Document ID: SEC-2017-0260-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2017-02-16T05:00Z

[Federal Register Volume 82, Number 31 (Thursday, February 16, 2017)]
[Notices]
[Pages 10944-10947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03105]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80015; File No. SR-NASDAQ-2017-007]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Exchange's Data Fees at Rule 7026

February 10, 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 January 30, 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 data fees at Rule 
7026 to raise the monthly Enterprise License fee for distribution of an 
Enhanced Display Solution from $30,000 to $33,500, as described further 
below.
    While these amendments are effective upon filing, the Exchange has 
designated the proposed amendments to be operative on February 1, 2017.
    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 purpose of the proposed rule change is to raise the monthly 
Enterprise License fee for distribution of an Enhanced Display Solution 
from $30,000 to $33,500, and to correct a cross reference to Rule 7023.
EDS Enterprise License
    An Enhanced Display Solution (``EDS'') provides a display of Nasdaq 
depth-of-book data--data feeds with price quotations at more than one 
price level, such as TotalView, OpenView and Level 2--with the 
capability of connecting to an Application Programming Interface 
(``API''). The API allows Subscribers to export the depth-of-book data 
to a display application of their choosing, provided that the 
Distributor controls access to the application, monitors its use, and 
prevents redistribution of the data, either externally or internally.
    The Enterprise License fee allows Distributors to purchase an EDS 
for professional subscribers at a fixed monthly per-subscriber rate. 
The current fee of $30,000 per month permits the distribution of Nasdaq 
depth-of-book data to an unlimited number of professional subscribers 
at a monthly per-subscriber rate of $70 for TotalView and Level 2, and 
a monthly per-subscriber rate of $6 for OpenView. The monthly per-
subscriber fees for Distributors that elect not to purchase an EDS 
Enterprise License fee are $74 for TotalView and Level 2 and $6 for 
OpenView, as provided in Rule 7026(a)(1)(B). All Distributors who 
purchase an EDS, whether or not an Enterprise License is purchased, 
must pay the distributor fees set forth in Rule 7026(a)(1)(A). The 
Enterprise License is designed to provide a lower fee to the largest 
Distributors of depth-of-book data to encourage distribution of such 
data.
Proposed Changes
    The Exchange proposes to raise the monthly EDS Enterprise License 
fee from $30,000 to $33,500, and to correct a cross reference to Rule 
7023.
EDS Enterprise License
    The proposed increase in the monthly EDS Enterprise License fee is 
reasonable in light of the value of EDS to Distributors and 
Subscribers, which has increased significantly due to technological 
advances that have occurred since EDS was introduced in January of 
2012, particularly for those Distributors with sufficient volume to 
purchase an Enterprise License.
    The key feature of EDS--the capability of connecting to an API--
allows the Subscriber to transfer Nasdaq data to any number of 
applications. When EDS was first introduced, data was transferred to 
relatively simple applications, such as spreadsheets. Since 2012, EDS 
has become more valuable as the use of the API has moved from 
spreadsheets to complex analytic tools, enhancing the value of EDS to 
both Subscribers and Distributors.
    Distributors that purchase EDS through the Enterprise License are 
among the greatest beneficiaries of EDS because they have the largest 
number of Subscribers. They are also in the best position to bear the 
cost of an increase in the price of EDS because of that larger 
subscriber base.
    In summary, the price increase is justified by the increasing value 
of EDS to Distributors that purchase an Enterprise License.
Technical Correction
    Nasdaq also proposes to correct a cross reference to Rule 7023 
(Nasdaq Depth-of-Book Data).
    On January 5, 2012, the Exchange filed with the Commission a 
proposal to amend Rule 7026 to offer an optional

[[Page 10945]]

