PSX Last 
Sale. However, if BX or Phlx were to adopt user fees for these 
products in the future, the fees would also apply to persons 
receiving these products by means of NLS Plus.
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Proposed Market Data Enterprise License
    The Exchange proposes to introduce a market data enterprise license 
that will reduce Exchange fees and administrative costs for 
Distributors \31\ that disseminate Nasdaq Basic, NLS, NLS Plus, 
TotalView and Level 2. Distributors that are broker-dealers or 
Investment Advisers \32\ will be able to distribute information for 
Display Usage for all five products to an unlimited number of 
recipients for a monthly fee of $600,000, with an opportunity to lower 
that fee to $500,000 per month if they contract for twelve months of 
service in advance. Depth-of-Book information and Nasdaq Basic may be 
distributed pursuant to this market data enterprise license only for 
display usage and in the context of a brokerage relationship with a 
broker-dealer or an engagement with an Investment Adviser, and the 
Exchange must pre-approve any such platform to ensure that it is 
reasonably designed to meet this and other requirements identified in 
the text of the proposed rule. NLS and NLS Plus will be available for 
unlimited external distribution through one of the mechanisms available 
for distribution to the general investing public, which the Exchange 
expects to be the most efficient method for reaching the general 
investing public. Purchase of the enterprise license will eliminate 
per-Subscriber fees for Depth-of-Book data,\33\ user fees for Nasdaq 
Basic,\34\ distribution fees for the general investing public for 
NLS,\35\ and incremental NLS Plus fees,\36\ whether such fees are paid 
directly to the Exchange or indirectly through another Distributor.\37\ 
This enterprise license will offer a new fee option for Distributors of 
multiple market data products. No fee will increase as a result of this 
proposal.
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    \31\ As noted above, ``Distributor'' will be defined in proposed 
Rule 7032(c)(3) by reference to Rules 7023(a)(4), 7039(f)(3), and 
7047(d)(1) to reflect the current definitions of that term as set 
forth in each of these rules. Those definitions will continue to 
apply to each product, respectively. See n.5.
    \32\ ``Investment Adviser'' shall have the same meaning in 
proposed Rule 7032 as set forth in Section 202(a)(11) of the 
Investment Advisers Act of 1940, incorporated by reference at 
proposed Rule 7032(c)(4). See n.7.
    \33\ See Rule 7023(b).
    \34\ See Rule 7047(b).
    \35\ See Rule 7039(b).
    \36\ See Rule 7039(e).
    \37\ A Distributor may receive Information subject to the 
proposed enterprise license either directly from the Exchange or 
indirectly through another Distributor. To the degree that any 
Distributor pays to the Exchange Subscriber fees for Depth-of-Book 
data at Rule 7023(b), User Fees for Nasdaq Basic at Rule 7047(b), 
Distribution Model fees for the General Investing Public for NLS at 
Rule 7039(b), and NLS Plus fees at Rule 7039(e) on behalf of the 
purchaser of the proposed market data enterprise license, those fees 
paid to the Exchange shall reduce the applicable monthly enterprise 
license fee owed by the amount paid.
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    Distributors that intend to purchase the market data enterprise 
license for at least twelve months may elect to purchase this product 
in advance for a monthly fee of $500,000. This feature is intended to 
simplify cost projections and budgeting for both Distributors and the 
Exchange. Distributors that elect not to purchase this particular 
feature will nevertheless be able to obtain all of the market data 
information offered by the product by paying the standard fee of 
$600,000 per month. Distributors that elect to pay the monthly fee will 
be able to switch to the annual fee at any time, and those that elect 
to purchase the annual contract would be able to change to the monthly 
contract, with notice, at the end of the twelve month period.
    The Exchange believes that the proposed market data enterprise 
license will reduce exchange fees, lower administrative costs for 
Distributors, and help expand the availability of market information to 
investors, and thereby increase participation in financial markets.
    Reduce Exchange Fees: The proposed market data enterprise license 
will lower fees by consolidating the features of three existing 
enterprise licenses at a lower cost, and with an expanded scope. The 
three current enterprise licenses that offer some, but not all,\38\ of 
the features of the proposed license are: (i) The $500,000 per month 
enterprise license for Depth-of-Book; \39\ (ii) the

[[Page 38431]]

