[Federal Register Volume 71, Number 248 (Wednesday, December 27, 2006)]
[Notices]
[Pages 77842-77844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-22087]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54959; File No. SR-NASDAQ-2006-056]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Establish Nasdaq Custom 
Data Feeds

December 18, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 12, 2006, The NASDAQ Stock Market LLC (``Nasdaq'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II and III below, which 
Items have been prepared substantially by Nasdaq. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Nasdaq proposes to establish a new data filtration service--Nasdaq 
Custom Data Feeds--that will permit entities to request and receive 
customized data feeds containing data elements from Nasdaq's current 
data feeds. The text of the proposed rule change is available at http://nasdaq.complinet.com/file_store/pdf/rulebooks/SR-NASDAQ-2006-056.pdf, 
at Nasdaq, and at the Commission's Public Reference Room.\3\
---------------------------------------------------------------------------

    \3\ Changes are marked to the rule text that appears in the 
electronic NASDAQ Manual found at http://www.nasdaqtrader.com.
---------------------------------------------------------------------------

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. 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
    As quoting and trading have become increasingly automated, the rate 
of market data traffic has increased materially. For example, the rate 
of message traffic on TotalView has increased by more than 250% since 
January 1, 2004. Nasdaq notes that the integration of INET, Brut and 
Nasdaq execution systems into a single system has increased message 
traffic further. The data feeds of all markets are seeing similar, and 
in some cases more pronounced, increases in message traffic. These 
increases strain the capacity of brokers and vendors in two ways, at 
significant expense. First, the telecommunications bandwidth a firm 
purchases must be increased to handle the message traffic without 
material increases in latency or dropped information. Second, once the 
data is received it must be processed, with resulting hardware 
expenses.
    As a result, participants are seeking to ``filter'' or reduce the 
amount of data received without losing information necessary for their 
trading activities. A service that can filter the data without 
impacting data performance or integrity is considered valuable, given 
the savings obtained from lower telecommunications and hardware costs. 
Moreover, some firms prefer that Nasdaq undertake the filtering prior 
to delivery rather than accept the full data and filter it themselves. 
Firms are willing to pay in kind to have ``irrelevant'' data removed 
from their data stream, avoiding superfluous, recurring payments to 
telecommunication providers for what they consider to be ``noise.''
    To respond to this demand, Nasdaq proposes to establish Nasdaq 
Custom Data Feeds, a customized data feed service that would allow 
Nasdaq to accommodate particular subscribers' requests for market data 
feeds containing a pre-specified combination of data elements otherwise 
delivered on multiple data feeds. Customized data feeds would allow a 
customer to receive an entirely unique combination of functionality and 
content.

[[Page 77843]]

