Document ID: SEC-2019-0652-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Nasdaq Stock Market, LLC
Posted Date: 2019-05-15T04:00Z

[Federal Register Volume 84, Number 94 (Wednesday, May 15, 2019)]
[Notices]
[Pages 21853-21861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09964]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85813; File No. SR-NASDAQ-2019-033]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Equity 7 Pricing Schedule, Sections 112, 123, 135, 146, 155 
and 158

May 9, 2019.
    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 April 25, 2019, 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 Equity 7 Pricing Schedule, 
Sections 112, 123, 135, 146, 155, and 158 to: (i) Reduce fees for trial 
periods, pre-production systems development, academic use, and 
technical and administrative support services; and (ii) specify that 
the $500,000 enterprise license for the distribution of Depth-of-Book 
data includes Professional Subscribers. These proposed changes are 
described in further detail below.
    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.

[[Page 21854]]

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

1. Purpose
    As part of an ongoing effort to increase the transparency of market 
data rules and lower fees and administrative costs for market data 
customers, the Exchange proposes to: (i) Reduce fees for trial periods, 
pre-production systems development, academic use, and technical and 
administrative support services; and (ii) specify that the $500,000 
enterprise license for the distribution of Depth-of-Book data includes 
Professional Subscribers.\3\ The proposed waivers of fees and other 
charges apply to the market data products and services listed in 
proposed Section 112(a).\4\
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    \3\ The Exchange initially filed the proposed changes on April 
12, 2019, (SR-Nasdaq-2019-030). The Exchange withdrew that filing on 
April 25, 2019, and submitted this filing.
    \4\ The following sections are listed in Section 112(a): 119 
(Market Data Distributor Fees), 121 (Nasdaq Report Center), 122 
(Historical Research and Administrative Reports), 123 (Nasdaq Depth-
of-Book Data), 126 (Distribution Models), 135 (Nasdaq Monthly 
Administrative Fee), 137 (Nasdaq FilterView Service), 139 (NLS and 
NLS Plus Data Feeds), 140 (Nasdaq Share Volume Service), 146 (Nasdaq 
Trading Insights), 147 (Nasdaq Basic), 152 (Nasdaq Daily Short 
Volume and Monthly Short Sale Transaction Files), 157 (Nasdaq 
MatchView Feed) and 158 (QView).
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    Nothing in this filing raises any fee charged by the Exchange. On 
the contrary, the Exchange anticipates that the proposal will lower 
fees for some customers.
Current Section 112
    Proposed Section 112 will replace current Section 112, which sets 
forth a terminal fee for receiving Nasdaq Level 2 or Level 3 service. 
The Nasdaq Level 2 service referenced in this rule was a UTP Plan 
service managed by Nasdaq as administrator of the Plan ``that 
provide[d] Subscribers with query capability with respect to quotations 
and sizes in securities included in the Nasdaq System, best bid and 
asked quotations, and Transaction Reports.'' \5\ Nasdaq Level 3 was a 
UTP Plan service ``that provide[d] Nasdaq market participants with 
input and query capability with respect to quotations and sizes in 
securities included in the Nasdaq System, best bid and asked 
quotations, and Transaction Reports.'' \6\ These services have not been 
offered by the UTP Plan since Amendment 17 to the Plan, which went into 
effect in September 2006.\7\ Removal of this section will not alter any 
fee or service offered by the Exchange, as this service is not 
currently offered by the Exchange.
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    \5\ Securities Exchange Act Release No. 34-53131 (January 17, 
2006), 71 FR 3896 (January 24, 2006) (S7-24-89) (defining Level 2 
service).
    \6\ Id. (defining Level 3 service).
    \7\ Securities Exchange Act Release No. 34-54426 (September 12, 
2006), 71 FR 54852 (September 19, 2006) (S7-24-89) (replacing the 
definitions of Level 2 and Level 3 services with unrelated terms).
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Proposed Section 112
    The specific changes proposed by the Exchange, and the purposes of 
each, are as follows:
1. Fee Waivers
    The Exchange currently waives market data fees to: (i) Encourage a 
new or potential customer to test a product or service through trial 
offers; (ii) allow a new distributor time to develop its systems and 
procedures before disseminating Exchange information; (iii) provide 
data for academic research or classroom-related activity; and (iv) 
allow distributors to use Exchange information for technical and 
administrative support services not directly related to external 
distribution or securities trading. Some of these fee waivers are 
partially or fully codified in the Nasdaq rule book, while others are 
set forth in policies published on NasdaqTrader.com,\8\ or are an 
established practice of the Exchange not explicitly described in the 
rule book or in published policies. The Exchange proposes to reduce 
fees for multiple products by codifying uniform fee waivers for trial 
periods, pre-production systems development, academic use, and 
technical and administrative support services.
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    \8\ All references to NasdaqTrader.com refer to the current 
website and any successor website, as specified at proposed Section 
112(b)(1).
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1. Trial Offers
    The Exchange currently extends trial offers for three products: 
Depth-of-Book products at Section 123, Nasdaq Trading Insights at 
Section 146, and QView at Section 158.\9\ The Exchange proposes to 
reduce fees for new, prospective or returning customers by replacing 
these three product-specific fee waivers with a standard waiver 
applicable to any market data product listed at Section 112(a), and any 
version of a listed product identified by the Exchange as eligible for 
an offer on NasdaqTrader.com.
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    \9\ The Exchange also allows distributors to provide trial or 
demonstration access to subscribers as part of the marketing 
process. See http://www.nasdaqtrader.com/content/AdministrationSupport/Policy/FEEEXEMPTIONSPOLICY.pdf.
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    The three trial offers currently offered by the Exchange differ 
somewhat in scope and limitations. The Depth-of-Book trial offer at 
Section 123(e) allows for a one-time 30-day waiver of subscriber fees 
for all new and potential individual subscribers:

    30-Day Free-Trial Offer: Nasdaq shall offer all new individual 
Subscribers and potential new individual Subscribers a 30-day waiver 
of the Subscriber fees for Nasdaq TotalView. This fee waiver period 
shall be applied on a rolling basis, determined by the date on which 
a new individual Subscriber or potential individual Subscriber is 
first entitled by a Distributor to receive access to Nasdaq 
TotalView. A Distributor may only provide this waiver to a specific 
individual Subscriber once.

    Nasdaq Trading Insights at Section 146(b)(1) provides a trial offer 
that is available once per firm for each version of the product, 
provided that it is cancelled before the end of the 30-day period to 
avoid monthly fees:

    30-Day Trial Offer. Upon request, Nasdaq shall provide firms a 
30-day waiver of the fees for the Nasdaq Trading Insights product, 
which consists of all four components listed above in (a)(1)-(a)(4). 
However, availability of the Liquidity Dynamics Analysis component 
is currently delayed. This waiver may be provided only once per firm 
for each version of the product, as designated by Nasdaq. A firm 
will be charged the monthly fee rate listed below in (b)(2) if it 
does not cancel by the conclusion of the trial offer.

    The QView product at Section 158 contains a trial offer that is 
available to returning purchasers (not just new or prospective 
customers) for a period of time not to exceed 30 days for each version 
of QView or the Latency Optics add-on service:

    The Exchange shall waive fees under this Section for 30 days for 
any new, prospective or returning purchaser of either QView or the 
Latency Optics add-on service. This waiver will be available only 
once per customer for any version of QView or the add-on service.

    The Exchange proposes to reduce fees across multiple products by 
replacing these three disparate offers with a single, standard offer 
for any product version listed as eligible on NasdaqTrader.com and 
specifically identified in subsection (a) of proposed Section 112. The 
proposed offer will waive fees for up to 30 days,\10\ will be available 
to new, prospective, or returning \11\ distributors, recipients and

[[Page 21855]]

users,\12\ and is limited to 30 days over a twelve month period for 
each version of the product.\13\ While the products eligible for this 
offer are listed in Section 112(a),\14\ the specific versions of these 
products eligible for the waiver will be identified on NasdaqTrader.com 
to allow the Exchange an opportunity to extend such offers to new 
versions of a product as such versions become available, and to 
withdraw older versions from eligibility that the Exchange has elected 
to no longer promote. The Exchange will provide a 30-day notice for the 
withdrawal of any version of any product or service from eligibility. 
Distributors may extend trial offers to recipients or users for fees 
associated with any product or service listed in proposed Section 
112(a) and version listed as eligible for a Trial Offer on 
NasdaqTrader.com,\15\ subject to the usage reporting requirements,\16\ 
and the Exchange will waive any fees owed by the distributor for the 
underlying customer. Distributors will administer this trial offer 
program for recipients and users on behalf of the Exchange, making 
trial offers available to new, prospective, or returning recipients and 
users on the same basis as the Exchange.
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    \10\ A customer may elect to utilize less than 30 days for a 
trial offer if it intends to preserve the option of using whatever 
time remains on the offer period at a later date within the twelve 
month period.
    \11\ A new customer is a customer that has never purchased the 
product or service subject to the trial offer, and has decided to 
purchase the product. A prospective customer is a customer that has 
never purchased the product or service subject to the trial offer, 
and has not yet decided whether to purchase the product. A returning 
customer is a customer that had purchased the product or service at 
one time, but cancelled that service at least six months before the 
trial offer is to take place.
    \12\ Some market data products are exclusive to distributors, 
recipients, or users, respectively. When announcing a product as 
eligible for a trial offer on NasdaqTrader.com, the Exchange will 
specify which of these three groups will be eligible for the offer 
in accordance with the applicable rule.
    \13\ The waiver may be taken in discontinuous segments, meaning, 
for example, that a customer may end the trial offer after a two 
week period, preserving the remaining time for further testing to 
take place at a later date within the 12 month period.
    \14\ For historical reports, the waiver will be for one month of 
data. Historical data are offered in Sections 122 (Historical 
Research and Administrative Reports), 140 (Nasdaq Share Volume 
Service), and 152 (Nasdaq Daily Short Volume and Monthly Short Sale 
Transaction Files), all of which may include historical data.
    \15\ As noted above, all references to NasdaqTrader.com refer to 
the current website and any successor website, as specified at 
proposed Section 112(b)(1).
    \16\ The usage reporting requirements for any distributor 
undergoing a trial offer shall be the same as distributors in full 
production. The trial offer proposal imposes no new reporting 
requirement.
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    Proposed Section 112(b)(1) reads as follows:

    Trial Offers. The Exchange shall waive any fee for up to 30 
days, which may be taken in discontinuous segments, for any new, 
prospective, or returning distributor, recipient or user for any 
product or service listed in Subsection (a), for any version listed 
as eligible for a trial offer on Nasdaqtrader.com or any successor 
website (collectively, ``Nasdaqtrader.com''), provided that:
    (A) The waiver is limited to 30 days for each version of the 
product or service over any 12 month period;
    (B) The product or service is listed in Subsection (a), and the 
specific version of the product or service is listed as eligible for 
a trial offer on NasdaqTrader.com (the Exchange will provide a 30-
day notice for the withdrawal of any version of product or service 
from eligibility); and
    (C) The Exchange shall waive any fee to a distributor for any 
new, prospective or returning recipient or user for up to 30 days, 
which may be taken in discontinuous segments, for any product or 
service listed in Subsection (a) and any version listed as eligible 
for a trial offer on Nasdaqtrader.com, where the distributor is 
itself waiving its own fees to such new, prospective, or returning 
recipient or user for the same period of time, subject to usage 
reporting requirements set forth on NasdaqTrader.com.

    As conforming changes, the Exchange proposes to delete the current 
trial offers at Sections 123(e), 146(b)(1), and 158(c) and renumber the 
remaining subparagraphs in Section 146.\17\
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    \17\ The Exchange also proposes to remove an outdated reference 
to a trial period ending March 21, 2011, at Section 155 (Short Sale 
Monitor).
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    The purpose of the proposal is to reduce fees for new, prospective, 
or returning customers and to improve transparency and consistency in 
the application of trial offers. The proposed changes will not increase 
any fee or charge.

2. Pre-Production Waivers

    The Exchange currently waives fees for new distributors for up to 
three months to allow them time to prepare systems and procedures for 
the distribution of Exchange information.\18\ Distributors require data 
for testing and development before actually distributing such data, and 
the waiver reflects a long-standing industry and Exchange practice to 
waive fees during this period. The current policy, published on 
NasdaqTrader.com, provides that distributors may be exempt from 
distributor, subscriber and monthly administrative fees for up to three 
months ``while the Distributor is receiving a Data Feed and is in the 
process of development work to facilitate the intended internal or 
external distribution of the data.'' \19\ Fees commence at the end of 
the three month period, or when the distributor starts to distribute 
the data, whichever comes first.\20\
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    \18\ See http://www.nasdaqtrader.com/content/AdministrationSupport/Policy/FEEEXEMPTIONSPOLICY.pdf.
    \19\ See id.
    \20\ See id.
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    The Exchange proposes to reduce fees for distributors by 
introducing a pre-production waiver at Section 112(b)(2). The waiver 
will be available for any product or service identified in Subsection 
(a) and any version listed as eligible for such a waiver on 
NasdaqTrader.com. The proposed rule will specify that the Exchange 
shall waive distributor, subscriber and monthly administrative fees for 
up to 3 months \21\ to allow the distributor to prepare its systems and 
procedures for ``production'' (i.e., the distribution of Exchange 
information); the waiver will remain in place for the period of time 
required to prepare systems and procedures for production, or when 
production begins, whichever is earlier.\22\ The version of the 
products eligible for the pre-production waiver will be listed on 
NasdaqTrader.com. Distributors must apply for this waiver and report to 
the Exchange how the information is used, providing the same categories 
of data as distributors in production.\23\ The Exchange will approve 
the pre-production waiver for any distributor that successfully 
demonstrates through its application and reporting that it meets all of 
the criteria set forth in proposed Section 112(b)(2).\24\ The proposed 
rule reads as follows:
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    \21\ The pre-production waiver may be less than 3 months if the 
distributor requires less time to prepare its systems and procedures 
for production, or if production begins in less than 3 months. 
Distributors bear the burden of demonstrating to the Exchange that 
the full 3 month period is required, based on its application and 
reporting as set forth on NasdaqTrader.com.
    \22\ Distributors may engage in further systems development 
after production has begun, but the proposed waiver shall not apply 
to any such post-production systems development.
    \23\ The usage reporting requirements for any distributor in 
Pre-Production shall be the same as distributors in full production.
    \24\ Typically, distributors will only be eligible for one pre-
production waiver, as eligibility for the waiver ends once 
production begins. Nevertheless, distributors that terminate their 
relationship with Nasdaq may be eligible for a second waiver to the 
extent that changes in technology require additional pre-production 
development prior to restarting production.