$365,000 per month license for internal distribution of Nasdaq Basic; 
and (iii) the $100,000 per month license for external distribution of 
Nasdaq Basic.
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    \38\ While the scope of each of the three current enterprise 
licenses is not identical to the proposed license, the Exchange 
believes that this comparison is a good approximation for the cost 
reduction generated by the proposal.
    \39\ The two other enterprise licenses for Depth-of-Book, the 
$25,000 enterprise license for distribution of TotalView, see Rule 
7023(c)(1), and the $100,000 license for the right to distribute 
TotalView for certain Subscribers internally and externally, see 
Rule 7023(c)(2), are not comparable to the proposed license in that 
these two current licenses include substantial per Subscriber fees, 
while the proposed license does not.
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    As explained above, the $500,000 enterprise license for Depth-of-
Book products allows a Distributor that is also a broker-dealer to 
distribute Nasdaq Level 2 or TotalView for Display Usage by Non-
Professional Subscribers with whom the firm has a brokerage 
relationship.\40\ This Depth-of-Book fee is nearly equal to the 
proposed market data enterprise license fee without a twelve month 
commitment--and exactly the same as the proposed fee for Distributors 
that contract for twelve months of service--yet without the inclusion 
of Nasdaq Basic, NLS and NLS Plus.
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    \40\ See Rule 7023(c)(3).
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    To distribute Nasdaq Basic and NLS using currently available 
enterprise licenses, a Distributor would be required to purchase two 
enterprise licenses for Nasdaq Basic--the $365,000 per month license 
for internal distribution and the $100,000 per month license for 
external distribution--in addition to the $500,000 enterprise license 
for Depth-of-Book products.
    The $365,000 per month enterprise license for Nasdaq Basic, aimed 
primarily at internal distribution for professionals, allows the 
dissemination of Nasdaq Basic for $365,000 per month, provided that if 
the broker-dealer obtains the license with respect to usage of Nasdaq 
Basic provided by an External Distributor that controls display of the 
product, the fee will be $365,000 per month for up to 16,000 internal 
Professional Subscribers plus $2 for each additional internal 
Professional Subscriber over 16,000.\41\
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    \41\ See Rule 7047(b)(4).
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    The $100,000 per month enterprise license allows the distribution 
of Nasdaq Basic and NLS to an unlimited number of Professional and Non-
Professional Subscribers who are natural persons in the context of a 
brokerage relationship.\42\ Nasdaq Basic may also be distributed to up 
to and including 4,500 internal Professional Subscribers employed by 
the broker-dealer in support of brokerage services to investors on an 
approved platform.\43\ Even with the purchase of these two additional 
licenses, the Distributor would also be required to pay any additional 
fees for NLS Plus.\44\ The proposed fees for the market data enterprise 
license, which would provide the same data \45\ as the $365,000 per 
month enterprise license for Nasdaq Basic designed for internal use, 
the $100,000 per month enterprise license for Nasdaq Basic designed for 
external use, the $500,000 enterprise license for Depth-of-Book 
products, and applicable fees for NLS and NLS Plus, are substantially 
less than the sum of the currently available enterprise licenses. 
Savings for the Distributor could be over $4 million per year as a 
result.
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    \42\ See Rule 7047(b)(5). Note that Nasdaq Basic can be 
distributed to customers under this license on a password-protected 
website, but Nasdaq Basic would not be available for open 
distribution.
    \43\ A separate enterprise license is required for each discrete 
electronic system that is approved by Nasdaq and used by the broker-
dealer. See Rule 7047(b)(5).
    \44\ See Nasdaq Rule 7035; BX Rule 7035; and Phlx Pricing 
Schedule Sec.  VIII. All administrative fees are charged on a per 
Distributor, rather than a per product, basis. Currently, there are 
no user or Distributor fees applicable to BX Last Sale or PSX Last 
Sale. However, if BX or Phlx were to adopt user fees for these 
products in the future, the fees would also apply to persons 
receiving these products by means of NLS Plus.
    \45\ The underlying content for each product (i.e., Nasdaq Basic 
and Nasdaq Depth-of-Book data) is identical under each license, 
although the restrictions on each license are somewhat different, as 
described in the rule book.
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    Lower Administrative Costs: The proposed market data enterprise 
license reduces administrative costs for Distributors by eliminating 
monthly and yearly reporting of Professional and Non-Professional 
Subscribers, a requirement that may be costly to administer. The market 
data enterprise license will have no requirement that the Distributor 
count and report individual Professionals and Non-Professionals on a 
monthly basis, but rather would simply require the Distributor to 
obtain approval for the platform used to disseminate such information 
as reasonably designed to ensure consistency with the proposed Rule.
    Increase Availability of Market Data for the Retail Investor: The 
proposed license is designed to make an array of market data products 
more easily accessible to the retail investor. Broker-dealers and 
Investment Advisers (which did not previously have access to any of the 
underlying enterprise licenses) would be able to share information from 
TotalView, Level 2, Nasdaq Basic, NLS and NLS Plus with their 
customers, without regard to current distinctions between fees for 
Professional and Non-Professional users, creating a seamless experience 
in which the firm and its customers can share market data information. 
Because the cost to the Distributor of adding another customer would be 
zero, the proposed enterprise license will create an incentive to 
distribute the data widely to investors.
    In summary, the proposed market data enterprise license will: (i) 
Offer Distributors a new, lower-fee option for Distributors of 
TotalView, Level 2, Nasdaq Basic, NLS and NLS Plus; (ii) reduce 
administrative costs by lowering reporting requirements for 
Professional and Non-Professional Subscribers; and (iii) provide a 
mechanism to render market data more readily accessible to retail 
investors by reducing the cost of distribution to new investors.\46\
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    \46\ The proposed enterprise license will be introduced through 
an amendment to Rule 7032, which is currently reserved. Removal of 
the reserved Rule will have no impact on any market data fee or 
product.
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    This proposal demonstrates the effectiveness of the competitive 
market in maintaining low costs, enhancing the customer experience, and 
encouraging the dissemination of market data to the general investing 
public. As set forth in greater detail below, the Commission granted 
Self-Regulatory Organizations (``SROs'') and broker-dealers increased 
authority and flexibility to offer new and unique market data to the 
public when it adopted Regulation NMS. It was believed that this 
authority would expand the amount of data available to consumers, and 
also spur innovation and competition in the provision of market data. 
This market data enterprise license demonstrates the benefits of 
competition. A number of other SROs offer enterprise licenses for their 
market data products,\47\ but this multi-product enterprise license is 
an innovation for the Exchange--and indeed all SROs--that demonstrates 
the power of the competitive market to spur innovation and change.
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    \47\ See, e.g., Enterprise Fee for the Cboe Equities One Feed, 
available at https://markets.cboe.com/us/equities/market_data_products/bats_one/.
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    The proposed enterprise license is optional in that Nasdaq is not 
required to offer it and Distributors are not required to purchase it. 
Firms can discontinue its use at any time and for any reason, and may 
decide to purchase Nasdaq market data products individually or 
substitute Nasdaq products with competing products from other 
exchanges.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\48\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\49\ 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

