Document ID: SEC-2014-0686-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market, LLC
Posted Date: 2014-04-28T04:00Z

[Federal Register Volume 79, Number 81 (Monday, April 28, 2014)]
[Notices]
[Pages 23389-23391]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-09528]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71990; File No. SR-NASDAQ-2014-034]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change Relating to Proposed Changes 
To Remove From the Exchange Rules Fee Provisions Regarding Re-
Transmission of ``Third-Party Data''

April 22, 2014.
    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 7, 2014, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by NASDAQ. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes changes to remove from the Exchange rules fee 
provisions with respect to re-transmission of ``Third-Party Data'' that 
NASDAQ receives from multiple sources and then re-transmits via 
multiple channels.
    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at Nasdaq's principal office, 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, Nasdaq 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. Nasdaq has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    NASDAQ receives Third-Party Data from multiple national securities 
exchanges at its Co-Location facility located in Carteret, New Jersey. 
It then re-transmits that data for a fee to clients located in the Co-
Location facility. The fee for such Third-Party Data varies by delivery 
method (with lower prices for data received via fiber-optic 
transmission and higher prices for wireless transmission) required 
bandwidth (lower bandwidth data requirements have lower fees) and our 
costs (redistribution fees charged by originating party, network costs, 
etc.). NASDAQ has routinely filed proposed rule changes seeking 
approval to receive such data and to assess fees for offering it to Co-
Location clients; and the Commission has routinely approved or accepted 
such rule changes since 2008.
    NASDAQ believes that Third-Party Data is not a facility of the 
Exchange within the meaning of the Act, and that previous proposed rule 
changes with respect to such Third-Party Data were unnecessary under 
the Act. Congress enacted the Exchange Act to impose federal regulation 
on stock exchanges, and included in its definition of ``exchange'' 
``the market facilities maintained by such exchange.'' \3\ The Exchange 
Act separately defines ``facility,'' providing that ``[t]he term 
`facility' when used with respect to an exchange includes [1] its 
premises, [2] tangible or intangible property whether on the premises 
or not, [3] any right to the use of such premises or property or any 
service thereof for the purpose of effecting or reporting a transaction 
on an exchange (including among other things, any system of 
communication to or from the exchange, by ticker or otherwise, 
maintained by or with the consent of the exchange), and [4] any right 
of the exchange to the use of any property or service.'' Id. The 
Commission has not separately interpreted the definition of 
``facility.'' \4\
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    \3\ 15 U.S.C. 78c(a)(1).
    \4\ Securities Exchange Act Release No. 26708, at 4 n. 28 (1989) 
(recognizing that the definition of the term ``facility'' has not 
changed since it was originally adopted and that no hearing 
testimony referred to it because ``the Committee felt that the 
definition was `self-explanatory' '') (citation omitted).
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    Third Party Data does not satisfy any of the four prongs set forth 
in the statutory definition of ``facility.'' First, it is not the 
``premises'' of the Nasdaq Exchange. The term ``premises'' is generally 
understood to refer to a building, its land, and appurtenances. Second, 
the Third Party Data is not tangible or intangible property of the 
Nasdaq Exchange. Indeed, the Exchange has no ownership interest in the 
Third Party Data at all. Rather, NASDAQ merely redistributes the Third 
Party Data as one of many vendors of the Third Party Data. Third, the 
Third Party Data is not used on the Nasdaq Exchange's premises ``for 
the purpose of effecting or reporting a transaction'' on a NASDAQ 
exchange.\5\ Fourth, NASDAQ, in its capacity as an exchange, does not 
hold any right to use the Third Party Data other than as a consumer of 
that data for which it pays all applicable fees.
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    \5\ 15 U.S.C. 78c(a)(2).
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    Market data created by and emanating from NASDAQ's execution 
systems is currently considered a facility of the

[[Page 23390]]