tiered fee for enhanced displays.\3\ At the time of its inception, the 
EDS fee exemption made reference to the previous iteration of Rule 7023 
(then, Nasdaq Total View), which established, under section (a)(1)(C), 
the Enterprise License fees available to a Distributor. Following the 
January 2012 rule change, on March 28 of that year, Nasdaq filed with 
the Commission a proposal to fully amend Rule 7023,\4\ renaming the 
rule, and providing an expanded description of the Enterprise License 
fees under section (c) of that rule.
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    \3\ See Securities Exchange Act Release No. 66165 (January 17, 
2012), 77 FR 3313 (January 23, 2012) (SR-NASDAQ-2012-005); see also 
Securities Exchange Act Release No. 73807 (December 10, 2014), 79 FR 
78784 [sic] (December 16, 2014) (SR-NASDAQ-2014-117) (clarifying, 
among other changes, that the EDS Fee exemption applies to 
Distributors and not Customers).
    \4\ See Securities Exchange Act Release No. 66740 (April 5, 
2012), 77 FR 21609 (April 10, 2012) (SR-NASDAQ-2012-042).
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    Although the Exchange has changed Rule 7026 since then, it has not 
yet updated the reference to the Enterprise License fees. The cross 
reference provided under Rule 7026(a)(1)(A), establishing that 
Distributors subscribing to certain enterprise depth capped fees will 
be exempt from paying the EDS Distributor Fee, currently points to a 
section under Rule 7023 which provides a definition for the TotalView 
data feed, and not to the Enterprise License fees that would allow a 
Distributor to be exempt from paying the EDS distributor fee. The 
Exchange therefore proposes to correct that cross reference to Rule 
7023(c) (Enterprise License Fees), and to modify the language to make 
the reference clearer, without changing its application.
    The EDS Enterprise License--and the entire EDS program--is entirely 
optional in that Nasdaq is not required to offer it and Distributors 
are not required to pay for it. Distributors and Subscribers can 
discontinue its use at any time and for any reason, including an 
assessment of the fees charged.
    The proposed change does not raise the cost of any other Nasdaq 
product, except to the extent that it increases the total cost of 
purchasing depth-of-book data for those who obtain such data through an 
EDS Enterprise License.
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 Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and SRO revenues and, also, recognized that current 
regulation of the market system ``has been remarkably successful in 
promoting market competition in its broader forms that are most 
important to investors and listed companies.'' \7\
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    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
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    Likewise, in NetCoalition v. Securities and Exchange Commission \8\ 
(``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.\9\ 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.'' \10\
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    \8\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \9\ See NetCoalition, at 534-535.
    \10\ Id. at 537.
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    Further, ``[n]o one disputes that competition for order flow is 
`fierce.' . . . As the SEC explained, `[i]n the U.S. national market 
system, buyers and sellers of securities, and the broker-dealers that 
act as their order-routing agents, have a wide range of choices of 
where to route orders for execution'; [and] `no exchange can afford to 
take its market share percentages for granted' because `no exchange 
possesses a monopoly, regulatory or otherwise, in the execution of 
order flow from broker dealers. . . .'' \11\
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    \11\ 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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    The Exchange believes that the proposal to raise the monthly EDS 
Enterprise License fee from $30,000 to $33,500 is fair and equitable in 
accordance with Section 6(b)(4) of the Act, and not unreasonably 
discriminatory in accordance with Section 6(b)(5) of the Act. As 
described above, the proposed fee increase reflects the increasing 
value of EDS to Distributors and Subscribers, particularly those 
Distributors with sufficient volume to purchase an Enterprise License. 
Moreover, Enterprise License fees are constrained by the Exchange's 
need to compete for order flow, and are subject to competition from 
other exchanges and among broker-dealers for customers. If Nasdaq is 
incorrect in its assessment, there is no barrier to block a competitor 
from entering the market with a substantially similar product.
    The Exchange believes that the proposed fee changes are an 
equitable allocation and not unfairly discriminatory because the 
Exchange will apply the same fee to all similarly-situated Subscribers.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    The proposed fee will raise the monthly EDS Enterprise License fee 
from $30,000 to $33,500. The EDS Enterprise License is used to 
distribute TotalView, Level 2, and OpenView, Nasdaq's depth-of-book 
products. The question of whether the prices of depth-of-view products 
are constrained by competitive forces was examined in 2016 by an 
Administrative Law Judge in a petition filed by the Securities Industry 
and Financial Markets Association for a review of certain actions by 
Self-Regulatory

[[Page 10946]]

