Document ID: SEC-2011-1581-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market LLC
Posted Date: 2011-10-17T04:00Z

[Federal Register Volume 76, Number 200 (Monday, October 17, 2011)]
[Notices]
[Pages 64137-64142]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26673]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65526; File No. SR-NASDAQ-2011-130]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Re-Institute Fees for NASDAQ Basic and To Offer an Optional Nasdaq 
Basic Non-Professional Enterprise License Fee

October 11, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19-b4 thereunder,\2\ notice is hereby given that 
on September 30, 2011, The NASDAQ Stock Market LLC (``NASDAQ'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by NASDAQ. 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

    NASDAQ proposes to re-institute the fees for ``Nasdaq Basic,'' 
which is a real time data feed combining both NASDAQ's Best Bid and 
Offer (``QBBO'') and the ``NASDAQ Last Sale,'' \3\ as well as to offer 
an optional NASDAQ Basic Non-Professional Enterprise License Fee for 
broker-dealer distribution of NASDAQ Basic data to non-professional 
users with which the broker-dealer has a brokerage relationship (the 
``Basic Non-Professional Enterprise License'' or ``Enterprise 
License'').
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    \3\ NASDAQ has also filed a companion release to establish 
Nasdaq Basic. See SR-NASDAQ-2011-129. Additionally, NASDAQ is aware 
that the NASDAQ Basic pilot program has lapsed and NASDAQ intends to 
submit a separate filing to address the lapsed period shortly.
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    The text of the proposed rule change is below. Proposed new 
language is in italics.
* * * * *
7047. Nasdaq Basic
    (a) No change.
    (b) User Fees.
    (1) Except as provided in (b)(2) and (b)(3), for the NASDAQ Basic 
product there shall be a per subscriber monthly charge of $10 for 
NASDAQ-listed stocks, $5 for NYSE-listed stocks, and $5 for Alternext-
listed stocks; or
    (2) For each non-professional subscriber, as defined in Rule 
7011(b), there shall be a per subscriber monthly charge of $0.50 for 
NASDAQ-listed stocks, $0.25 for NYSE-listed stocks, and $0.25 for 
Alternext-listed stocks; or
    (3) There shall be a per query fee for NASDAQ Basic of $0.0025 for 
NASDAQ-listed stocks, $0.0015 for NYSE-listed stocks, and $0.0015 for 
Alternext-listed stocks.
    (4) An alternative to (b)(2) a broker-dealer may purchase an 
enterprise license at a rate of $100,000 per month for distribution to 
non-professional subscribers. The enterprise license entitles a 
Distributor to provide Nasdaq Basic to an unlimited number of non-
professional subscribers with whom the firm has a brokerage 
relationship. The enterprise license is in addition to the Distributor 
Fee listed in (c)(1).
    (c) No change.
* * * * *

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

    In its filing with the Commission, NASDAQ included statements

[[Page 64138]]

