[Federal Register Volume 80, Number 161 (Thursday, August 20, 2015)]
[Notices]
[Pages 50671-50677]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-20549]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75709; File No. SR-BX-2015-047]


Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change Regarding 
NASDAQ Last Sale Plus

August 14, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on, August 5, 2015, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule change as described in Items I, II, and III, 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.
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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

    The Exchange proposes to amend BX Rule 7039 (BX Last Sale Data 
Feeds) with language regarding NASDAQ Last Sale Plus (``NLS Plus''), a 
comprehensive data feed offered by NASDAQ OMX Information LLC.\3\
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    \3\ NASDAQ OMX Information LLC is a subsidiary of The NASDAQ OMX 
Group, Inc. (``NASDAQ OMX'').
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxbx.cchwallstreet.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange 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 IV below. The Exchange 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
    The purpose of this proposal is to amend BX Rule 7039 by adding new 
section (b) regarding NLS Plus.
    This proposal is based on the recent approval order regarding the 
codification of NLS Plus in NASDAQ Rule 7039,\4\ in a manner similar to 
products of other markets.\5\
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    \4\ See Securities Exchange Act Release No. 75257 (June 22, 
2015), 80 FR 36862 (June 26, 2015) (SR-NASDAQ-2015-055) (order 
approving proposed rule change regarding NASDAQ Last Sale Plus in 
NASDAQ Rule 7039(d)) (the ``NLS Plus Approval Order''). See also 
Securities Exchange Act Release No. 74972 (May 15, 2015), 80 FR 
29370 (May 21, 2015) (SR-NASDAQ-2015-055) (notice of filing of 
proposed rule change regarding NASDAQ Last Sale Plus) (the ``NLS 
Plus notice'').
    \5\ See Securities Exchange Act Release No. 73918 (December 23, 
2014), 79 FR 78920 (December 31, 2014) (SR-BATS-2014-055; SR-BYX-
2014-030; SR-EDGA-2014-25; SR-EDGX-2014-25) (order approving market 
data product called BATS One Feed being offered by four affiliated 
exchanges). See also Securities Exchange Act Release No. 73553 
(November 6, 2014), 79 FR 67491 (November 13, 2014) (SR-NYSE-2014-
40) (order granting approval to establish the NYSE Best Quote & 
Trades (``BQT'') Data Feed). These exchanges have likewise 
instituted fees for their products.
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    NLS Plus allows data distributors to access the three last sale 
products offered by each of NASDAQ OMX's three U.S. equity markets.\6\ 
NLS Plus also reflects cumulative consolidated volume (``consolidated 
volume'') of real-time trading activity across all U.S. exchanges for 
Tape C securities and 15-minute delayed information for Tape A and Tape 
B securities.\7\ In offering NLS Plus, NASDAQ OMX Information LLC is, 
as discussed below, acting as a redistributor of last sale products 
already offered by NASDAQ, BX, and PSX and volume information provided 
by the securities information processors (``SIPs'') for Tape A, B, and 
C.
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    \6\ The NASDAQ OMX U.S. equity markets include The NASDAQ Stock 
Market (``NASDAQ''), ``BX, and NASDAQ OMX PSX (``PSX'') (together 
known as the ``NASDAQ OMX equity markets''). PSX will shortly file a 
similar companion proposal regarding NLS Plus. NASDAQ's last sale 
product, NASDAQ Last Sale, includes last sale information from the 
FINRA/NASDAQ Trade Reporting Facility (``FINRA/NASDAQ TRF''), which 
is jointly operated by NASDAQ and the Financial Industry Regulatory 
Authority (``FINRA''). For proposed rule changes submitted with 
respect to NASDAQ Last Sale, BX Last Sale, and PSX Last Sale, see, 
e.g., Securities Exchange Act Release Nos. 57965 (June 16, 2008), 73 
FR 35178, (June 20, 2008) (SR-NASDAQ-2006-060) (order approving 
NASDAQ Last Sale data feeds pilot); 61112 (December 4, 2009), 74 FR 
65569, (December 10, 2009) (SR-BX-2009-077) (notice of filing and 
immediate effectiveness regarding BX Last Sale data feeds); and 
62876 (September 9, 2010), 75 FR 56624, (September 16, 2010) (SR-
Phlx-2010-120) (notice of filing and immediate effectiveness 
regarding PSX Last Sale data feeds).
    \7\ Tape A and Tape B securities are disseminated pursuant to 
the Security Industry Automation Corporation's (``SIAC'') 
Consolidated Tape Association Plan/Consolidated Quotation System, or 
CTA/CQS (``CTA''). Tape C securities are disseminated pursuant to 
the NASDAQ Unlisted Trading Privileges (``UTP'') Plan.
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    NLS Plus, which is proposed to be codified in BX Rule 7039(b) in 
the same form as in NASDAQ Rule 7039(d), allows data distributors to 
access last sale products offered by each of NASDAQ OMX's three equity 
exchanges. Thus, NLS Plus includes all transactions from all of NASDAQ 
OMX's equity markets, as well as FINRA/NASDAQ TRF data that is included 
in the current NLS product. In addition, NLS Plus features total cross-
market volume information at the issue level, thereby providing 
redistribution of consolidated volume information from SIPs for Tape A, 
B, and C securities. Thus, NLS Plus covers all securities listed on 
NASDAQ and New York Stock Exchange (``NYSE'') (now under the 
Intercontinental Exchange (``ICE'') umbrella), as well as U.S. 
``regional'' exchanges such as NYSE MKT, NYSE Arca, and BATS (also