[[Page 38432]]

discrimination between customers, issuers, brokers, or dealers.
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    \48\ 15 U.S.C. 78f(b).
    \49\ 15 U.S.C. 78f(b)(4) and (5).
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    As described above, the proposed market data enterprise license 
will lower fees, reduce administrative costs, and expand the 
availability of market data to retail investors, which may lead to 
increased participation in financial markets. Distributors that are 
broker-dealers or Investment Advisers will be able to disseminate 
TotalView, Level 2, Nasdaq Basic, NLS and NLS Plus to an unlimited 
audience for display in the context of the brokerage or advisory 
relationship for a monthly fee of $600,000, or $500,000 per month for 
Distributors that contract with the Exchange in advance for twelve 
months of service.
    The proposal will lower fees for Distributors able to reach the 
largest audiences of retail investors. Discounts for broader 
dissemination of market data information have routinely been adopted by 
exchanges and permitted by the Commission as equitable allocations of 
reasonable dues, fees and other charges.\50\ Moreover, the specific 
feature of the proposal that will allow Distributors to lower fees to 
$500,000 for a twelve month contract is also an equitable allocation 
because all Distributors will have the same option of choosing between 
the stability of a fixed, lower rate, and the more flexible option of 
maintaining the ability to change market data products after a month of 
service. Distributors will be free to move from the monthly to the 
annual rate at any time, or from the annual to a monthly fee, with 
notice, at the expiration of the twelve month period.
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    \50\ For example, the Commission has permitted pricing discounts 
for market data under Nasdaq Rules 7023(c) and 7047(b). See also 
Securities Exchange Act Release No. 82182 (November 30, 2017), 82 FR 
57627 (December 6, 2017) (SR-NYSE-2017-60) (changing an enterprise 
fee for NYSE BBO and NYSE Trades).
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    The existence of this proposal demonstrates the existence of an 
effective, competitive market because this proposal resulted from a 
need to generate innovative approaches in response to competition from 
other exchanges that offer enterprise licenses for market data.\51\ 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,'' \52\ and ``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.'' \53\ The 
proposed enterprise license will be subject to significant competition 
from other exchanges because each Distributor will have the ability to 
accept or reject the license depending on whether it will or will not 
lower its fees, and because other exchanges will be able to offer their 
own competitive responses. As the Commission has held in the past, the 
presence of competition provides a substantial basis for a finding that 
the proposal will be an equitable allocation of reasonable dues, fees 
and other charges.\54\
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    \51\ See n. 47.
    \52\ Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \53\ Id.
    \54\ Id.
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    Furthermore, the proposed enterprise license will not unfairly 
discriminate between customers, issuers, brokers or dealers. The Act 
does not prohibit all distinctions among customers, but only 
discrimination that is unfair, and it is not unfair discrimination to 
charge those Distributors that are able to reach the largest audiences 
of retail investors a lower fee for incremental investors in order to 
encourage the widespread distribution of market data. This principle 
has been repeatedly endorsed by the Commission, as evidenced by the 
approval of enterprise licenses for Depth-of-Book products and Nasdaq 
Basic discussed above. Moreover, the proposed enterprise license will 
be subject to significant competition, and that competition will ensure 
that there is no unfair discrimination. Each Distributor will be able 
to accept or reject the license depending on whether it will or will 
not lower costs for that particular Distributor, and, if the license is 
not sufficiently competitive, the Exchange may lose market share.
    In adopting Regulation NMS, the Commission granted SROs 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.\55\
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    \55\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting 
Release'').

