[Federal Register Volume 73, Number 93 (Tuesday, May 13, 2008)]
[Notices]
[Pages 27593-27594]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-10566]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57763; File No. SR-NASD-2007-031]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc. (n/k/a Financial Industry Regulatory Authority, Inc.); 
Order Approving Proposed Rule Change as Modified by Amendment Nos. 1, 2 
and 3 Thereto To Amend NASD Rule 7001E To Increase the Percentage of 
Market Data Revenue Shared With NASD/NYSE TRF Participants

May 1, 2008.

I. Introduction

    On April 24, 2007, the National Association of Securities Dealers, 
Inc. (``NASD'') (n/k/a Financial Industry Regulatory Authority, Inc.), 
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 
adjust the percentage of market data revenue shared with NASD/NYSE TRF 
participants.\3\ On June 1, 2007, NASD filed Amendment No. 1 to the 
proposed rule change. On October 29, 2007, FINRA filed Amendment No. 2 
to the proposed rule change. The proposed rule change, as amended, was 
published for comment in the Federal Register on November 14, 2007.\4\ 
The Commission received one comment letter regarding the proposal.\5\ 
On February 4, 2008, FINRA filed Amendment No. 3 to respond to the 
comment letter and to propose a technical change to the original rule 
filing.\6\ This order approves the proposed rule change, as modified by 
Amendment Nos. 1, 2, and 3.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Effective July 30, 2007, Financial Industry Regulatory 
Authority, Inc. (``FINRA'') was formed through the consolidation of 
NASD and the member regulatory functions of NYSE Regulation, Inc.
    \4\ See Securities Exchange Act Release No. 56754 (November 6, 
2007), 72 FR 64101.
    \5\ See letter from Christopher Gilkerson and Gregory Babyak, 
Co-Chairs, Market Data Subcommittee of the SIFMA Technology and 
Regulation Committee, to Nancy M. Morris, Secretary, Commission, 
dated December 5, 2007 (``SIFMA letter'').
    \6\ Amendment No. 3 clarifies that the Tape B revenue sharing 
program includes both the American Stock Exchange LLC and regional 
exchanges. Because it is technical in nature, it is not subject to 
notice and comment (``Amendment No. 3'').
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II. Description of the Proposed Rule Change

    FINRA proposes to amend NASD Rule 7001E to increase the market data 
revenue that is shared with FINRA members that report trades in Tape A, 
Tape B, and Tape C stocks to the NASD/NYSE Trade Reporting Facility 
(the ``NASD/NYSE TRF'').\7\ Currently, FINRA members that report trades 
in Tape A, Tape B, and Tape C stocks to the NASD/NYSE TRF receive a 50% 
pro rata credit on the gross market data revenue earned by the NASD/
NYSE TRF.\8\
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    \7\ In establishing the NASD/NYSE TRF, NASD and NYSE Market, 
Inc. (``NYSE'') entered into the Limited Liability Company Agreement 
of NASD/NYSE Trade Reporting Facility LLC. Under that agreement, 
NASD, as the ``SRO Member,'' has the sole regulatory responsibility 
for the NASD/NYSE TRF. As the ``Business Member,'' NYSE is 
responsible for the management of the business affairs of the NASD/
NYSE TRF, to the extent those activities are not inconsistent with 
FINRA's regulatory functions.
    \8\ ``Gross revenue'' is defined as the revenue received by the 
NASD/NYSE TRF from the three tape associations after the tape 
associations deduct allocated support costs and unincorporated 
business costs.
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    The proposed rule change increases from 50% to 100% the percentage 
of gross market data revenue that is shared with members. FINRA members 
that report trades in Tape A, Tape B and Tape C stocks to the NASD/NYSE 
TRF will thus receive a 100% pro rata credit on gross market data 
revenue earned by the NASD/NYSE TRF.

III. Summary of Comments

    The Commission received one comment letter in response to the 
proposed rule change.\9\ The commenter stated that the proposed rebate 
demonstrated that market data fees are excessive, and do not have a 
fair and reasonable basis.\10\ The commenter noted that, in its 
capacity as the ``SRO Member,'' FINRA allocates and deducts costs 
before passing market data revenue to each TRF. The commenter asserted 
that this ability to allocate costs in the context of a TRF rebuts 
earlier arguments, made by the exchanges, that costs of collection and 
distribution of market data cannot be allocated, and should thus not be 
a basis for determining the reasonableness of market data fees.\11\ The 
commenter also said that the filing did not address the competitive 
impact of the proposed rebates, and that any short-term benefits from 
the rebates could be diminished by the long-term impact of less 
competition.\12\ Finally, the commenter stated that the issue of 
transparency regarding market data costs and revenues, which 
constitutes part of the NetCoalition Petition,\13\ is also present in 
this filing.\14 \
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    \9\ Supra note 5.
    \10\ SIFMA letter at 2.
    \11\ Id.
    \12\ Id. at 3.
    \13\ See Securities Exchange Act Release No. 55011 (December 27, 
2006) (order granting petition for review of SR-NYSEArca-2006-21).
    \14\ SIFMA letter at 3.
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    FINRA responded that the arguments made by the commenter were not 
germane to the proposed rule change. For example, FINRA said that the 
issue of the reasonableness of market data fees and the purported lack 
of transparency regarding the cost of collecting market data are at 
issue in the NetCoalition Petition and need not be resolved in 
connection with this filing.\15\ According to FINRA, the costs of 
collecting and distributing market data are not necessarily 
determinative of the reasonableness of the proposed rebate.\16\ 
Finally, FINRA stated that the proposed rebate does not constitute an 
undue burden on competition that is not in furtherance of the purposes 
of the Act.\17\
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    \15\ See Amendment No. 3, at 4.
    \16\ Id.
    \17\ Id.
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IV. Discussion and Commission Findings

    The Commission has carefully reviewed the proposed rule change, the 
comment letter, and FINRA's response to the comment letter, and finds 
that the proposed rule change is consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to a 
national securities association \18\ and, in particular, the

[[Page 27594]]

requirements of Section 15A(b)(5) of the Act,\19\ which requires that 
FINRA rules provide for the equitable allocation of reasonable dues, 
fees, and other charges among its members and issuers and other persons 
using its facilities.
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    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78o-3(b)(5).
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    The Commission believes that it is reasonable for FINRA to amend 
Rule 7001E to adjust the percentage of market data revenue shared with 
NASD/NYSE TRF participants, effective retroactively to April 18, 2007, 
the date the NASD/NYSE TRF began operation. FINRA seeks to increase the 
rebate of market data revenue to NASD/NYSE TRF participants. Neither 
the costs incurred in collecting that market data, nor the calculation 
of market data fees is directly at issue in this filing. The fact that 
NYSE, as the Business Member, has determined to rebate a greater 
percentage of market data revenue does not establish that the 
underlying fees are excessive. The SIFMA letter does not raise any 
other issue that would preclude approval of the FINRA proposal.

V. Conclusion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and, in particular, Section 15A of the 
Act and the rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-NASD-2007-031), as modified 
by Amendment Nos. 1, 2, and 3, be, and hereby is, approved.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-10566 Filed 5-12-08; 8:45 am]
BILLING CODE 8010-01-P