Organizations.\12\ After a four-day hearing, the Administrative Law 
Judge found that ``competition plays a significant role in restraining 
exchange pricing of depth-of-book products'' \13\ because ``depth-of-
book products from different exchanges function as substitutes for each 
other,'' \14\ and therefore ``the threat of substitution from depth-of-
book customers constrains their depth-of-book prices.'' \15\ As such, 
Nasdaq's depth-of-book fees--including those fees for the distribution 
of TotalView, Level 2 and OpenView--are ``constrained by significant 
competitive forces.'' \16\ If the changes proposed herein are 
unattractive to market participants, it is likely that the Exchange 
will lose market share as a result. Accordingly, the Exchange does not 
believe that the proposed changes will impair the ability of members or 
competing order execution venues to maintain their competitive standing 
in the financial markets.
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    \12\ Sec. Indus. Fin. Mkts. Ass'n (SIFMA), Initial Decision 
Release No. 1015, 2016 SEC LEXIS 2278 (ALJ June 1, 2016).
    \13\ Id. at 33.
    \14\ Id.
    \15\ Id.
    \16\ Id. at 43.
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    Market forces specifically constrain the EDS Enterprise License fee 
in three respects. First, the EDS Enterprise License is one element of 
the total cost of purchasing depth-of-book data. Firms make purchasing 
decisions based on the total cost of interacting with the Exchange and, 
if the price of the EDS Enterprise License were set above competitive 
levels, competition for order flow would be harmed. Second, 
Distributors may elect to purchase EDS through per-subscriber fees in 
lieu of an Enterprise License, or may reduce their purchases of Nasdaq 
proprietary data. Third, the competition among Distributors for 
Subscribers provides another constraint on the cost of the EDS 
Enterprise License.
Competition for Order Flow
    Depth-of-book data fees are constrained by competition among 
exchanges and other entities seeking to attract order flow. Order flow 
is the ``life blood'' of the exchanges. Broker-dealers currently have 
numerous alternative venues for their order flow, including self-
regulatory organization (``SRO'') markets, as well as internalizing 
broker-dealers (``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. The existence of fierce competition for order flow implies a 
high degree of price sensitivity on the part of BDs, which may readily 
reduce costs by directing orders toward the lowest-cost trading venues.
    The level of competition and contestability in the market for order 
flow is demonstrated by the numerous examples of entrants that swiftly 
grew into some of the largest electronic trading platforms and 
proprietary data producers: Archipelago, Bloomberg Tradebook, Island, 
RediBook, Attain, TracECN, BATS Trading and BATS/Direct Edge. A 
proliferation of dark pools and other ATSs operate profitably with 
fragmentary shares of consolidated market volume. For a variety of 
reasons, competition from new entrants, especially for order execution, 
has increased dramatically over the last decade.
    Each SRO, TRF, ATS, and BD that competes for order flow is 
permitted to produce proprietary data products. Many currently do or 
have announced plans to do so, including NYSE, NYSE Amex, NYSE Arca, 
BATS, and IEX. This is because Regulation NMS deregulated the market 
for proprietary data. While BDs had previously published their 
proprietary data individually, Regulation NMS encourages market data 
vendors and BDs to produce proprietary products cooperatively in a 
manner never before possible. Order routers and market data vendors can 
facilitate production of proprietary data products for single or 
multiple BDs. The potential sources of proprietary products are 
virtually limitless.
    The markets for order flow and proprietary data are inextricably 
linked: A trading platform cannot generate market information unless it 
receives trade orders. As a result, the competition for order flow 
constrains the prices that platforms can charge for proprietary data 
products. Firms make decisions on how much and what types of data to 
consume based on the total cost of interacting with Nasdaq and other 
exchanges. The cost of EDS is one factor in this total platform 
analysis. A supracompetitive price for the EDS Enterprise License has 
the potential to impair competition for order flow, and the need to 
compete effectively for order flow will constrain its price.
Competition for Distributors
    An Enterprise License is one among several methods of purchase 
available to EDS Distributors. If the price of the EDS Enterprise 
License were to become too high, Distributors would use another 
purchase option, such as per-subscriber fees.
    The total cost of Nasdaq depth-of-book data relative to other 
options also functions as an effective constraint. If the total price 
of depth-of-book data, including the EDS Enterprise License, were to 
become too high, Distributors would be able to purchase similar data 
from a competitor such as NYSE or BATS, or curtail their purchases of 
other Nasdaq products.
    The availability of alternative payment methods to purchase EDS, as 
well as the availability of depth-of-book data from other sources, will 
act as effective constraints on the price of the EDS Enterprise 
License.
Competition for Subscribers
    Distributors who purchase the EDS Enterprise License are in 
competition for Subscribers. If the price of the Enterprise License 
were set above competitive levels, the Distributors that purchase that 
license would be at a disadvantage relative to their competitors. As 
such, they may lower costs by paying per-subscriber fees, curtailing 
their purchases of Nasdaq products, or purchasing depth-of-book data 
from one of Nasdaq's competitors. The competition among Distributors 
for Subscribers therefore provides another constraint on the cost of 
the EDS Enterprise License.
    In summary, market forces constrain the price of the EDS Enterprise 
License through competition for order flow, the availability of other 
methods of delivery for depth-of-book data, and in the competition 
among Distributors for Subscribers. For these reasons, the Exchange has 
provided a substantial basis demonstrating that the fee is equitable, 
fair, reasonable, and not unreasonably discriminatory, and therefore 
consistent with and in furtherance of the purposes of the Exchange Act.

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

    No written comments were either solicited or received.

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

[[Page 10947]]

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2017-007 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2017-007. 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2017-007, and should 
be submitted on or before March 9, 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. 2017-03105 Filed 2-15-17; 8:45 am]
BILLING CODE 8011-01-P