    There is a variety of firm types that could be interested in 
customized data feeds. For example, firms whose trading of Nasdaq 
securities is specific to particular subsets of securities might elect 
to receive only data associated with those securities. A common example 
is a trading desk that specializes in trading only Nasdaq-100 
securities and corresponding index products. For such firms, receipt of 
data pertaining to stocks outside the Nasdaq-100 is unnecessary and 
costly from a hardware and software perspective. Another example would 
be a firm whose program trading models exclusively track liquidity 
patterns at the first five price levels on the bid-side and ask-side of 
the market. For such a firm, receipt of liquidity measures beyond the 
fifth price level is again unnecessary, resource intensive, and 
wasteful. Traditional market data vendors, specializing in providing 
all data to their customers, are poor candidates for either of these 
types of customized feeds.
    Additionally, firms have specific protocols or formats that they 
prefer when receiving data feeds. Nasdaq, historically, has delivered 
all data feeds in a uniform format and protocol, but now has the 
ability to offer more flexibility in the delivery mechanisms. 
Therefore, Nasdaq would also customize the data using protocols the 
customer specifies to Nasdaq. For example, market data vendors or 
subscriber firms having made particular technology architecture 
investments may benefit from receipt of the Nasdaq data in particular 
formats. For example, firms having invested in late-model, high-speed 
processors may very much prefer to receive single-channel data feeds 
inclusive of every data point. Such a feed would have the advantage of 
being much easier and efficient to deploy into single-box architecture. 
By contrast, firms with earlier-model technology, and/or an 
architecture with multiple applications reading the data feeds, may 
prefer ``highly channelized'' data feeds, such as one channel for 
securities beginning with the letter A, one for securities beginning 
with the letter B, etc. This allows the firm to utilize existing 
capacity and technology investments in a way reflective of the firm's 
particular needs.
    There are many different customized data feeds that could be 
requested, though the actual usefulness of customized feeds will 
ultimately be determined by how technology and bandwidth trends 
continue to evolve. By charging a fee for the customized data feeds, 
market participants and market data vendors are expected to request and 
deploy customized data feeds only in cases where there is a great deal 
of economic value conferred on the recipient. Customized data feeds 
will be delivered through Nasdaq's existing data dissemination 
architecture under the technological conditions applicable to 
recipients of the un-filtered data feeds.
    Nasdaq will make available the data delivered via any customized 
data feed at the same time it is made available via its regular data 
feeds. This fact alone does not determine the speed with which the data 
would be received at the distributor firm. There are many factors that 
determine the time that a firm receives, processes, acts upon market 
data--regardless of when the data is sent or whether the data feed is 
customized. For example, regardless of the data feed, the amount of 
bandwidth the firm has purchased will impact how quickly the market 
data is received. Furthermore, the sheer number of miles and the number 
of routers and switches between the origin of a data feed and its 
terminus will impact the time it is ultimately received and processed. 
Further, the size of the messages (measured in bits), in conjunction 
with the processing power of the equipment inside the network and at 
the subscriber firm also impact the time a firm receives and acts upon 
the data. In the end, a firm receiving a customized data feed could 
ultimately receive and process the data via its customized data feed 
either prior to or subsequent to when it would receive this data from a 
traditional data feed. It is dependent on all of the above factors. To 
reiterate, Nasdaq will make available data via both traditional and 
customized data feeds at the same time.
    Nasdaq has based its fee schedule for the customized data feeds on 
an array of considerations: (1) What types of requests are most likely 
to be made; (2) the composition and hardware, software, and man-hour 
costs associated with accommodating those requests--noting that there 
could be significant variety between the requests; and (3) a minimum 
level of initial and ongoing support associated with the initiation and 
maintenance of the customized data feeds. In general, these proposed 
fees are intended to approximate the average costs for the prospective 
customized feeds, rather than the cost of any specific customized feed. 
It is expected that some customized feeds could cost more and some 
could cost less to build than the initial fee.
    The price for customized data feeds will have three components: (1) 
A $50,000 initial set-up fee for the establishment and creation of the 
unique feed; (2) the user and distributor fees for the underlying data 
entitlement from which the customized data is extracted; and an 
additional fee of $1000 per month, per filtered feed. For example, if a 
firm requests a feed that contains specific data elements from 
TotalView plus some data elements from the Nasdaq Index Dissemination 
Feed (``NIDS''), the firm would pay the TotalView distributor fee 
(currently between $1,000 and $5,000 per month), plus the NIDS 
distributor fee (currently between $1,500 and $2,000 per month) plus an 
additional fee of $1000 per month for receiving the data in filtered 
format, in addition to the $50,000 set-up fee.
    This is an optional data product that would only be purchased if a 
potential customer determines that the perceived benefit of one of 
these data products outweighs the cost of obtaining it. In other words, 
supply and demand will determine the ultimate success of these data 
products. Nasdaq believes this is consistent with, and critical to, the 
operation of a fair and competitive marketplace. In the order approving 
Regulation NMS, the Commission voiced its support for proposals that 
``would allow investors and vendors greater freedom to make their own 
decisions regarding the data they need.'' \4\ Nasdaq believes that the 
Nasdaq Custom Data Feeds service is precisely the type of product that 
the Commission envisioned when it determined to grant greater 
flexibility in the provision and purchase of market data.
---------------------------------------------------------------------------

    \4\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496 at 37566 (June 29, 2005).
---------------------------------------------------------------------------

2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\5\ in general, and with Section 
6(b)(4) of the Act,\6\ in particular, in that it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons using any facility or system 
which Nasdaq operates or controls, and it does not unfairly 
discriminate between customers, issuers, brokers or dealers. Use of the 
Custom Data Feeds service is voluntary and the subscription fees will 
be imposed on all purchasers equally based on the level of service 
selected. The proposed fees will cover the costs associated with 
establishing the service, responding to customer requests, configuring 
Nasdaq's systems, programming to user specifications, and

[[Page 77844]]

administering the service, among other things.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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. As a general 
matter, the Commission has long held the view that ``competition and 
innovation are essential to the health of the securities markets. 
Indeed, competition is one of the hallmarks of the national market 
system.'' \7\ The Commission has also stated ``that the notion of 
competition is inextricably tied with the notion of economic 
efficiency, and the Act seeks to encourage market behavior that 
promotes such efficiency, lower costs, and better service in the 
interest of investors and the general public.'' \8\
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 43863 (January 19, 
2001), 66 FR 8020 (January 26, 2001).
    \8\ Securities Exchange Act Release No. 54155 (July 20, 2006), 
71 FR 41291 at 41298.
---------------------------------------------------------------------------

    The Commission goes on to state its belief ``that the appropriate 
analysis to determine a proposal's competitive impact is to weigh the 
proposal's overall benefits and costs to competition based on the 
particular facts involved, such as examining whether the proposal would 
promote economically efficient execution of securities and fair 
competition between and among exchange markets and other market 
centers, as well as fair competition between the participants of a 
particular market.'' \9\
---------------------------------------------------------------------------

    \9\ Id.
---------------------------------------------------------------------------

    The Nasdaq Custom Data Feeds service is designed to increase the 
efficiency of executions by enabling vendors to provide market data in 
the manner they deem most cost efficient. Vendors will only utilize the 
service if they conclude that it is economically beneficial to them and 
to their users. There is significant competition for the provision of 
market data to broker-dealers and other market data consumers, as well 
as competition for the orders that generate the data. Nasdaq fully 
expects its competitors to quickly copy this innovative new service as 
they have copied other Nasdaq data products in the past.

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. 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 e-mail to [email protected]. Please include 
File No. SR-NASDAQ-2006-056 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2006-056. This 
file number should be included on the subject line if e-mail 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 inspection 
and copying in the Commission's Public Reference Room. Copies of such 
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-2006-
056 and should be submitted on or before January 17, 2007.
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E6-22087 Filed 12-26-06; 8:45 am]
BILLING CODE 8011-01-P