[Federal Register Volume 75, Number 130 (Thursday, July 8, 2010)]
[Notices]
[Pages 39315-39319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16567]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62428; File No. SR-NASDAQ-2010-081]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Order Granting Accelerated Approval to a Proposed 
Rule Change To Extend the Last Sale Data Feeds Pilot Program

July 1, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 39316]]

(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 30, 2010, The NASDAQ Stock Market LLC (``NASDAQ'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons, and is approving the 
proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ is proposing to extend for three months the pilot that 
created the NASDAQ Last Sale (``NLS'') market data products. NLS allows 
data distributors to have access to real-time market data for a capped 
fee, enabling those distributors to provide free access to the data to 
millions of individual investors via the Internet and television. 
Specifically, NASDAQ offers the ``NASDAQ Last Sale for NASDAQ'' and 
``NASDAQ Last Sale for NYSE/Amex'' data feeds containing last sale 
activity in U.S. equities within the NASDAQ Market Center and reported 
to the jointly-operated FINRA/NASDAQ Trade Reporting Facility (``FINRA/
NASDAQ TRF''). The purpose of this proposal is to extend the existing 
pilot program for a three-month period beginning on July 1, 2010.
    This pilot program supports the aspiration of Regulation NMS to 
increase the availability of proprietary data by allowing market forces 
to determine the amount of proprietary market data information that is 
made available to the public and at what price. During the current 
pilot period, the program has vastly increased the availability of 
NASDAQ proprietary market data to individual investors. Based upon data 
from NLS distributors, NASDAQ believes that since its launch in July 
2008, the NLS data has been viewed by over 50,000,000 investors on Web 
sites operated by Google, Interactive Data, and Dow Jones, among 
others.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.\3\
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    \3\ Changes are marked to the rule text that appears in the 
electronic NASDAQ Manual found at http://nasdaqomx.cchwallstreet.com.
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* * * * *

7039. NASDAQ Last Sale Data Feeds

    (a) For a [six] three month pilot period commencing on [January] 
July 1, 2010, NASDAQ shall offer two proprietary data feeds 
containing real-time last sale information for trades executed on 
NASDAQ or reported to the NASDAQ/FINRA Trade Reporting Facility.
    (1) ``NASDAQ Last Sale for NASDAQ'' shall contain all 
transaction reports for NASDAQ-listed stocks; and
    (2) ``NASDAQ Last Sale for NYSE/Amex'' shall contain all such 
transaction reports for NYSE- and NYSE Amex-listed stocks.
    (b)-(c) No change.
* * * * *

