[Federal Register Volume 73, Number 93 (Tuesday, May 13, 2008)]
[Notices]
[Pages 27586-27587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-10569]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57765; File No. SR-FINRA-2007-041]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Approving Proposed Rule Change To Amend NASD 
Rule 7001B To Increase the Percentage of Market Data Revenue Shared 
With NASD/Nasdaq TRF Participants

May 1, 2008.

I. Introduction

    On December 21, 2007, Financial Industry Regulatory Authority, Inc. 
(``FINRA''), 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 participants in the NASD/Nasdaq Trade Reporting Facility 
(``NASD/Nasdaq TRF''). The proposed rule change was published for 
comment in the Federal Register on January 24, 2008.\3\ The Commission 
received one comment letter regarding the proposal.\4\ On March 27, 
2008, FINRA submitted its response to the comment letter.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57164 (January 17, 
2008), 73 FR 4295.
    \4\ 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 February 14, 2008 (``SIFMA letter'').
    \5\ See letter from Lisa C. Horrigan, Associate General Counsel, 
FINRA, to Nancy M. Morris, Secretary, Commission, dated March 27, 
2008 (``FINRA letter'').

This order approves the proposed rule change.

II. Description of the Proposed Rule Change

    FINRA proposes to amend NASD Rule 7001B (Securities Transaction 
Credit) to modify the percentage of market data revenue that is shared 
with FINRA members that report trades to the NASD/Nasdaq TRF for 
transactions on the New York Stock Exchange (``Tape A''), American 
Stock Exchange and regional exchanges (``Tape B''), and Nasdaq Exchange 
(``Tape C''). At present, FINRA members that report trades in Tape A, 
Tape B, and Tape C securities to the NASD/Nasdaq TRF receive a 50% pro 
rata credit on market data revenue that is earned by the NASD/Nasdaq 
TRF.\6\
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    \6\ The market data revenue consists of the revenue received by 
the NASD/Nasdaq TRF from the Consolidated Tape Association or the 
Nasdaq Securities Information Processor minus any charge for 
capacity usage. The proposed rule eliminates the deduction for 
capacity usage.
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    The proposed rule change establishes a tiered rebate schedule 
whereby a participant in the NASD/Nasdaq TRF will receive from 0% to 
100% of attributable market data revenue, depending upon the tape and 
the participant's market share. For example, a participant will receive 
100% of the attributable market data revenue for trades in Tape A-
listed stocks if its trade reports for those stocks are greater than or 
equal to 0.25% of the total consolidated volume of those stocks. In 
contrast, a participant will receive 100% of the attributable market 
data revenue for trades in Tape C-listed stocks if its trade reports 
for those stocks are greater than or equal to 0.75% of the total 
consolidated volume of those stocks. Similarly, a participant will 
receive 80% of the attributable market data revenue for trades in Tape 
A-listed stocks if its trade reports for those stocks are less than 
0.25%, but greater than or equal to 0.15%, of the total consolidated 
volume of those stocks. A participant will receive 80% of the 
attributable market data revenue for trades in Tape C-listed stocks if 
its trade reports for those stocks are less than 0.75%, but greater 
than or equal to 0.25% of the total consolidated volume of those 
stocks.
    In its filing with the Commission, FINRA stated that according to 
Nasdaq, it based the percentage of revenue that

[[Page 27587]]

it would share on different levels of market share because of the 
extent to which members use the NASD/Nasdaq TRF to report trades in 
different stocks. For example, FINRA stated that members report higher 
volumes of trades in Tape C stocks than in Tape A or Tape B stocks, 
justifying a higher level of market share for Tape C transactions.
    FINRA will calculate a participant's market share separately for 
each tape. To calculate a participant's market share, FINRA will divide 
the total number of shares represented by trades reported by members to 
the NASD/Nasdaq TRF during a calendar quarter by the total number of 
shares represented by all trades reported to the Consolidated Tape 
Association or Securities Information Processor during that quarter.

III. Summary of Comments

    The Commission received one comment letter in response to the 
proposed rule change.\7\ The commenter stated that the proposed rebate 
demonstrated that market data fees are excessive, and do not have a 
fair and reasonable basis.\8\ The commenter noted that, in its capacity 
as the ``SRO Member,'' FINRA allocates and deducts costs before passing 
market data revenue to each TRF. According to the commenter, 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.\9\ The 
commenter also asserted that the proposed rule change did not address 
the competitive impact of the filing, and that any short-term benefits 
from the market data revenue rebates could be diminished by the long-
term impact of less competition.\10\ Finally, the commenter said that 
the proposal addresses issues that are also present in the NetCoalition 
Petition.\11\
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    \7\ Supra note 4.
    \8\ SIFMA letter at 1.
    \9\ Id. at 2.
    \10\ Id. at 3.
    \11\ SIFMA letter at 1. See Securities Exchange Act Release No. 
55011 (December 27, 2006) (order granting petition for review of SR-
NYSEArca-2006-21).
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    FINRA responded that the arguments made by the commenter were not 
germane to the proposed rule change. For example, FINRA stated 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.\12\ FINRA also stated that the costs of 
collecting and distributing market data are not necessarily 
determinative of the reasonableness of the proposed rebate.\13\ 
Finally, FINRA stated that the proposed rebate does not constitute an 
undue burden on competition that is not in furtherance of the Act.\14\
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    \12\ See FINRA letter at 2.
    \13\ Id.
    \14\ 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 \15\ and, in particular, the 
requirements of Section 15A(b)(5) of the Act,\16\ 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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    \15\ 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).
    \16\ 15 U.S.C. 78o-3(b)(5).
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    The Commission believes that it is reasonable for FINRA to amend 
Rule 7001B to adjust the percentage of market data revenue shared with 
NASD/Nasdaq TRF participants, effective retroactively to January 1, 
2008. FINRA seeks to modify the rebate of market data revenue to NASD/
Nasdaq 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 Nasdaq, as the Business Member, has 
determined to adjust its rebate schedule such that participants may 
receive a greater percentage of market data revenue does not establish 
that the 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,\17\ that the proposed rule change (SR-FINRA-2007-041) be, and 
hereby is, approved.
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    \17\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-10569 Filed 5-12-08; 8:45 am]
BILLING CODE 8010-01-P