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. NASDAQ 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASDAQ proposes to re-institute all of the user and distributor 
fees for Nasdaq Basic,\4\ as well as to offer an optional Enterprise 
License fee for broker-dealer distribution of Nasdaq Basic data to non-
professional users with which the broker-dealer has a brokerage 
relationship. NASDAQ has also filed a companion release to establish 
Nasdaq Basic.\5\
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    \4\ See Securities Exchange Act Release No. 59582 (March 16, 
2009) 74 FR 12423 (March 24, 2009) (SR-NASDAQ-2008-102).
    \5\ Supra note 3.
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    Consistent with the sale of consolidated data and of NASDAQ 
proprietary data, NASDAQ charges a fee for professional use of Nasdaq 
Basic, and a reduced fee for non-professional use. Specifically, for 
each professional user of the Nasdaq Basic product, there is a per 
subscriber monthly charge of $10 for NASDAQ-listed stocks, $5 for NYSE-
listed stocks, and $5 for NYSE Amex-listed stocks. For each non-
professional subscriber, there is a per subscriber monthly charge of 
$0.50 for NASDAQ-listed stocks, $0.25 for NYSE-listed stocks, and $0.25 
for NYSE Amex-listed stocks. ``Non-professional'' will have the same 
meaning in this proposed rule as it currently has in Rule 7011(b). For 
users that do not require a monthly subscription, there is a per query 
option available for Nasdaq Basic, with a fee of $0.0025 for NASDAQ-
listed stocks, $0.0015 for NYSE-listed stocks, and $0.0015 for NYSE 
Amex-listed stocks. Vendors that report per query usage to NASDAQ are 
permitted to convert to monthly subscription fees when the cost of 
individual users' queries exceeds the cost of the monthly subscription.
    As with the distribution of certain other NASDAQ proprietary 
products, all distributors of Nasdaq Basic are assessed a monthly 
Distributor Fee in addition to any applicable usage fees. Each 
Distributor of Nasdaq Basic shall pay a monthly fee of $1,500 for 
either internal or external distribution. Also, each Distributor may 
pay $1,500 monthly to distribute data derived from Nasdaq Basic to an 
unlimited number of non-professional subscribers. The term 
``Distributor'' has the same meaning in this proposed rule as currently 
set forth in NASDAQ Rule 7019.
    Basic Non-Professional Enterprise License Current Proposal. NASDAQ 
will begin offering a voluntary Enterprise License Fee for the Nasdaq 
Basic product (NASDAQ Rule 7047) for non-professional usage, which will 
cost $100,000 per month. The Basic Non-Professional Enterprise License 
is available only to broker-dealers registered under the Act and would 
be in lieu of non-professional usage fees only. Additionally, it is an 
option only for those customers with whom the broker-dealer maintains a 
brokerage relationship. The Enterprise License also includes an 
allowance to distribute data, under a certain threshold, to external 
professional subscribers with which the firm has a brokerage 
relationship.\6\
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    \6\ NASDAQ relies on distributor self-reporting of usage for 
products associated with a data feed rather than on individual 
contact with each end-user customer. NASDAQ permits distributors to 
designate an entire user population as ``non-professional'' provided 
that the number of professional subscribers within that user 
population does not exceed ten percent (10%) of the total 
population.
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    The Basic Non-Professional Enterprise License Fee would be in 
addition to the distributor fees in NASDAQ Rule 7047(c). Broker-dealers 
that choose to pay the Basic Non-Professional Enterprise License Fee of 
$100,000 per month would not pay for any of the non-professional user 
fees in NASDAQ Rule 7047(b). The broker-dealer would continue to pay 
user fees for those users that are not eligible under the Enterprise 
License. The Basic Non-Professional Enterprise License Fee does not 
involve the creation of a new data feed, but rather is a new pricing 
option for an existing data feed. The Basic Non-Professional Enterprise 
License Fee allows firms to use the Nasdaq Basic data for display 
purposes only, but does not permit its redistribution in any other 
manner. This is not a new service or a new product. NASDAQ is merely 
creating a new pricing option specific for the broker-dealer non-
professional user community.
    Background. NASDAQ disseminates market data feeds in two 
capacities. First, NASDAQ disseminates consolidated or ``core'' data in 
its capacity as Securities Information Processor for the national 
market system plan governing securities listed on NASDAQ as a national 
securities exchange.\7\ Second, NASDAQ separately disseminates 
proprietary or ``non-core'' data in its capacity as a registered 
national securities exchange. Non-core data is any data generated by 
the NASDAQ Market Center Execution System that is voluntarily 
disseminated by NASDAQ separate and apart from the consolidated 
data.\8\ NASDAQ has numerous proprietary data products, such as NASDAQ 
TotalView, NASDAQ Last Sale, and Nasdaq Basic.
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    \7\ See Securities Exchange Act Release No. 59039 (Dec. 2, 2008) 
at p. 41.
    \8\ Id.
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    NASDAQ continues to seek broader distribution of non-core data and 
to reduce the cost of providing non-core data to larger numbers of 
investors. In the past, NASDAQ has accomplished this goal in part by 
offering similar capped fees, flat fees or enterprise licenses for 
professional and non-professional usage of TotalView which contains the 
full depth of book data for the NASDAQ Market Center Execution System. 
NASDAQ has also implemented these capped/flat fees with other products, 
such as NASDAQ Last Sale. NASDAQ believes that the adoption of flat fee 
structures or enterprise licenses has led to greater distribution of 
market data, particularly among non-professional users.
    Based on input from market participants and market data 
distributors, NASDAQ believes that this increase in distribution is 
attributable in part to the relief it provides distributors from the 
NASDAQ requirement that distributors count and report each non-
professional user of NASDAQ proprietary data. In addition to increased 
administrative flexibility, enterprise licenses also encourage broader 
distribution by firms that are currently over the fee cap as well as 
those that are approaching the cap and wish to take advantage of the 
benefits of the program. Further, NASDAQ believes that capping fees in 
this manner creates goodwill with broker-dealers and increases 
transparency for non-professional users.
    Accordingly, NASDAQ is establishing the Basic Non-Professional 
Enterprise License Fee for Nasdaq Basic under NASDAQ Rule 7047(b)(4), 
an optional non-professional enterprise license for distributors of 
Nasdaq Basic. This Enterprise License Fee includes non-professional 
usage fees, but does not include distributor fees.\9\ The Enterprise 
License is available only to broker-dealers registered under the Act, 
and would cover all non-professional usage