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 and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item III 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
    Prior to the launch of NLS, public investors that wished to view 
market data to monitor their portfolios generally had two choices: (1) 
Pay for real-time market data or (2) use free data that is 15 to 20 
minutes delayed. To increase consumer choice, NASDAQ proposed a pilot 
to offer access to real-time market data to data distributors for a 
capped fee, enabling those distributors to disseminate the data via the 
Internet and television at no cost to millions of Internet users and 
television viewers. NASDAQ now proposes a three-month extension of that 
pilot program on the same terms as applicable today.\4\
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    \4\ NASDAQ previously stated that it would file a proposed rule 
change seeking permanent approval of the NLS pilot. NASDAQ has also 
informed Commission staff that it will consult with FINRA to develop 
a proposed rule change by FINRA to seek permanent Commission 
approval for inclusion of FINRA/NASDAQ TRF data in NLS. Because 
NASDAQ and FINRA have not completed their consultations regarding 
such a proposed rule change, NASDAQ is not yet in a position to file 
for permanent approval of NLS. Accordingly, NASDAQ is filing to seek 
a three-month extension of the existing pilot.
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    The NLS pilot created two separate ``Level 1'' products containing 
last sale activity within the NASDAQ market and reported to the 
jointly-operated FINRA/NASDAQ TRF. First, the ``NASDAQ Last Sale for 
NASDAQ Data Product,'' a real-time data feed that provides real-time 
last sale information including execution price, volume, and time for 
executions occurring within the NASDAQ system as well as those reported 
to the FINRA/NASDAQ TRF. Second, the NASDAQ Last Sale for NYSE/Amex 
data product that provides real-time last sale information including 
execution price, volume, and time for NYSE- and NYSE Amex-securities 
executions occurring within the NASDAQ system as well as those reported 
to the FINRA/NASDAQ TRF.
    NASDAQ established two different pricing models, one for clients 
that are able to maintain username/password entitlement systems and/or 
quote counting mechanisms to account for usage, and a second for those 
that are not. Firms with the ability to maintain username/password 
entitlement systems and/or quote counting mechanisms will be eligible 
for a specified fee schedule for the NASDAQ Last Sale for NASDAQ 
Product and a separate fee schedule for the NASDAQ Last Sale for NYSE/
Amex Product: Firms that were unable to maintain username/password 
entitlement systems and/or quote counting mechanisms will also have 
multiple options for purchasing the NASDAQ Last Sale data. These firms 
chose between a ``Unique Visitor'' model for Internet delivery or a 
``Household'' model for television delivery. Unique Visitor and 
Household populations must be reported monthly and must be validated by 
a third-party vendor or ratings agency approved by NASDAQ at NASDAQ's 
sole discretion. In addition, to reflect the growing confluence between 
these media outlets, NASDAQ offered a reduction in fees when a single 
distributor distributes NASDAQ Last Sale Data Products via multiple 
distribution mechanisms.
    Second, NASDAQ established a cap on the monthly fee, currently set 
at $50,000 per month for all NASDAQ Last Sale products. The fee cap 
enables NASDAQ to compete effectively against other exchanges that also 
offer last sale data for purchase or at no charge.
    As with the distribution of other NASDAQ proprietary products, all 
distributors of the NASDAQ Last Sale for NASDAQ and/or NASDAQ Last Sale 
for NYSE/Amex products would pay a single $1,500/month NASDAQ Last Sale 
Distributor Fee in addition to any applicable usage fees. The $1,500 
monthly fee will apply to all distributors and will not vary based on 
whether the distributor distributes the data internally or externally 
or

[[Page 39317]]

distributes the data via both the Internet and television.
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 an equitable 
allocation of reasonable fees among users and recipients of NASDAQ 
data. In adopting Regulation NMS, the Commission granted self-
regulatory organizations and broker-dealers increased authority and 
flexibility to offer new and unique market data to the public. It was 
believed that this authority would expand the amount of data available 
to consumers, and also spur innovation and competition for the 
provision of market data.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4).
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    The NASDAQ Last Sale market data products proposed here appear to 
be precisely the sort of market data product that the Commission 
envisioned when it adopted Regulation NMS. The Commission concluded 
that Regulation NMS--by lessening regulation of the market in 
proprietary data--would itself further the Act's goals of facilitating 
efficiency and competition:

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data. The Commission also believes that 
efficiency is promoted when broker-dealers may choose to receive 
(and pay for) additional market data based on their own internal 
analysis of the need for such data.\7\

