[Federal Register Volume 74, Number 54 (Monday, March 23, 2009)]
[Notices]
[Pages 12167-12169]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-6146]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59579; File No. SR-NASDAQ-2006-056]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Approving Proposed Rule Change as Modified by Amendment No. 2 Thereto 
To Establish Nasdaq Custom Data Feeds

March 13, 2009.
    On December 12, 2006, The NASDAQ Stock Market LLC (``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 data filtration service called Nasdaq Custom Data Feeds 
(``Service''). The Service would permit entities to request and receive 
customized data feeds containing data elements from Nasdaq's current 
data feeds. The proposed rule change was published in the Federal 
Register on December 27, 2006.\3\ On March 9, 2009, Nasdaq filed 
Amendment No. 1 to the proposed rule change. On March 10, 2009, Nasdaq 
filed Amendment No. 2 to the proposed rule change.\4\
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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. 54959 (December 18, 
2006), 71 FR 77842 (``Notice'').
    \4\ Amendment No. 2 replaced Amendment No. 1, which was 
withdrawn. In Amendment No. 2, Nasdaq proposed to re-number the new 
rule from Rule 7038 to Rule 7047, as rule number 7038 has since been 
used for a subsequent rule. Nasdaq also clarified that the Service 
will only be available with respect to data feeds that contain non-
core market data. Nasdaq also listed the current data feeds which 
can be customized through the Service. Because Amendment No. 2 is 
technical in nature, it is not subject to notice and comment.
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    The Commission received one comment on the proposal from the 
Securities Industry and Financial Markets Association (``SIFMA'').\5\ 
SIFMA believes that the proposed rule change does not meet the 
requirements of the Act because ``there is no cost-based analysis or 
justification for the service in the release.'' \6\ SIFMA also asserts 
that the proposed rule change ``raises problems regarding how the 
proposed fee was calculated.'' \7\ Finally, SIFMA questions if 
competitors will be disadvantaged by the proposal as Nasdaq will have 
processed the raw data into a customized data feed when the data is 
released, and if a commercial service should be provided by Nasdaq or 
if it should instead ``be offered by an affiliate on the condition that 
the terms under which that affiliate receives the underlying market 
data are offered to other vendors so as to assure competition and 
prevent commercial conflicts of interest.'' \8\
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    \5\ See letter from Melissa MacGregor, Assistant Vice President 
and Assistant General Counsel, SIFMA, to Nancy M. Morris, Secretary, 
Commission, dated January 17, 2007.
    \6\ Id. at 1.
    \7\ Id.
    \8\ Id. at 2.
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    The Commission has reviewed carefully the proposed rule change 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 exchange \9\ and, in particular, Section 6(b)(4) of 
the Act,\10\ which requires, among other things, that Nasdaq's rules 
provide for the equitable allocation of reasonable dues, fees and other 
charges among members and

[[Page 12168]]