Exchange. Likewise, the NASDAQ execution system and NASDAQ-provided 
means of access to the execution system are facilities of the Exchange, 
providing the Commission's basis for requiring proposed rule changes 
regarding the NASDAQ Co-Location facility. Additionally, NASDAQ would 
agree that Third-Party Data is currently considered a facility of the 
national securities exchange that produces it (i.e., data produced by 
the BATS Exchange is a facility of BATS and data produced by Direct 
Edge is a facility of Direct Edge). Conversely, NASDAQ-produced data 
would not become a facility of another exchange that chooses to 
redistribute NASDAQ data (which is currently the case).
    There is no Commission precedent for considering a facility of one 
exchange to be a facility of an unrelated exchange. For example, when 
NASDAQ separated from NASD, the Commission was asked to determine 
whether TRF LLC, which would operate NASD's Trade Reporting Facility, 
was a facility of NASD or the Nasdaq Exchange, which together owned TRF 
LLC.\6\ The Nasdaq Exchange was to be ``primarily responsible for the 
management of the TRF LLC's business affairs,'' and all ``profits and 
losses from the TRF LLC [were] allocated to NASDAQ.'' Id. at 15; see 
also id. at 18 (``[T]he Nasdaq Exchange's parent company controls the 
board of the TRF LLC, directs all business decisions, provides 
technology, and will reap the economic benefits of the TRF LLC.''). 
Nevertheless, the Commission concluded that the TRF LLC was a facility 
of NASD, not the Nasdaq Exchange, because the ``Trade Reporting 
Facility is not a service `for the purpose of effecting or reporting a 
transaction' on the Nasdaq Exchange.'' Id. at 18. The TRF LLC was 
instead ``a service for the purpose of reporting transactions to the 
NASD.'' Id.
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    \6\ Securities Exchange Act Release No. 54084 (June 30, 2006).
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    Similarly, the Commission concluded that the ACES System, ``a 
neutral communications service that allows NASDAQ members and non-
members to route orders to one another,'' is not a facility of the 
NASDAQ Exchange.\7\ The Commission deemed it significant that the ACES 
System does not route orders to NASDAQ and does not report executed 
trades on the Exchange. Id. The Commission emphasized that, because the 
ACES System is ``not linked to the Exchange's core systems, including 
the NASDAQ Market Center,'' it ``is not possible for an order to be 
routed to the NASDAQ Market Center via the ACES system.'' Id. 
Accordingly, the Commission concluded that ACES does not have ``the 
purpose of effecting or reporting a transaction on an exchange'' within 
the meaning of the Exchange Act. Id. The Commission has also permitted 
NASDAQ to remove from its rule book fees related to the Mutual Fund 
Quotation Service and the NASDAQ Index Dissemination Service, both of 
which disseminated market data not properly considered ``facilities'' 
of NASDAQ within the meaning of the Exchange Act.\8\
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    \7\ Securities Exchange Act Release No. 56237 (August 9, 2007).
    \8\ See Securities Exchange Act Release No. 58392 (August 20, 
2008) (removing MFQS from rule book); Securities Exchange Act 
Release No. 58897 (November 3, 2008) (removing NIDS from rule book).
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    Given the plain language of the Exchange Act and the above-
referenced precedents, there is no basis in the Act for determining 
that a market data facility of one exchange is converted into a 
facility of a different exchange that receives and redistributes it. 
Rather, the act of one exchange making available the data from a 
different, third-party exchange is better viewed as a market data 
vendor function. This is true for multiple reasons. First, the 
receiving exchange, in this case NASDAQ, is not an exclusive processor 
of such data, unlike the data that NASDAQ produces. Second, Third-Party 
Data does not provide access or order entry capability to NASDAQ's 
execution system; nor does it carry information from or about 
executions within the NASDAQ execution system. Third, NASDAQ receives 
Third-Party Data via an arms-length agreement and it has no inherent 
advantage over any other recipient of such data, unlike NASDAQ data. 
Moreover, Third-Party Data is available via multiple sources both 
inside and out of the NASDAQ Co-Location facility. It is a completely 
voluntary product in that NASDAQ makes it available on a voluntary 
basis, and NASDAQ's Co-Location clients purchase it from NASDAQ (or 
another vendor) only if they voluntarily choose to do so. For all of 
these reasons, NASDAQ believes that its Third-Party Data service is not 
a facility of a national securities exchange within the meaning of the 
Act and that it is not required under Section 19(b)(1) of the Act \9\ 
and Rule 19b-4 thereunder \10\ to file rules regarding the applicable 
charges.
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    \9\ 15 U.S.C. 78s(b)(1).
    \10\ 17 CFR 240.19b-4.
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2. Statutory Basis
    Nasdaq believes that the Third Party Data is not a facility of a 
national securities exchange within the meaning of the Act and the 
terms of this service are not rules that must be filed with the 
Commission under Section 19(b)(1) of the Act \11\ and Rule 19b-4 
thereunder.\12\ Therefore, removing the applicable provisions from the 
NASDAQ rule book would be consistent with the provisions of Section 
6(b) of the Act.\13\
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    \11\ 15 U.S.C. 78s(b)(1).
    \12\ 17 CFR 240.19b-4.
    \13\ 15 U.S.C. 78f(b).
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    NASDAQ's proposal to remove Third Party Data from the rule manual 
is also consistent with the Exchange Act insofar as it will have no 
impact on NASDAQ's or its members' compliance with Regulation NMS or 
other applicable regulations and rules. First, NASDAQ has no obligation 
under the Exchange Act, either as an exchange or a vendor, to offer 
Third Party Data to NASDAQ members. Having chosen to offer such data 
and to do so on non-discriminatory terms imposes no continuing 
obligation to do so. Second, even assuming NASDAQ did have an 
obligation to make Third Party Data Available, it will continue to do 
so in the same manner if [sic] does now. Therefore, to the extent 
NASDAQ members utilize Third Party Data provided by NASDAQ, that use 
will be uninterrupted. Third, there are multiple vendors of Third Party 
Data, many of whom are not subject to Commission oversight. Some of 
these prominent competitors are TMX Atrium, NYSE/SFTI, Interactive 
Data, BT Radianz as well as many others. Members attempting to comply 
with Regulation NMS have many alternatives for obtaining Third Party 
Data, including NASDAQ.

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

    NASDAQ does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. To the contrary, 
NASDAQ believes that this proposed rule change removing from the NASDAQ 
rule manual a service improperly included, promotes competition by 
removing an impediment to NASDAQ's competition with unregulated market 
data providers with which NASDAQ competes for these services. Removing 
barriers to competition has the potential to promote innovation, reduce 
prices, and increase efficiency.

[[Page 23391]]

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days of such 
date (i) as the Commission may designate if it finds such longer period 
to be appropriate and publishes its reasons for so finding or (ii) as 
to which the Exchange consents, the Commission shall:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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-2014-034 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-2014-034. 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 Nasdaq. 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-2014-034 and should 
be submitted on or before May 19, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09528 Filed 4-25-14; 8:45 am]
BILLING CODE 8011-01-P