    \7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496 (June 29, 2005).
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    By removing ``unnecessary regulatory restrictions'' on the ability 
of exchanges to sell their own data, Regulation NMS advanced the goals 
of the Act and the principles reflected in its legislative history. If 
the free market should determine whether proprietary data is sold to 
broker-dealers at all, it follows that the price at which such data is 
sold should be set by the market as well.
    NASDAQ's ability to price its Last Sale Data Products is 
constrained by (1) competition between exchanges and other trading 
platforms that compete with each other in a variety of dimensions; (2) 
the existence of inexpensive real-time consolidated data and free 
delayed consolidated data, and (3) the inherent contestability of the 
market for proprietary last sale data.
    The market for proprietary last sale data products is currently 
competitive and inherently contestable because there is fierce 
competition for the inputs necessary to the creation of proprietary 
data and strict pricing discipline for the proprietary products 
themselves. Numerous exchanges compete with each other for listings, 
trades, and market data itself, providing virtually limitless 
opportunities for entrepreneurs who wish to produce and distribute 
their own market data. This proprietary data is produced by each 
individual exchange, as well as other entities, in a vigorously 
competitive market.
    Broker-dealers currently have numerous alternative venues for their 
order flow, including ten self-regulatory organization (``SRO'') 
markets, as well as internalizing broker-dealers (``BDs'') and various 
forms of alternative trading systems (``ATSs''), including dark pools 
and electronic communication networks (``ECNs''). Each SRO market 
competes to produce transaction reports via trade executions, and two 
FINRA-regulated Trade Reporting Facilities (``TRFs'') compete to 
attract internalized transaction reports. It is common for BDs to 
further and exploit this competition by sending their order flow and 
transaction reports to multiple markets, rather than providing them all 
to a single market. Competitive markets for order flow, executions, and 
transaction reports provide pricing discipline for the inputs of 
proprietary data products.
    The large number of SROs, TRFs, BDs, and ATSs that currently 
produce proprietary data or are currently capable of producing it 
provides further pricing discipline for proprietary data products. Each 
SRO, TRF, ATS, and BD is currently permitted to produce proprietary 
data products, and many currently do or have announced plans to do so, 
including NASDAQ, NYSE, NYSE Amex, NYSEArca, and BATS.
    Any ATS or BD can combine with any other ATS, BD, or multiple ATSs 
or BDs to produce joint proprietary data products. Additionally, order 
routers and market data vendors can facilitate single or multiple 
broker-dealers' production of proprietary data products. The potential 
sources of proprietary products are virtually limitless.
    The fact that proprietary data from ATSs, BDs, and vendors can by-
pass SROs is significant in two respects. First, non-SROs can compete 
directly with SROs for the production and sale of proprietary data 
products, as BATS and Arca did before registering as exchanges by 
publishing proprietary book data on the Internet. Second, because a 
single order or transaction report can appear in an SRO proprietary 
product, a non-SRO proprietary product, or both, the data available in 
proprietary products is exponentially greater than the actual number of 
orders and transaction reports that exist in the marketplace.
    Consolidated data provides two additional measures of pricing 
discipline for proprietary data products that are a subset of the 
consolidated data stream. First, the consolidated data is widely 
available in real-time at $1 per month for non-professional users. 
Second, consolidated data is also available at no cost with a 15- or 
20- minute delay. Because consolidated data contains marketwide 
information, it effectively places a cap on the fees assessed for 
proprietary data (such as last sale data) that is simply a subset of 
the consolidated data. The mere availability of low-cost or free 
consolidated data provides a powerful form of pricing discipline for 
proprietary data products that contain data elements that are a subset 
of the consolidated data, by highlighting the optional nature of 
proprietary products.
    Market data vendors provide another form of price discipline for 
proprietary data products because they control the primary means of 
access to end users. Vendors impose price restraints based upon their 
business models. For example, vendors such as Bloomberg and Reuters 
that assess a surcharge on data they sell may refuse to offer 
proprietary products that end users will not purchase in sufficient 
numbers. Internet portals, such as Google, impose a discipline by 
providing only data that will enable them to attract ``eyeballs'' that 
contribute to their advertising revenue. Retail broker-dealers, such as 
Schwab and Fidelity, offer their customers proprietary data only if it 
promotes trading and generates sufficient commission revenue. Although 
the business models may differ, these vendors' pricing discipline is 
the same: they can simply refuse to purchase any proprietary data 
product that fails to provide sufficient value. NASDAQ and other 
producers of proprietary data products must understand and respond to 
these varying business models and pricing disciplines in order to 
market proprietary data products successfully.
    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid, inexpensive, and profitable. 
The history of electronic trading is replete with examples entrants 
that swiftly grew into some of the largest electronic trading platforms 
and proprietary data producers: Archipelago, Bloomberg Tradebook, 
Island, RediBook, Attain, TracECN,