    Pre-Production Waivers. The Exchange shall waive any fees for a 
distributor that requires time to prepare its systems and procedures 
to distribute Exchange information, provided that:
    (A) The waiver is only available for the period of time required 
to prepare systems and procedures to distribute Exchange 
information, or the start of production, whichever occurs first, for 
a period of time not to exceed 3 months;
    (B) The waiver will only be available for products or services 
identified in Subsection (a) above and the version is listed as 
eligible for such a waiver on NasdaqTrader.com; and
    (C) The waiver must be pre-approved by the Exchange based on an 
application and subject to usage reporting requirements set forth on 
NasdaqTrader.com that demonstrate compliance with the rules set 
forth herein.

[[Page 21856]]

    The purpose of the proposal is to reduce development costs for new 
distributors entering into production and to improve transparency and 
consistency in the application of pre-production waivers. The proposal 
does not increase any fee or charge.
3. Academic Waivers
    The Exchange has implemented an academic waiver policy that allows 
colleges, universities, and other accredited academic institutions to 
obtain a fee waiver for students and professors engaged in research or 
teaching.\25\ To obtain the waiver, academic institutions must execute 
all agreements required for the product or service, report the number 
of subscribers, devices or other applicable units of count to Nasdaq on 
a monthly basis, and reapply on a yearly basis for continued 
eligibility.\26\ Academic waivers may not be used for actual (as 
opposed to simulated) securities trading, and the waiver does not cover 
the following uses of data: vocational education, university endowment 
programs, unaccredited academic institutions, use in support of actual 
securities trading, external distribution of the data, or off-site 
distribution of the data.\27\
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    \25\ See http://www.nasdaqtrader.com/content/AdministrationSupport/Policy/ACADEMICWAIVERPOLICY.pdf. Note that the 
waiver does not cover access or telecommunications charges. Section 
135 also provides that the Exchange may waive its monthly 
Administrative Fee for colleges and universities for devices used by 
students and professors in performing university or college research 
or classroom-related activities.
    \26\ See id.
    \27\ See id.
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    The Exchange proposes to encourage the use of Exchange information 
by academic institutions by eliminating the enumerated fees and 
expanding the academic waiver policy to include certain financial 
literacy programs. An accredited college or university or non-profit 
financial literacy program would be able to apply to either a 
distributor or the Exchange for the academic waiver, as is currently 
allowed under the existing policy. All applicants that can demonstrate 
that all of the criteria set forth in Section 112(b)(3) are met will be 
approved for the waiver by the Exchange or the distributor. The 
proposed rule would allow non-profit financial literacy programs to 
apply for a waiver as well--a policy which has been followed informally 
in the past, but which the Exchange now proposes to formalize as part 
of the rule book. Beneficiaries of the academic waiver would be 
required to reapply on a yearly basis, sign any agreement required to 
obtain that product or service, and report usage, subject to the same 
usage reporting requirements as non-academic recipients. No information 
obtained under this type of waiver may be distributed externally except 
in support of certain non-profit financial literacy programs or to 
support teaching or research at an accredited college or 
university.\28\ Information disseminated pursuant to the academic 
waiver may not be used for actual (as opposed to simulated) trading 
activity, or to support for-profit activity, including, but not limited 
to, any use of Exchange information by an academic institution to 
provide services to a for-profit entity in support of any business or 
trading activity. Distributors may administer the academic waiver 
program on behalf of the Exchange on the same basis as the Exchange. 
Proposed Section 112(b)(3) reads as follows:
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    \28\ Non-profit financial literacy programs may distribute 
Nasdaq data to primary and secondary school students and other 
underserved groups for computer-assisted learning.

