Document ID: SEC-2017-1833-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ Stock Market, LLC
Posted Date: 2017-11-08T05:00Z

[Federal Register Volume 82, Number 215 (Wednesday, November 8, 2017)]
[Notices]
[Pages 51894-51897]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24254]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82003; File No. SR-NASDAQ-2017-113]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Fees at Rule 7058

November 2, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 20, 2017, The Nasdaq Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III, below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's fees at Rule 7058 to: 
(i) Offer to waive fees under this Rule for 30 days for any new, 
prospective, or returning purchaser of either QView or the Latency 
Optics add-on service; and (ii) remove language offering a subscription 
to TradeInfo for up to five users at no additional cost to subscribers 
of the Latency Optics add-on service.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaq.cchwallstreet.com/, at the principal office 
of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The Exchange proposes to amend its fees at Rule 7058 to: (i) Offer 
to waive fees under this Rule for 30 days for any new, prospective, or 
returning purchaser of either QView or the Latency Optics add-on 
service; and (ii) remove language offering a subscription to TradeInfo 
for up to five users at no additional cost to subscribers of the 
Latency Optics add-on service, along with conforming changes. The 
purposes of the proposed changes are to: (i) Encourage new, 
prospective, and returning purchasers of either QView or the Latency 
Optics add-on service to examine these products more closely and 
thereby increase the number of customers for this product; and (ii) 
remove a rarely used fee provision in order to render the Latency 
Optics subscription easier to administer.
Current Products
QView
    QView is a web-based tool designed to provide a subscribing member 
with the ability to track its trading activity on the Exchange through 
both real-time and historical order and execution summaries, available 
on a daily or a monthly basis. The QView dashboard allows the member to 
view a summary of its executions and open orders,

[[Page 51895]]

including, but not limited to: The number of executions and their 
dollar value; executions by symbol; total volume; whether an order has 
been added or removed; whether the order is for a buy or a sell; 
whether an order is open; and information related to routing 
strategies. QView also includes ranking and market share statistics, 
such as how the subscribing member firm ranks in Nasdaq market activity 
as compared to other Nasdaq participants. QView data may be segregated 
by individual Market Participant Identifiers (MPIDs) or ports. QView 
was developed to work in conjunction with TradeInfo (discussed below) 
to allow the QView purchaser to view specific order and execution 
information provided by the QView dashboard interface.
    As set forth in Rule 7058(a), members may subscribe to QView for a 
fee of $600 per month.
Latency Optics
    A member that subscribes to QView may also purchase the Latency 
Optics add-on service, which provides the member with the ability to 
monitor three types of latency for order messages and compare that 
latency to the average on the Nasdaq system: \3\ (1) Roundtrip time 
between order entry and receipt of acknowledgement; (2) roundtrip time 
between order entry and the time that the order appears on the 
TotalView ITCH multicast feed; and (3) the roundtrip time between the 
entry of an order cancellation request and the time that the message in 
reply is received by the client device. Data is displayed graphically 
and in table format, and may be segregated by MPID or ports. 
Subscribers may also set hourly or end-of-day alert notifications.
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    \3\ The service measures the historical latency of the member 
firm's order messages sent to and from the Nasdaq Market Center 
through the member firm's OUCH ports and received on ITCH ports. See 
Securities Exchange Act Release No. 68617 (January 10, 2013), 78 FR 
3480 (January 16, 2013) (SR-NASDAQ-2013-15) [sic]. OUCH ports are 
used for order entry; multicast ITCH ports are used for the 
dissemination of ITCH multicast feeds.
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    As set forth in Rule 7058(b), the Latency Optics add-on is 
available for a fee of $2,900 per month.
TradeInfo
    TradeInfo is a web-based tool that allows a member to see the 
status of orders, executions, cancels and breaks, generate reports for 
download, and cancel or correct open orders.
    As set forth in Rule 7015(f), TradeInfo is complementary as part of 
the Nasdaq workstation or may be purchased separately for a fee of $95 
per user per month. Under Rule 7058(b), a purchaser of the Latency 
Optics add-on may obtain TradeInfo for up to 5 users at no additional 
cost.
Proposed Changes
    The Exchange proposes to: (i) Introduce a fee waiver for 30 days 
for any new, prospective or returning purchaser of either QView or the 
Latency Optics add-on service to encourage testing and dissemination of 
the product; and (ii) remove a rarely used provision of Rule 7058 that 
offers subscribers of the Latency Optics add-on service a subscription 
to TradeInfo for up to five users at no additional cost.
    The Exchange proposes to initiate the new fee waiver program to 
foster interest in QView or the Latency Optics add-on service and 
encourage sales for both products. The waiver will be available only 
once per customer for any version of either product. New versions will 
be announced by the Exchange on www.nasdaqtrader.com.
    The Exchange also proposes to remove a rarely used provision of 
Rule 7058 that offers subscribers of the Latency Optics add-on service 
a subscription to TradeInfo for up to five users at no additional cost. 
As stated in Rule 7015(f), TradeInfo is complementary as part of the 
Nasdaq workstation. Because TradeInfo is already available free of 
charge with the Nasdaq workstation, customers have expressed little 
interest in this discount, and that provision has been rarely, if ever, 
used. As such, the Exchange proposes to eliminate that provision.\4\
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    \4\ As a conforming change, the Exchange proposes to delete an 
obsolete reference to a free trial period that expired in September 
2013. In addition, a comma is added after the phrase ``In 
addition,'' in Rule 7058(b) to correct a grammatical error.
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    The proposed changes do not affect the cost of any other Nasdaq 
product.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\6\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility, and is 
not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4) and (5).
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    The fee waiver proposal is an equitable allocation of reasonable 
dues, fees and other charges because it will reduce fees for new, 
prospective, and returning purchasers of QView or Latency Optics, while 
not disadvantaging continuing subscribers because their fees will not 
change. Moreover, the additional subscriptions resulting from the fee 
waiver will increase market transparency, and, as the total number of 
subscribers increases, the additional subscriptions will decrease the 
likelihood of future fee increases as a result of rising fixed costs.
    Removal of the provision in Rule 7058(b) allowing a free 
subscription to TradeInfo for five users is an equitable allocation of 
reasonable dues, fees and other charges because all members will be 
charged the same fees for the same product. Moreover, the proposed 
change will have little substantive impact on fees because the discount 
was rarely, if ever, used. This proposed change will not permit unfair 
discrimination between customers, issuers, brokers, or dealers because 
the proposal will remove a basis for price differentiation among 
customers that currently exists.\7\
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    \7\ Availability of QView, the Latency Optics add-on service and 
TradeInfo is already limited to members of the Exchange, which is 
not unfair discrimination because the information provided solely 
concerns a member firm's trading activity on the Exchange.
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    In adopting Regulation NMS,\8\ 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. Regulation 
NMS--deregulating the market in proprietary data--furthers the Act's 
goals of facilitating efficiency and competition:
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    \8\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    [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.\9\
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    \9\ Id.
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    Nasdaq believes that QView, the Latency Optics add-on and 
TradeInfo--which provide members with the ability to track order flow, 
observe latency and obtain order data--is precisely the sort of market 
data product that the Commission envisioned when it adopted Regulation 
NMS.