    The Commission was speaking to the question of whether broker-
dealers should be subject to a regulatory requirement to purchase data, 
such as Depth-of-Book data, that is in excess of the data provided 
through the consolidated tape feeds, and the Commission concluded that 
the choice should be left to them. Accordingly, Regulation NMS removed 
unnecessary regulatory restrictions on the ability of exchanges to sell 
their own data, thereby advancing 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.
    The proposed enterprise license will compete with other enterprise 
licenses of the Exchange, underlying fee schedules promulgated by the 
Exchange, and enterprise licenses and fee structures implemented by 
other exchanges. As such, it is a voluntary product for which market 
participants can readily find substitutes. Accordingly, Nasdaq is 
constrained from introducing a fee that would be inequitable or 
unfairly discriminatory.

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. This proposal will: (i) Offer 
Distributors a new, lower fee option for TotalView, Level 2, Nasdaq 
Basic, NLS and NLS Plus; (ii) save administrative costs for 
Distributors by lowering reporting requirements for Professional and 
Non-Professional Subscribers; and (iii) establish a mechanism to render 
market data more readily accessible to retail investors, thereby 
encouraging broader dissemination of information. It will not impose a 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act, but rather will enhance competition by 
introducing an innovative fee structure for market data, lowering 
prices and enhancing competition.
    The market for data products is extremely competitive and firms may 
freely choose alternative venues and

[[Page 38433]]

data vendors based on the aggregate fees assessed, the data offered, 
and the value provided. 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.
    Transaction execution and proprietary data products are 
complementary in that market data is both an input and a byproduct of 
the execution service. In fact, market data and trade execution are a 
paradigmatic example of joint products with joint costs. The decision 
whether and on which platform to post an order will depend on the 
attributes of the platform where the order can be posted, including the 
execution fees, data quality and price, and distribution of its data 
products. Without trade executions, exchange data products cannot 
exist. Moreover, data products are valuable to many end users only 
insofar as they provide information that end users expect will assist 
them or their customers in making trading decisions.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform, the cost of implementing cybersecurity to protect the data 
from external threats and the cost of regulating the exchange to ensure 
its fair operation and maintain investor confidence. The total return 
that a trading platform earns reflects the revenues it receives from 
both products and the joint costs it incurs.
    Moreover, the operation of the Exchange is characterized by high 
fixed costs and low marginal costs. This cost structure is common in 
content and content distribution industries such as software, where 
developing new software typically requires a large initial investment 
(and continuing large investments to upgrade the software), but once 
the software is developed, the incremental cost of providing that 
software to an additional user is typically small, or even zero (e.g., 
if the software can be downloaded over the internet after being 
purchased).\56\
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    \56\ See William J. Baumol and Daniel G. Swanson, ``The New 
Economy and Ubiquitous Competitive Price Discrimination: Identifying 
Defensible Criteria of Market Power,'' Antitrust Law Journal, Vol. 
70, No. 3 (2003).
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    In Nasdaq's case, it is costly to build and maintain a trading 
platform, but the incremental cost of trading each additional share on 
an existing platform, or distributing an additional instance of data, 
is very low. Market information and executions are each produced 
jointly (in the sense that the activities of trading and placing orders 
are the source of the information that is distributed) and each are 
subject to significant scale economies. In such cases, marginal cost 
pricing is not feasible because if all sales were priced at the margin, 
Nasdaq would be unable to defray its platform costs of providing the 
joint products. Similarly, data products cannot make use of trade 
reports from the TRF without the raw material of the trade reports 
themselves, and therefore necessitate the costs of operating, 
regulating,\57\ and maintaining a trade reporting system, costs that 
must be covered through the fees charged for use of the facility and 
sales of associated data.
---------------------------------------------------------------------------