    (3) Academic Waivers. Any accredited college or university, as 
well as non-profit financial literacy programs dedicated to serve 
primary or secondary school students or other underserved 
populations, may apply to a distributor or the Exchange to waive any 
fee or charge for any product or service identified in Subsection 
(a) and any version listed as eligible for such a waiver on 
NasdaqTrader.com, and used by students or professors to perform 
academic research or classroom-related activities. All such 
applications for waiver shall be approved by the Exchange or the 
distributor based on a determination that all of the criteria set 
forth herein are met, specifically the following:
    (A) Recipients of an academic waiver must reapply on a yearly 
basis, must sign any agreement required to obtain that product or 
service, and report usage as specified on NasdaqTrader.com; and
    (B) No information provided under an academic waiver may be 
distributed externally, except in support of non-profit financial 
literacy programs or to support teaching or research at an 
accredited college or university, or used in any way for actual 
(rather than simulated) trading, or to support for-profit activity, 
including, but not limited to, any use of Exchange information by an 
academic institution to provide services to a for-profit entity in 
support of any business or trading activity.

    As a conforming change, the Exchange proposes to delete the last 
sentence of current Section 135, which relates to an academic waiver 
for administrative fees,\29\ as superfluous in light of the addition of 
proposed Section 112(b)(3).
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    \29\ Section 135 currently states: ``Nasdaq may waive the 
foregoing fee for colleges and universities for devices used by 
students and professors in performing university or college research 
or classroom-related activities.''
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    The purpose of this proposal is to promote university-level 
research and teaching, as well as overall financial literacy, by 
lowering the cost for professors, teachers and students and certain 
financial literacy programs to obtain and utilize Exchange information. 
The proposal will not increase any fee or charge.
4. Technical and Administrative Support
    The Exchange currently exempts subscribers that are used in an 
enumerated list of indirect support functions--but not directly 
involved in the distribution of Exchange information or the trading of 
securities--from monthly subscriber fees.\30\ This internal usage 
policy is described on NasdaqTrader.com, and derives from a long-
standing industry practice of exempting support functions from fees. 
The currently-exempted support functions are: advertising, account 
maintenance, authorizations and entitlements, customer service, data 
control, data quality, development,\31\ demonstration, distributor 
software sales, promotion, technical operations, technical support, 
testing and trade shows.\32\ A distributor making use of this internal 
usage policy must provide Nasdaq with information about, or a 
demonstration of, how each technical and administrative support 
subscriber is used, and must be prepared to identify all administrative 
entitlements during any onsite review.\33\ This fee waiver does not 
apply to a subscriber supporting the news, research or trading 
divisions of the distributor, or used in any way to support the trading 
of securities.\34\ Exempt subscribers may only be used by employees of 
the distributor and must be located on the distributor's premises 
(unless the subscriber is used for sales or marketing).\35\
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    \30\ See http://www.nasdaqtrader.com/content/AdministrationSupport/Policy/FEEEXEMPTIONSPOLICY.pdf.
    \31\ ``Development'' in this context refers to post-production 
systems development, in contrast to pre-production systems 
development, discussed above.
    \32\ See http://www.nasdaqtrader.com/content/AdministrationSupport/Policy/FEEEXEMPTIONSPOLICY.pdf.
    \33\ See id.
    \34\ See id.
    \35\ See id.
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    The Exchange proposes to lower distributor's fees by codifying this 
policy in its rule book, and to re-designate the name of the policy 
from ``internal usage'' to ``technical and administrative support.'' 
The proposed technical and administrative support

[[Page 21857]]

waiver will exempt the same support services from fees as the current 
policy: Advertising, account maintenance, authorizations and 
entitlements, customer service, data control, data quality, 
development, demonstration, distributor software sales, promotion,\36\ 
technical operations, technical support and testing. As is the case 
under current policy, the fee waiver would not apply to a subscriber 
supporting the news, research or trading divisions of the distributor. 
All such waivers will be approved by the Exchange if the distributor 
demonstrates through materials submitted with the application, and 
ongoing reporting, that all of the criteria set forth in the rule are 
met.\37\ Reporting for subscribers engaged in technical and 
administrative support will be the same as required for fee-liable 
subscribers, and such usage reporting requirements will be set forth on 
NasdaqTrader.com. As required under the current policy, the distributor 
must be able to provide Nasdaq with information about, or a 
demonstration of, how each technical and administrative support 
subscriber is used, and must be prepared to identify all technical and 
administrative entitlements during any onsite review. The 
aforementioned subscribers must be located on the distributor's 
premises, unless used for sales or marketing. No Exchange information 
obtained under such waiver may be distributed externally or used in 
support of trading activities.
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    \36\ Trade shows, which are listed separately under the current 
policy, continue to be covered under the waiver as a type of 
``promotion'' activity.
    \37\ All distributors currently operating under an internal 
usage waiver will be automatically approved for the technical and 
administrative support waiver for the nine months following the date 
of effectiveness of this proposed change, allowing the Exchange an 
opportunity to evaluate technical and administrative support usage.
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    Proposed Section 112(b)(4) reads as follows:

    Technical and Administrative Support Waivers. ``Technical and 
Administrative Support'' is defined as the following activities of 
the distributor: Advertising, account maintenance, authorizations 
and entitlements, customer service, data control, data quality, 
development, demonstration, distributor software sales, promotion, 
technical operations, technical support and testing. The Exchange 
shall waive any fee or charge for the Technical and Administrative 
Support of a distributor, provided that:
    (A) The distributor provides Nasdaq with information about, or a 
demonstration of, how each technical and administrative support 
subscriber is used, is able to identify all technical and 
administrative entitlements during an onsite review by Nasdaq 
representatives, and demonstrates to the Exchange through 
application and reporting that all of the criteria set forth herein 
are met;
    (B) Any distributor granted such a waiver shall report exempt 
usage in the same manner as non-exempt usage as set forth on 
NasdaqTrader.com;
    (C) Exempt subscribers must be located on the distributor's 
premises, unless used for sales or marketing; and
    (D) No Exchange information obtained under such waiver may be 
distributed externally or used in support of trading activities.

    The purpose of the proposed change is to eliminate the enumerated 
subscriber fees for technical and administrative support activities, 
thereby facilitating the accurate and efficient distribution of 
Exchange information by lowering the cost of support services essential 
for such distribution, and to improve transparency and consistency in 
the application of such waivers. The proposed change will not increase 
any fee or charge.
2. Broker-Dealer Enterprise License
    The Exchange currently offers an enterprise license to enable 
broker-dealers to distribute Nasdaq Level 2 or Nasdaq TotalView service 
for Display Usage to customers with whom the firm has a brokerage 
relationship. Section 123(c)(3) states as follows:

    As an alternative to subsections (1) and (2) above, a 
Distributor that is also a brokerdealer may 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. This Enterprise License shall not apply to 
relevant Level 1 or Depth Distributor fees.

    The Exchange proposes to modify Section 123(c)(3) to include 
Professional Subscribers with whom the firm has a brokerage 
relationship within the scope of the enterprise license. In 2010, when 
the Exchange first proposed that the enterprise license be distributed 
to Non-Professional Subscribers with whom the firm has a brokerage 
relationship, the Exchange explained that the enterprise license covers 
not only non-professional customers, but also includes ``an allowance 
to distribute data to external professional subscribers with which the 
firm has a brokerage relationship,'' and the Exchange would ``permit[] 
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.''\38\
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    \38\ See Securities Exchange Act Release No. 63084 (October 13, 
2010), 75 FR 64379 (October 19, 2010) (SR-NASDAQ-2010-125).
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    As part of its effort to ease administrative burdens on its 
customers, the Exchange proposes to modify the text of Section 
123(c)(3) to explicitly state that Nasdaq information may be 
distributed to both Professional and Non-Professional Subscribers in 
the context of a brokerage relationship. This will increase the value 
of the enterprise license to distributors by removing the 10 percent 
limitation and explicitly applying coverage to Professionals who 
receive the information in the context of a brokerage relationship, 
while also lowering the administrative burden on broker-dealers by 
eliminating any need to count Professional and Non-Professional 
Subscribers separately. The Exchange also proposes to effect a number 
of minor technical corrections.\39\ The revised language is as follows:
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    \39\ The Exchange also proposes to add a hyphen to the word 
``broker-dealer'' in Section 123(c)(3), and to correct an internal 
reference in Section 123(b)(1)(C) by replacing a reference to 
subsection (4) with a reference to subsection (3).

    As an alternative to subsections (1) and (2) above, a 
Distributor that is also a broker-dealer may pay a monthly fee of 
$500,000 to provide Nasdaq Level 2 or Nasdaq TotalView for Display 
Usage by Professional or Non-Professional Subscribers with whom the 
firm has a brokerage relationship. This Enterprise License shall not 
---------------------------------------------------------------------------
apply to relevant Level 1 or Depth Distributor fees.