[[Page 51896]]

    In NetCoalition v. Securities and Exchange Commission \10\ 
(``NetCoalition'') the D.C. Circuit upheld the Commission's use of a 
market-based approach in evaluating the fairness of market data fees 
against a challenge claiming that Congress mandated a cost-based 
approach.\11\ As the court emphasized, the Commission ``intended in 
Regulation NMS that `market forces, rather than regulatory 
requirements' play a role in determining the market data . . . to be 
made available to investors and at what cost.'' \12\ ``No one disputes 
that competition for order flow is `fierce.' . . . As the SEC 
explained, `[i]n the U.S. national market system, buyers and sellers of 
securities, and the broker-dealers that act as their order-routing 
agents, have a wide range of choices of where to route orders for 
execution'; [and] `no exchange can afford to take its market share 
percentages for granted' because `no exchange possesses a monopoly, 
regulatory or otherwise, in the execution of order flow from broker 
dealers'. . . .'' \13\
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    \10\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \11\ See NetCoalition, at 534-535.
    \12\ Id. at 537.
    \13\ Id. at 539 (quoting Securities Exchange Act Release No. 
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) 
(SR-NYSEArca-2006-21)).
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    Data products such as QView, the Latency Optics add-on and 
TradeInfo are a means by which exchanges compete to attract order flow. 
To the extent that exchanges are successful in such competition, they 
earn trading revenues and also enhance the value of their data products 
by increasing the amount of data they are able to provide. The need to 
compete for order flow places substantial pressure upon exchanges to 
keep their fees for both executions and data reasonable.\14\
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    \14\ See Sec. Indus. Fin. Mkts. Ass'n (SIFMA), Initial Decision 
Release No. 1015, 2016 SEC LEXIS 2278 (ALJ June 1, 2016) (finding 
the existence of vigorous competition with respect to non-core 
market data).
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    Fees for QView, the Latency Optics add-on and TradeInfo are 
optional in that they apply only to firms that elect to purchase these 
products, which, like all proprietary data products, they may cancel at 
any time.
    For all of the reasons set forth above, the Exchange has provided a 
substantial basis demonstrating that the proposed fee is equitable, 
fair, reasonable and not unreasonably discriminatory, and therefore 
consistent with and in furtherance of the purposes of the Act.

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

    The Exchange does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. Introduction of the proposed 
fee waiver will enhance competition by increasing customer familiarity 
with the product, thereby leading to more informed purchase decisions. 
Further, the product itself enhances competition by promoting 
transparency, and the increased use of the product generated by the fee 
waiver will increase the amount of information available to the market. 
Moreover, removal of the provision in 7058(b) allowing a free 
subscription to TradeInfo for five users will enhance competition by 
simplifying the fee structure for these products.
    The market for data products is extremely competitive and firms may 
freely choose alternative venues and data vendors based on the 
aggregate fees assessed, the data offered, and the value provided. 
Exchanges compete with each other for listings, trades, and market data 
itself. 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.
    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, the operation of the 
exchange is characterized by high fixed costs and low marginal costs. 
This cost structure is common in 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).\15\ 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 are each subject to significant scale economies.
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    \15\ 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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    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products. The level of competition and contestability in the market is 
evident in the numerous alternative venues that compete for order flow, 
including SRO markets, as well as internalizing 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 TRFs compete to attract internalized transaction reports. It 
is common for BDs to further and 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, 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 MKT, NYSE Arca, and the BATS exchanges.
    Firms make decisions regarding market data based on the total cost 
of interacting with the Exchange, and an ``excessive'' price for one 
product has the potential to impair revenues from all products. If the 
price of QView, the Latency Optics add-on or TradeInfo were to become 
unattractive to member firms,\16\ those firms would opt not to purchase 
the product, or may reduce

[[Page 51897]]

their purchases of other products sold by the Exchange.
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    \16\ Only member firms can purchase QView, the Latency Optics 
add-on, and TradeInfo.
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    For all of the reasons set forth above, the Exchange does not 
believe that the proposed rule changes will impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act.

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

    No written comments were either solicited or received.

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.\17\
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    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2017-113 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-2017-113. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change. 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-2017-113 and should 
be submitted on or before November 29, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24254 Filed 11-7-17; 8:45 am]
 BILLING CODE 8011-01-P