[[Page 64139]]

fees to customers with whom the firm has a brokerage relationship with 
an allowance to distribute data to external professional subscribers 
with which the firm has a brokerage relationship.\10\ Non-broker-dealer 
vendors and application service providers would not be eligible for the 
Enterprise License; such firms typically pass through the cost of 
market data user fees to their customers. The proposed Basic Non-
Professional Enterprise License still requires firms to continue to 
report usage in accordance to the current reporting policy. This 
information provides NASDAQ with accurate information for monitoring 
and auditing purposes.
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    \9\ Distributors who utilize the enterprise license would still 
be liable for the applicable distributor fees.
    \10\ Supra note 6.
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    The proposed Basic Non-Professional Enterprise License Fee is 
completely optional and does not replace existing enterprise license 
fee alternatives set forth in Rule 7047. Additionally, the proposal 
does not impact individual usage fees for any product or in any way 
raise the costs of any user of any NASDAQ data product. To the 
contrary, the Enterprise License provides broker-dealers with an 
additional approach to providing more NASDAQ data at a lower cost.
2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\11\ in general, and with 
Section 6(b)(4) of the Act,\12\ in particular, in that it provides an 
equitable allocation of reasonable fees among users and recipients of 
NASDAQ data. 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.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
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    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.\13\
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    \13\ 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. Nasdaq Basic is precisely the 
sort of market data product that the Commission envisioned when it 
adopted Regulation NMS.
    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.''
    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition 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 
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.' '' 
NetCoalition, 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.
    NASDAQ believes that this proposal is in keeping with those 
principles by promoting increased transparency through the 
dissemination of Nasdaq Basic. The dissemination is designed to 
increase not only transparency for non-professional users, but also to 
reduce burdensome administrative costs in addition to actual per user 
costs. NASDAQ notes also that Nasdaq Basic data is already distributed 
and that this filing proposes to distribute no additional data 
elements. Nasdaq Basic is distributed and purchased on a voluntary 
basis, in that neither NASDAQ nor market data distributors are required 
by any rule or regulation to make this data available. Accordingly, 
distributors and users can discontinue use at any time and for any 
reason, including due to an assessment of the reasonableness of fees 
charged.

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 
NetCoalition 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

[[Page 64140]]

competitive. 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 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'

[[Page 64141]]

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 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 Yahoo and 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 depth data attracts order flow. For 
example, NASDAQ submits that in and of itself, NASDAQ's decision 
voluntarily to cap fees on existing products, as is the effect of a 
flat fee or an enterprise license, is evidence of market forces at 
work.
    The court in NetCoalition did cite favorably an economic study by 
Ordover and Bamberger which concluded that ``[a]lthough an exchange may 
price its trade execution fees higher and its market data fees lower 
(or vice versa), because of ``platform'' competition the exchange 
nonetheless receives the same return from the two ``joint products'' in 
the aggregate.'' \14\ Ordover and Bamberger also provided additional 
comments expanding upon the impact of platform competition.\15\ Among 
the conclusions that Ordover and Bamberger reach are: NASDAQ is subject 
to significant competitive forces in setting the prices and other terms 
of execution services and proprietary data products.
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    \14\ See NetCoalition at fn. 16.
    \15\ See Securities Exchange Act Release No. 63745 (Jan. 20, 
2011); 76 FR 4970 (Jan. 27, 2011) (SR-NASDAQ-2011-010) (attached to 
original filing as Exhibit 3).
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    Competitive forces constrain the prices that platforms can charge 
for non-core market information. A trading platform cannot generate 
market information unless it receives trade orders. For this reason, a 
platform can be expected to use its market data product as a tool for 
attracting liquidity and trading to its exchange.
    While, by definition, information that is proprietary to an 
exchange cannot be obtained elsewhere, this does not enable the owner 
of such information to exercise monopoly power over that information 
vis-[agrave]-vis firms with the need for such information. Even though 
market information from one platform may not be a perfect substitute 
for market information from one or more other platforms, the existence 
of alternative sources of information can be expected to constrain the 
prices platforms charge for market data.
    Besides the fact that similar information can be obtained 
elsewhere, the feasibility of supra-competitive pricing is constrained 
by the traders' ability to shift their trades elsewhere, which lowers 
the activity on the exchange and so in the long run reduces the quality 
of the information generated by the exchange.
    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, 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 flat fee 
or enterprise license options to 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 depth-of-book 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 non-core data information is 
significant and the

[[Page 64142]]

Exchange believes that this proposal 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 non-core data 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

    Written comments were neither solicited nor 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.\16\ 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 necessary or appropriate in the public interest, 
for the protection of investors, or 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.
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    \16\ 15 U.S.C. 78s(b)(3)(a)(ii) [sic].
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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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2011-130 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2011-130. This 
file number should be included on the subject line if e-mail 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 a.m. and 3 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-2011-130 and should be submitted on or before November 7, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-26673 Filed 10-14-11; 8:45 am]
BILLING CODE 8011-01-P