    The purpose of the proposal is to increase the value of the 
enterprise license to distributors by expanding coverage to 
professionals who receive the information in the context of a brokerage 
relationship, and to lower the administrative burden on broker-dealers 
by not requiring the broker-dealer to count the number of Professional 
Subscribers separately. The proposed change will not increase any fee 
or charge.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\40\ in general, and Section 6(b)(4) in particular, 
because it provides for the equitable allocation of reasonable dues, 
fees, and other charges among its members, issuers and other persons 
using its facilities, and furthers the objectives of Section 6(b)(5) of 
the Act,\41\ in particular, in that it fosters cooperation and 
coordination with persons engaged in processing information and 
facilitating transactions in securities and does not unfairly 
discriminate between customers, issuers, brokers or dealers.
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    \40\ 15 U.S.C. 78f(b).
    \41\ 15 U.S.C. 78f(b)(5).

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[[Page 21858]]

    As described above, the Exchange proposes to: (i) Codify fee 
waivers for trial offers, pre-production systems development, academic 
use, and technical and administrative support services; and (ii) modify 
the $500,000 enterprise license for the external distribution of Depth-
of-Book data to allow distribution to all customers with whom the 
distributor has a brokerage relationship, including both Professional 
and Non-Professional Subscribers. For the reasons set forth below, each 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among its members, issuers and other persons using its 
facilities, fosters cooperation and coordination with persons engaged 
in processing information and facilitating transactions in securities, 
and does not unfairly discriminate between customers, issuers, brokers 
or dealers.
Fee Waivers
    The Exchange proposes to codify fee waivers for trial offers, pre-
production systems development, academic use, and technical and 
administrative support. Each is an equitable allocation of reasonable 
dues, fees and other charges, and fosters cooperation and coordination 
with persons engaged in processing information and facilitating 
transactions in securities. Codifying these waivers will, among other 
things: (i) Allow new, prospective or returning customers an 
opportunity to test Exchange data free of charge, thereby lowering the 
cost of distributing Exchange information; (ii) reduce the cost of 
systems development for new distributors, thereby lowering their 
barriers to entry; (iii) lower the cost of academic research, teaching, 
and financial literacy programs, thereby promoting overall financial 
education; (iv) and lower the cost of data distribution by lowering the 
cost of technical and administrative support for distributors, thereby 
facilitating the accurate and efficient distribution of Exchange 
information by lowering the cost of support services essential for such 
distribution.
    The proposed fee waivers do not unfairly discriminate between 
customers, issuers, brokers or dealers because: (i) Providing new, 
prospective or returning customers an opportunity to test Exchange data 
free of charge encourages the entry of new distributors and promotes 
the dissemination of Exchange information; (ii) reducing the cost of 
systems development for new distributors also encourages the entry of 
new distributors and promotes the dissemination of Exchange 
information; (iii) encouraging academic research by lowering the cost 
of research and teaching, and spreading financial literacy by 
facilitating financial education for underserved populations, promotes 
education in, and the understanding of, financial markets; and (iv) 
lowering the cost of data distribution by reducing the cost of 
technical and administrative support for distributors facilitates the 
accurate and efficient distribution of Exchange information by lowering 
the cost of support services essential for such distribution.
    Trial Offers: Establishing a uniform standard for trial offers is 
an equitable allocation of reasonable dues, fees and other charges and 
fosters cooperation and coordination with persons engaged in processing 
information and facilitating transactions in securities by providing 
new, prospective or returning customers an opportunity to test Exchange 
data free of charge before purchasing the service. This will encourage 
the entry of new distributors and thereby promote the dissemination of 
Exchange information. The proposed section will also establish a 
framework for the consistent administration of trial offers across 
products, thereby avoiding potential disputes related to administering 
trials for different products that have slightly different terms. 
Publication of products and services on NasdaqTrader.com will, 
moreover, provide all current and potential customers the latest 
information identifying which products and services are eligible for 
trial offers. The proposed changes for trial offers do not unfairly 
discriminate between customers, issuers, brokers or dealers because 
providing new, prospective or returning customers an opportunity to 
test Exchange data free of charge will encourage the entry of new 
distributors and promote the dissemination of Exchange information. The 
Exchange will allow all eligible customers to take advantage of the 
same trial offers on the same terms.
    Systems Development: Establishing a uniform waiver policy with 
regard to pre-production systems development is an equitable allocation 
of reasonable dues, fees and other charges, and fosters cooperation and 
coordination with persons engaged in processing information and 
facilitating transactions, by reducing the cost of systems development 
for new distributors, thereby lowering barriers to entry and 
encouraging broader dissemination of information. All new distributors 
will have the opportunity to prepare their systems using the proposed 
waiver, and current distributors have already had the benefit of this 
long-standing policy.
    These waivers do not unfairly discriminate between customers, 
issuers, brokers or dealers because reducing costs for new distributors 
encourages the entry of new distributors and promotes the dissemination 
of Exchange information, and all new distributors will be able to 
benefit from the policy.
    Academic Waivers: Establishing a uniform policy for academic 
waivers for research or classroom-related activity is an equitable 
allocation of reasonable dues, fees and other charges, and fosters 
cooperation and coordination with persons engaged in processing 
information and facilitating transactions in securities, because 
lowering the cost of research, teaching, and financial education will 
improve market operations by encouraging the dissemination of financial 
information. A fee waiver is, moreover, appropriate where the 
information obtained cannot be used to sell financial services or 
engage in any other for-profit activity, but rather to encourage 
research, teaching and financial literacy.
    Academic waivers do not unfairly discriminate between customers, 
issuers, brokers or dealers because lowering the cost of research, 
teaching and financial education promotes the ability of the general 
investing public to effectively participate in financial markets. 
Academic institutions and financial literacy programs are, moreover, 
not profit-making entities and it is reasonable to waive fees for 
entities not engaged in for-profit activities.
    Technical and Administrative Support: Allowing distributors to use 
Exchange information for administrative and technical support services 
is an equitable allocation of reasonable dues, fees and other charges, 
and fosters cooperation and coordination with persons engaged in 
processing information and facilitating transactions in securities, 
because the proposal will facilitate the accurate and efficient 
distribution of Exchange information by lowering the cost of support 
services essential for such distribution. All distributors will be 
eligible for the same waiver for the same administrative and support 
functions.
    Technical and administrative support waivers do not unfairly 
discriminate between customers, issuers, brokers or dealers because the 
proposal will facilitate the accurate and efficient distribution of 
Exchange information by lowering the cost of support services essential 
for such distribution. These waivers also will be available to all 
distributors on the same terms.

