[Federal Register Volume 70, Number 115 (Thursday, June 16, 2005)]
[Notices]
[Pages 35151-35153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-11927]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51814; File No. SR-NASD-2004-185]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving a Proposed Rule Change and Amendment 
Nos. 1 and 2 Thereto To Establish a Unitary Fee Schedule for 
Distribution of Real Time Data Feed Products Containing Nasdaq Market 
Center Data

June 9, 2005.

I. Introduction

    On December 14, 2004, the National Association of Securities 
Dealers, Inc. (``NASD''), through its subsidiary, the Nasdaq Stock 
Market, Inc. (''Nasdaq''), filed with the Securities and Exchange 
Commission (''Commission''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to establish a unitary fee 
schedule for distribution of real time data feed products containing 
Nasdaq market center data. On February 17, 2005, Nasdaq filed Amendment 
No. 1 to the original filing.\3\ Nasdaq filed Amendment No. 2 on April 
14, 2005.\4\ The proposed rule change, as amended, was published for 
comment in the Federal Register on April 28, 2005.\5\ The Commission 
received one comment on the proposed rule change.\6\ This order 
approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the original 
proposed rule change in its entirety.
    \4\ Amendment No. 2 replaced and superseded the original 
proposed rule change, as amended.
    \5\ See Securities Exchange Act Release No. 51598 (Apr. 21, 
2005), 70 FR 22162.
    \6\ See letter from Gene L. Finn to Jonathan Katz, Secretary, 
Securities and Exchange Commission dated May 17, 2005 (``Finn 
Letter'').
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II. Description of the Proposal

    Nasdaq proposes to modify NASD Rule 7010 to establish a unitary fee 
schedule for the distribution of Nasdaq Market Center real time data 
feed products. Nasdaq offers various data products that firms may 
purchase and redistribute either within their own organizations or to 
outside parties. According to Nasdaq, ``distributor fees'' are designed 
to encourage broad distribution of the data, and allow Nasdaq to 
recover what it describes as the relatively high fixed costs associated 
with supporting connectivity and contractual relationships with 
distributors. Nasdaq believes that because the data products and 
associated fees were established over many years, the method of 
calculating such fees should be updated. Accordingly, Nasdaq proposes 
to establish a revised monthly distributor pricing structure for its 
real time data feed products that it believes will allocate equitably 
data fees across the customer base of data distributors and consumers 
of Nasdaq market data.
    Specifically, the proposed rule change will establish a distributor 
fee pricing structure for four real time data feed products: TotalView, 
OpenView, Mutual Fund Quotation Service (``MFQS''), and Real Time 
Index. The proposed fees will be assessed to distributors of these real 
time data feed products, defined in the proposed rule change to include 
any entity that receives a feed or data file of Nasdaq data directly 
from Nasdaq or indirectly through another entity and then distributes 
it either internally (within that entity) or externally (outside the 
entity). The new distributor fees would not apply to Nasdaq's Web-based 
historical data products, which are governed by NASD Rule 7010(p), and 
they would not apply to data feeds that are produced pursuant to the 
national market system plan governing Nasdaq stocks (``Nasdaq UTP 
Plan''). The proposed distributor pricing is also distinct from any per 
display device or