[[Page 39318]]

BATS Trading and Direct Edge. Today, BATS publishes its data at no 
charge on its Web site in order to attract order flow, and it uses 
market data revenue rebates from the resulting executions to maintain 
low execution charges for its users.\8\ A proliferation of dark pools 
and other ATSs operate profitably with fragmentary shares of 
consolidated market volume.
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    \8\ However, BATS recently received approval to begin offering 
and charging for three new data products, which include BATS Last 
Sale Feed, BATS Historical Data Products, and a data product called 
BATS Market Insight. See Securities Exchange Act Release No. 61885 
(April 9, 2010), 75 FR 20018 (April 16, 2010) (SR-BATS-2010-002).
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    Regulation NMS, by deregulating the market for proprietary data, 
has increased the contestability of that market. While broker-dealers 
have previously published their proprietary data individually, 
Regulation NMS encourages market data vendors and broker-dealers to 
produce proprietary products cooperatively in a manner never before 
possible. Multiple market data vendors already have the capability to 
aggregate data and disseminate it on a profitable scale, including 
Bloomberg, Reuters and Thomson.
    In establishing the price for the NASDAQ Last Sale Products, NASDAQ 
considered the competitiveness of the market for last sale data and all 
of the implications of that competition. NASDAQ believes that it has 
considered all relevant factors and has not considered irrelevant 
factors in order to establish a fair, reasonable, and not unreasonably 
discriminatory fee and an equitable allocation of fees among all users. 
The existence of numerous alternatives to NLS, including real-time 
consolidated data, free delayed consolidated data, and proprietary data 
from other sources ensures that NASDAQ cannot set unreasonable fees, or 
fees that are unreasonably discriminatory, without losing business to 
these alternatives. Accordingly, NASDAQ believes that the acceptance of 
the NLS product in the marketplace demonstrates the consistency of 
these fees with applicable statutory standards.

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. To the contrary, 
the NASDAQ Last Sale Products respond to and enhance competition that 
already exists in the market.
    On May 28, 2008, the Internet portal Yahoo! began offering its Web 
site viewers real-time last sale data provided by BATS Trading. 
NASDAQ's last sale data products compete directly with the BATS product 
disseminated via Yahoo! In addition, as set forth above, the market for 
last sale data is already competitive, with both real-time and delayed 
consolidated data as well as the ability for innumerable entities begin 
rapidly and inexpensively to offer competitive last sale data products. 
Moreover, the New York Stock Exchange distributes competing last sale 
data products at a price comparable to the price of NLS. Under the 
regime of Regulation NMS, there is no limit to the number of competing 
products that can be developed quickly and at low cost. The Commission 
should not stand in the way of enhanced competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Three comment letters were filed regarding the proposed rule change 
as originally published for comment NASDAQ responded to these comments 
in a letter dated December 13, 2007. Both the comment letters and 
NASDAQ's response are available on the SEC Web site at http://www.sec.gov/comments/sr-nasdaq-2006-060/nasdaq2006060.shtml.

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 Number SR-NASDAQ-2010-081 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2010-081. 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 Web site 
viewing and printing in the Commission's Public Reference Room, on 
official business days between the hours of 10 a.m. and 3 p.m. Copies 
of the filing also will be available for inspection and copying at the 
principal office of the Exchange. 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-2010-081 and should be submitted on or before 
July 29, 2010.