[[Page 21859]]

Enterprise License
    Expanding the availability of the enterprise license at Section 
123(c)(3) to Professional Subscribers with whom the firm has a 
brokerage relationship is an equitable allocation of reasonable dues, 
fees and other charges and fosters cooperation and coordination with 
persons engaged in processing information and facilitating transactions 
in securities because the proposal will lower the administrative burden 
on broker-dealers by not requiring the broker-dealer to count the 
number of Professional Subscribers separately. All broker-dealers 
purchasing the license will be treated the same, without regard to 
whether the customer is Professional or a Non-Professional.
    The proposal does not unfairly discriminate between customers, 
issuers, brokers or dealers for the same reasons. The proposal will 
lower the administrative burden on broker-dealers by not requiring the 
broker-dealer to count the number of Professional Subscribers 
separately. Removing the distinction between Professional and Non-
Professional customers in a brokerage relationship lessens current 
distinctions among broker-dealers.
    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations (``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.\42\
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    \42\ 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 market data products affected by this proposal are all 
voluntary products for which market participants can readily find 
substitutes. Accordingly, Nasdaq is constrained from pricing these 
products in a manner that would be inequitable or unfairly 
discriminatory. Moreover, the fees for these products, like all 
proprietary data fees, are constrained by the Exchange's need to 
compete for order flow.

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

    The Exchange does not believe that the proposals will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act. All of the proposed changes--to codify fee 
waivers and expand the application of an enterprise license--do not 
impose a burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act, but rather enhance competition 
by providing both current and potential customers better, more precise 
information in making purchasing decisions.
    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. 
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).\43\
---------------------------------------------------------------------------

    \43\ 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).
---------------------------------------------------------------------------

    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 TRF trade 
reports without the raw material of the trade reports themselves, and 
therefore necessitate the costs of operating, regulating,\44\ and 
maintaining a trade reporting system, costs that must be covered 
through the fees charged for use

[[Page 21860]]

of the facility and sales of associated data.
---------------------------------------------------------------------------

    \44\ 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 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.\45\
---------------------------------------------------------------------------

    \45\ Cf. Ohio v. American Express, 138 S. Ct. 2274 (2018) 
(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 ATSs, including dark pools and ECNs. Each SRO market competes 
to produce transaction reports via trade executions, and the 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 CBOE.

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.\46\
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2019-033 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.

[[Page 21861]]

All submissions should refer to File Number SR-NASDAQ-2019-033. 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-2019-033 and should be submitted 
on or before June 5, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
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    \47\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09964 Filed 5-14-19; 8:45 am]
 BILLING CODE 8011-01-P