    \57\ It should be noted that the costs of operating the FINRA/
Nasdaq TRF borne by Nasdaq include regulatory charges paid by Nasdaq 
to FINRA.
---------------------------------------------------------------------------

    An exchange's broker-dealer customers view the costs of transaction 
executions and of data as a unified cost of doing business with the 
exchange. A broker-dealer will disfavor a particular exchange if the 
expected revenues from executing trades on the exchange do not 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 
trading activity 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 more orders will become correspondingly more 
valuable.
    Similarly, vendors provide price discipline for proprietary data 
products because they control the primary means of access to end users. 
Vendors impose price restraints based upon their business models. For 
example, vendors 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 impose a discipline by providing 
only data that will enable them to attract ``eyeballs'' that contribute 
to their advertising revenue. Retail broker-dealers offer their retail 
customers proprietary data only if it promotes trading and generates 
sufficient commission revenue. Although the business models may differ, 
these vendors' pricing discipline is the same: They can simply refuse 
to purchase any proprietary data product that fails to provide 
sufficient value. Exchanges, TRFs, and other producers of proprietary 
data products must understand and respond to these varying business 
models and pricing disciplines in order to market proprietary data 
products successfully. Moreover, Nasdaq believes that market data 
products can enhance order flow to Nasdaq by providing more widespread 
distribution of information about transactions in real time, thereby 
encouraging wider participation in the market by investors with access 
to the internet or television. Conversely, the value of such products 
to Distributors and investors decreases if order flow falls, because 
the products contain less content.
    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products, but different platforms may choose from a range of possible, 
and equally reasonable, pricing strategies as the means of recovering 
total costs. Nasdaq pays rebates to attract orders, charges relatively 
low prices for market information and charges relatively high prices 
for accessing posted liquidity. Other platforms may choose a strategy 
of paying lower liquidity rebates to attract orders, setting relatively 
low prices for accessing posted liquidity, and setting relatively high 
prices for market information. Still others may provide most data free 
of charge and rely exclusively on transaction fees to recover their 
costs. Finally, some platforms may incentivize use by providing 
opportunities for equity ownership, which may allow them to charge 
lower direct fees for executions and data.
    In this environment, there is no economic basis for regulating 
maximum prices for one of the joint products in an industry in which 
suppliers face competitive constraints with regard to the joint 
offering. Such regulation is unnecessary because an ``excessive'' price 
for one of the joint products will ultimately have to be reflected in 
lower prices for other products sold by the firm, or otherwise the firm 
will experience a loss in the volume of its

[[Page 38434]]

sales that will be adverse to its overall profitability. In other 
words, an increase in the price of data will ultimately have to be 
accompanied by a decrease in the cost of executions, or the volume of 
both data and executions will fall.\58\
---------------------------------------------------------------------------

    \58\ Cf. Ohio v. American Express, No. 16-1454 (S. Ct. June 25, 
2018), https://www.supremecourt.gov/opinions/17pdf/16-1454_5h26.pdf 
(recognizing the need to analyze both sides of a two sided platform 
market in order to determine its competitiveness).
---------------------------------------------------------------------------

    Moreover, the level of competition and contestability in the market 
is evident in the numerous alternative venues that compete for order 
flow, including SRO markets, 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. It is common for broker-dealers to further exploit this 
competition by sending their order flow and transaction reports to 
multiple markets, rather than providing them all to a single market. 
Competitive markets for order flow, executions, and transaction reports 
provide pricing discipline for the inputs of proprietary data products. 
The large number of SROs, TRFs, broker-dealers, 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 broker-dealer is currently permitted to produce 
proprietary data products, and many currently do or have announced 
plans to do so, including Nasdaq, NYSE, NYSE American, NYSE Arca, IEX, 
and BATS/Direct Edge.

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.\59\
---------------------------------------------------------------------------

    \59\ 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 [email protected]. Please include 
File Number SR-NASDAQ-2018-058 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2018-058. 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 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-NASDAQ-2018-058 and should be submitted 
on or before August 27, 2018.
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    \60\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\60\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-16720 Filed 8-3-18; 8:45 am]
 BILLING CODE 8011-01-P