issuers and other persons using any facility or system which Nasdaq 
operates or controls. The Commission also finds that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act,\11\ which requires, among other things, that Nasdaq's rules not 
unfairly discriminate between customers, issuers, brokers or dealers.
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    \9\ 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).
    \10\ 15 U.S.C. 78f(b)(4).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposed rule change is consistent 
with these statutory standards. Use of the Service is optional, and the 
fees associated with the Service will be imposed on all subscribers 
equally, based on the level of service that is selected. The fees for 
the Service are intended to approximate the average costs of 
establishing and maintaining a customized feed.\12\
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    \12\ See Notice at 77843.
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    In addition, the proposal meets the criteria, formulated by the 
Commission \13\ in connection with the petition filed by 
NetCoalition,\14\ for approval of proposed rule changes concerning the 
distribution of non-core market data.\15\ In its order issued in 
connection with the NetCoalition petition, the Commission stated that 
``reliance on competitive forces is the most appropriate and effective 
means to assess whether terms for the distribution of non-core data are 
equitable, fair and reasonable, and not unreasonably discriminatory.'' 
\16\ As such, the ``existence of significant competition provides a 
substantial basis for finding that the terms of an exchange's fee 
proposal are equitable, fair, reasonable, and not unreasonably or 
unfairly discriminatory.'' \17\ If an exchange ``was subject to 
significant competitive forces in setting the terms of a proposal,'' 
the proposal will be approved unless the Commission determines that 
``there is a substantial countervailing basis to find that the terms 
nevertheless fail to meet an applicable requirement of the Exchange Act 
or the rules thereunder.'' \18\
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    \13\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \14\ See Securities Exchange Act Release No. 55011 (December 27, 
2006) (order granting petition for review of SR-NYSEArca-2006-21).
    \15\ The Commission's order distinguishes between core market 
data, which is defined as ``the best-priced quotations and last sale 
information of all markets in U.S.-listed equities that Commission 
rules require to be consolidated and distributed to the public by a 
single central processor,'' and non-core market data. See 73 FR at 
74771. Because the Service, which provides customized data feeds 
using data that is available through Nasdaq's current proprietary 
data feeds, does not involve core market data, this proposed rule 
change is properly categorized as a non-core market data proposal.
    \16\ Id. at 74781.
    \17\ Id. at 74781-82.
    \18\ Id. at 74781. In approving NYSEArca-2006-21, the Commission 
found that the proposed rule change was consistent with Section 
6(b)(4) of the Act, 15 U.S.C. 78f(b)(4). See 73 FR at 74779. The 
Commission also found that the proposal was consistent with Section 
6(b)(5) of the Act, 15 U.S.C. 78f(b)(5), Section 6(b)(8) of the Act, 
15 U.S.C. 78f(b)(8), and Rule 603(a) of Regulation NMS, 17 CFR 
242.603(a). See 73 FR at 74779. The Commission noted that the 
presence of competitive forces guided its analysis under both 
Section 6 of the Act and Rule 603 of Regulation NMS. Id.
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    In its order approving NYSEArca-2006-21, the Commission also stated 
that the terms of a proposed rule change to distribute market data for 
which the exchange is the exclusive processor must provide for an 
equitable allocation of fees under Section 6(b)(4) of the Act,\19\ not 
be designed to permit unfair discrimination under Section 6(b)(5) of 
the Act,\20\ be fair and reasonable under Rule 603(a)(1),\21\ and not 
be unreasonably discriminatory under Rule 603(a)(2).\22\ If the 
proposal involves non-core market data, an analysis of competitive 
forces may be used, and that analysis will apply to findings under 
Section 6 of the Act, and to findings under Rule 603.\23\
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    \19\ 15 U.S.C. 78f(b)(4).
    \20\ 15 U.S.C. 78f(b)(5).
    \21\ 17 CFR 242.603(a)(1).
    \22\ 17 CFR 242.603(a)(2). See 73 FR at 74782.
    \23\ See 73 FR at 74779.
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    The Service customizes the information that is available through 
Nasdaq's current proprietary data feeds. These current data feeds serve 
as an alternative to the Service, and potential subscribers to the 
Service can determine if the Service provides a benefit over the 
current data feeds that justifies its added cost. In addition, Nasdaq 
has represented that there is significant competition in the 
distribution of market data to broker-dealers and to other consumers, 
and that it fully expects its competitors to quickly replicate the 
Service.\24\ In that scenario, potential subscribers to the Service 
would have the added option of selecting a customized product offered 
by a competitor.
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    \24\ See Notice at 77844.
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    Nasdaq was subject to significant competitive forces in formulating 
the terms of the Service--specifically, the availability to market 
participants of alternatives to purchasing the Service. Because the 
proposed Service involves the distribution of non-core market data, and 
significant competitive forces are present, the Service is thus 
consistent with Section 6(b)(4) \25\ and Section 6(b)(5) of the 
Act,\26\ and with Rule 603(a).\27\ There is not a substantial 
countervailing basis that would render the proposal inconsistent with 
the Act or the rules thereunder.
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    \25\ 15 U.S.C. 78f(b)(4).
    \26\ 15 U.S.C. 78f(b)(5).
    \27\ 17 CFR 242.603(a).
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    As described above, SIFMA submitted a comment letter in which it 
asserted that Nasdaq did not include a cost-based analysis or 
justification for the Service in its proposed rule change. SIFMA also 
questioned whether competitors would be disadvantaged by the proposal, 
and queried whether the Service should be offered through an affiliate 
of Nasdaq, with Nasdaq offering the underlying data to its affiliate 
and to other vendors on equal terms.
    With respect to the basis for the proposed fees for the Service, 
Nasdaq has represented that those fees are intended to approximate the 
average costs of establishing and maintaining a customized feed. 
Moreover, the Commission has stated that proposed fees need not be 
subject to a cost-based review in order to conclude that such fees are 
fair and reasonable.\28\ Rather, the criteria for review should be 
``appropriate to the circumstances,'' and the existence of competitive 
forces is ``particularly appropriate'' when assessing a proposed 
fee.\29\ As noted above, Nasdaq was subject to significant competitive 
forces in formulating the terms of the Service. A cost-based review is 
therefore not necessary here.
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    \28\ See 73 FR at 74787.
    \29\ Id.
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    With respect to SIFMA's proposal that the Service be offered 
through an affiliate of Nasdaq, and that Nasdaq offer the underlying 
data on equal terms to its affiliate and competitors alike, a similar 
proposal was made in the context of SR-NYSEArca-2006-21.\30\ In its 
order approving that rule change, the Commission found that such a 
proposal was not necessary or appropriate, as NYSE Arca, Inc. was 
subject to significant competitive forces in setting the terms of its 
data product.\31\ Given the presence of significant competitive forces 
here, SIFMA's proposal that Nasdaq offer the Service through an 
affiliate, and provide Nasdaq and other vendors access to the 
underlying data on equal terms, is also unnecessary.\32\
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    \30\ See FR at 74775 (summarizing comments received on the 
proposed rule change from, among others, SIFMA).
    \31\ Id. at 74787.
    \32\ In its filing, Nasdaq represented that it would make the 
data delivered by the Service available at the same time that the 
data is made available through Nasdaq's current data feeds. In 
addition, Nasdaq stated that, due to factors such as bandwidth and 
equipment capacity, a subscriber to the Service may receive the 
current data feed before receiving its customized data feed. See 
Notice at 77843.

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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\33\ that the proposed rule change (SR-NASDAQ-2006-056), as 
modified by Amendment No. 2 be, and it hereby is, approved.
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    \33\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-6146 Filed 3-20-09; 8:45 am]
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