IV. Commission's Findings and Order Granting Accelerated Approval of a 
Proposed Rule Change

    The Commission finds that the proposed rule change, to extend the 
pilot program for three months, is consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\9\ In particular, it is consistent with 
Section 6(b)(4) of the Act,\10\ which requires that the rules of a 
national securities exchange provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other parties using its facilities, and Section 6(b)(5) of the 
Act,\11\ which requires, among other things, that the rules of a 
national securities exchange be designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest, and not be designed to 
permit unfair discrimination 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. See 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 also finds that the proposed rule change is 
consistent with the provisions of Section 6(b)(8) of the

[[Page 39319]]

Act,\12\ which requires that the rules of an exchange not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act. Finally, the Commission finds that the 
proposed rule change is consistent with Rule 603(a) of Regulation 
NMS,\13\ adopted under Section 11A(c)(1) of the Act, which requires an 
exclusive processor that distributes information with respect to 
quotations for or transactions in an NMS stock to do so on terms that 
are fair and reasonable and that are not unreasonably 
discriminatory.\14\
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    \12\ 15 U.S.C. 78f(b)(8).
    \13\ 17 CFR 242.603(a).
    \14\ NASDAQ is an exclusive processor of its last sale data 
under Section 3(a)(22)(B) of the Act, 15 U.S.C. 78c(a)(22)(B), which 
defines an exclusive processor as, among other things, an exchange 
that distributes data on an exclusive basis on its own behalf.
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    The Commission approved the fee for the NASDAQ Last Sale Data Feeds 
for a pilot period which ran until July 1, 2009.\15\ The Commission 
notes that the Exchange proposes to extend the pilot program for three 
months. The Commission did not receive any comments on the previous 
extensions of the pilot program.\16\
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    \15\ See Securities Exchange Act Release Nos. 61872 (April 8, 
2010), 74 FR 19444 (April 14, 2010); 60990 (November 12, 2009), 74 
FR 60002 (November 19, 2009); 57965 (June 16, 2008), 73 FR 35178 
(June 20, 2008) (SR-NASDAQ-2006-060); 58894 (October 31, 2008), 73 
FR 66953 (November 12, 2008) (SR-NASDAQ-2008-086); 59186 (December 
30, 2008), 74 FR 743 (January 7, 2009) (SR-NASDAQ-2008-103); 59652 
(March 31, 2009) 74 FR 15533 (April 6, 2009) (SR-NASDAQ-2009-027); 
60201 (June 30, 2009), 74 FR 32670 (July 8, 2009) (SR-NASDAQ-2009-
062).
    \16\ Id.
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    On December 2, 2008, the Commission issued an approval order 
(``Order'') that sets forth a market-based approach for analyzing 
proposals by self-regulatory organizations to impose fees for ``non-
core'' market data products, such as the NASDAQ Last Sale Data 
Feeds.\17\ The Commission believes that Nasdaq's proposal to 
temporarily extend the pilot program to June 30, 2010 is consistent 
with the Act for the reasons noted in the Order.\18\ The Commission 
believes that approving NASDAQ's proposal to temporarily extend the 
pilot program that imposes a fee for the NASDAQ Last Sale Data Feeds 
for an additional three months will be beneficial to investors and in 
the public interest, in that it is intended to allow continued broad 
public dissemination of increased real-time pricing information.
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    \17\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (Order Setting Aside Action by 
Delegated Authority and Approving Proposed Rule Change Relating to 
NYSE Arca Data).
    \18\ See supra note 15.
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    The Commission finds good cause for approving the proposed rule 
change before the thirtieth day after the date of publication of notice 
of filing thereof in the Federal Register. Accelerating approval of 
this proposal is expected to benefit investors by continuing to 
facilitate their access to widespread, free, real-time pricing 
information contained in the NASDAQ Last Sale Data Feeds. Therefore, 
the Commission finds good cause, consistent with Section 19(b)(2) of 
the Act,\19\ to approve the proposed rule change on an accelerated 
basis.
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    \19\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NASDAQ-2010-045) is hereby approved 
on an accelerated basis.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16567 Filed 7-7-10; 8:45 am]
BILLING CODE 8010-01-P