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per user population fees for data products such as TotalView.
    The proposed pricing structure is comprised of two components for 
each Nasdaq real time data feed product: (1) A monthly Direct Access 
Fee, and (2) either a monthly Internal Distribution Fee or a monthly 
External Distribution Fee. The Direct Access Fee will apply to any 
organization that receives a real time data product directly from 
Nasdaq via a data feed. Distributors receiving Nasdaq real time data 
indirectly (i.e., via re-transmission from another entity) will not be 
liable for the Direct Access Fee. Nasdaq represents that this fee will 
allow it to recover the fixed costs of establishing and maintaining 
relationships with direct access distributors.
    The Internal Distribution Fee will apply to any organization that 
receives a real time data feed product (either directly from Nasdaq or 
through a vendor) and distributes the data solely within its own 
organization. The External Distribution Fee will apply to any 
organization that receives a real time data feed product (either 
directly from Nasdaq or through a vendor) and distributes the data 
outside its own organization. Nasdaq states that the External 
Distribution Fee is higher than the Internal Distribution Fee because 
external distributors typically have broader distribution of the data 
than internal distributors. An organization that receives real time 
data directly from Nasdaq will pay the Direct Access Fee plus the 
higher of either the Internal Distribution or External Distribution Fee 
but not both. An organization that only receives a real time data feed 
indirectly and distributes it within its organization will pay the 
Internal Distribution Fee; an organization that receives data 
indirectly and distributes it outside its organization will pay the 
External Distribution Fee; and an organization that receives a real 
time data feed indirectly and distributes it both internally and 
externally will pay the External Distribution Fee.
    Under the proposed pricing structure, Nasdaq real time data feed 
products that are available for distribution will be divided into two 
categories: ``Issuer Specific Data'' and ``Market Summary Statistics.'' 
Issuer Specific Data will further be divided into a ``Dynamic 
Intraday'' subcategory and a ``Daily'' subcategory. Market Summary 
Statistics, at present, will have one subcategory: ``Intraday.'' Each 
subcategory of real time data feed product will be assigned a Direct 
Access Fee, Internal Distribution Fee, and External Distribution Fee.
    The change will effect distributor fees for the aforementioned 
products as follows: Currently, the monthly distribution fee for Nasdaq 
TotalView (set forth at Rule 7010(q)) is based on whether the data 
distributor receives the TotalView data in an aggregate or detailed 
form. The current monthly fee for TotalView data in aggregate form is 
$1,000 per distributor and in detailed form is $7,500 per distributor. 
There is no current monthly distributor fee for OpenView. Under the 
proposed fee structure, TotalView and OpenView, whether in aggregate or 
detailed form, will fall into the ``Issue Specific Data-Dynamic 
Intraday'' subcategory, for which the proposed monthly fees are $2,500 
for Direct Access, $1,000 for Internal Distribution, and $2,500 for 
External Distribution.\7\ Organizations that currently purchase 
detailed TotalView information, particularly internal distributors and 
non-direct connection recipients, will pay less in the future; 
organizations that currently purchase aggregate TotalView data, 
particularly those that access the data directly, will pay higher fees.
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    \7\ Nasdaq believes that because OpenView provides the same 
depth and scope of information for exchange-listed securities as 
TotalView does for Nasdaq-listed securities, and entails similar 
costs, it is appropriate to put into place the same distribution fee 
structure for OpenView at this time. Telephone conversation between 
Bill O'Brien, Senior Vice President, Market Data Distribution, 
Nasdaq, and Ira Brandriss, Assistant Director, Division of Market 
Regulation, Commission, April 21, 2005.
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    The current monthly fee for distribution of the MFQS is $1,000 for 
each external distributor. Under the proposed fee structure, MFQS data 
will fall into the ``Issue Specific Data--Daily'' subcategory, for 
which the proposed monthly fees are $500 for Direct Access, $500 for 
External Distribution, and no charge for Internal Distribution. The 
proposed pricing will benefit external distributors that do not take 
their data directly from Nasdaq. Organizations that take their data 
directly from Nasdaq but only distribute it internally will pay the 
Direct Access Fee.
    Under the current monthly fee structure set forth in NASD Rule 
7030, the fee for Real-Time Index data is $2,000 for external 
distributors. Under the proposed fee structure, Real-Time Index data 
will be labeled as ``Market Summary Statistics--Intraday.'' The 
proposed monthly fees for Market Summary Statistics will involve a 
Direct Access fee of $500, an Internal Distribution Fee of $50, and an 
External Distribution fee of $1,500. The proposed pricing will decrease 
the costs of non-direct connection external distributors, but increase 
them for organizations that distribute the data internally.
    Nasdaq is also proposing a more flexible policy for distributor 
reporting of, and payment for, market data usage. NASD Rule 7060 
currently provides that such reporting be based on a pro-rated 
accounting of the specific installation and termination dates for 
service. Because some data distributors prefer to report data usage on 
a ``full-month'' basis, Nasdaq will offer its market data distributors 
the option of reporting and paying based on either a pro-rated or full-
month basis. The selection of pro-rated or full-month reporting will be 
the business decision of each market data distributor based on its 
needs and the needs of its customers.

III. Discussion and Commission Findings

    After careful review of the proposal and consideration of the 
comment letter, the Commission finds that the proposed rule change, as 
amended, is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities association.\8\ In 
particular, the Commission believes that the proposed rule change, as 
amended, is consistent with section 15A(b)(5) of the Act,\9\ which 
requires that the rules of a national securities association provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among members and issuers and other persons using any facility 
or system which the association operates or controls. Specifically, the 
Commission believes that the proposed pricing structure is reasonable 
and notes that it would apply across-the-board to distributors of the 
aforementioned Nasdaq real time data feed products. In approving the 
proposed rule change, the Commission notes that, pursuant to Section 
19(b)(1) of the Act \10\ and Rule 19b-4 thereunder,\11\ Nasdaq will be 
required to file with the Commission proposed rule changes relating to 
any additional Nasdaq real time data feed products to which it plans to 
apply the new pricing structure in the future.
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    \8\ The Commission has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78o-3(b)(5).
    \10\ 15 U.S.C. 78s(b)(1).
    \11\ 17 CFR 240.19b-4.
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    The Commission received one comment letter on the proposal.\12\ 
Referring to ``Section 7030--Special Options'' of the NASD Marketplace 
Rules, the commenter stated that the proposed rule change continues to 
apply a discriminatory access fee to nonprofessional online investors. 
The

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commenter also set forth a series of reasons why he believes generally 
that nonprofessional access fees for online investors should be 
eliminated, noting that he has enumerated these reasons in comment 
letters to the Commission in the past. The Commission notes that the 
continuance of fees for the data products included in NASD Rule 7030 is 
not the subject of the proposed rule change, although a different 
pricing structure for the fees charged to distributors for the Nasdaq 
Market Index, which is being moved from NASD Rule 7030 to Rule 7010, is 
being proposed. With respect to the commenter's more general concerns 
about nonprofessional access fees for online investors, the Commission 
notes that it has recently solicited public comment as part of a 
comprehensive review it has undertaken regarding market data fees and 
revenues,\13\ and the commenter's views will be taken into account in 
that review.
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    \12\ See Finn Letter, supra note 6.
    \13\ See Securities Exchange Act Release No. 50700 (Nov. 18, 
2004), 69 FR 71256 (Dec. 8, 2004). See also Securities Exchange Act 
Release No. 50699 (Nov. 18, 2004), 69 FR 71126 (Dec. 8, 2004).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NASD-2004-185), as amended, 
is approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 05-11927 Filed 6-15-05; 8:45 am]
BILLING CODE 8010-01-P