[[Page 50672]]

known as BATS/Direct Edge).\8\ The Exchange will, as discussed below, 
file a separate proposal regarding the NLS Plus fee structure.
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    \8\ Registered U.S. exchanges are listed at http://www.sec.gov/divisions/marketreg/mrexchanges.shtml.
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    NLS Plus has been offered since 2010 via NASDAQ OMX Information 
LLC.\9\ NASDAQ OMX Information LLC is a subsidiary of NASDAQ OMX Group, 
Inc., separate and apart from The NASDAQ Stock Market LLC and the 
Exchange. As such, NASDAQ OMX Information LLC redistributes last sale 
data that has been the subject of a proposed rule change filed with the 
Commission at prices that also have been the subject of a proposed rule 
change filed with the Commission. As discussed below, NASDAQ OMX 
Information LLC distributes no data that is not equally available to 
all market data vendors.
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    \9\ While NLS Plus is described in the NLS Plus notice and NLS 
Plus Approval Order, NLS Plus is also described online at http://nasdaqtrader.com/content/technicalsupport/specifications/dataproducts/NLSPlusSpecification.pdf. In addition, the annual 
administrative and other fees for NLS Plus are currently described 
in NASDAQ Rule 7039(d) and noted at http://nasdaqtrader.com/Trader.aspx?id=DPUSdata#ls.
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The Proposal
    The Exchange proposes to add NLS Plus to BX Rule 7039, which 
currently describes the BX Last Sale data feed offering, to fully 
reflect NLS Plus. NLS Plus as proposed to be codified in BX Rule 
7039(b) is exactly the same as NLS Plus in NASDAQ Rule 7039(d).
    Similar to NLS, NLS Plus offers data for all U.S. equities via two 
separate data channels: the first data channel reflects NASDAQ, BX, and 
PSX trades with real-time consolidated volume for NASDAQ-listed 
securities; and the second data channel reflects trades with delayed 
consolidated volume for NYSE, NYSE MKT, NYSE Arca and BATS-listed 
securities.\10\ NLS Plus, like NLS, is used by industry professionals 
and retail investors looking for a cost effective, easy-to-administer, 
high quality market data product with the characteristics of NLS Plus. 
The provision of multiple options for investors to receive market data 
was a primary goal of the market data amendments adopted by Regulation 
NMS.\11\ Finally, NLS Plus provides investors with options for 
receiving market data that parallel products currently offered by BATS 
and BATS Y, EDGA, and EDGX and NYSE equity exchanges.\12\
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    \10\ These NLS Plus channels are each made up of a series of 
sequenced messages so that each message is variable in length based 
on the message type and is typically delivered using a higher level 
protocol.
    \11\ However, the Exchange notes that under Rule 603 of 
Regulation NMS, see 17 CFR 242.603(c), NLS Plus cannot be 
substituted for consolidated data in all instances in which 
consolidated data is used and certain subscribers are still required 
to purchase consolidated data for trading and order-routing 
purposes. See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, at 37503 (June 29, 2005) (Regulation NMS 
Adopting Release).
    \12\ See supra note 5.
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    In addition to last sale information, NLS Plus also disseminates 
the following data elements: Trade Price, Trade Size, Sale Condition 
Modifiers, Cumulative Consolidated Market Volume, End of Day Trade 
Summary, Adjusted Closing Price, IPO Information, and Bloomberg ID 
(together the ``data elements''). NLS Plus also features and 
disseminates the following messages: Market Wide Circuit Breaker, Reg 
SHO Short Sale Price Test Restricted Indicator, Trading Action, Symbol 
Directory, Adjusted Closing Price, and End of Day Trade Summary 
(together the ``messages'').\13\ The overwhelming majority of these 
data elements and messages are exactly the same as, and in fact are 
sourced from, NLS, BX Last Sale, and PSX Last Sale. Only two data 
elements (consolidated volume and Bloomberg ID) are, as discussed 
below, sourced from other publicly accessible or obtainable resources.
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    \13\ The Reg SHO Short Sale Price Test Restricted Indicator 
message is disseminated intra-day when a security has a price drop 
of 10% or more from the adjusted prior day's NASDAQ Official Closing 
Price. Trading Action indicates the current trading status of a 
security to the trading community, and indicates when a security is 
halted, paused, released for quotation, and released for trading. 
Symbol Directory is disseminated at the start of each trading day 
for all active NASDAQ and non-NASDAQ-listed security symbols. 
Adjusted Closing Price is disseminated at the start of each trading 
day for all active symbols in the NASDAQ system, and reflects the 
previous trading day's official closing price adjusted for any 
applicable corporate actions; if there were no corporate actions, 
however, the previous day's official closing price is used. End of 
Day Trade Summary is disseminated at the close of each trading day, 
as a summary for all active NASDAQ- and non-NASDAQ-listed 
securities. IPO Information reflects IPO general administrative 
messages from the UTP and CTA Level 1 feeds for Initial Public 
Offerings for all NASDAQ- and non-NASDAQ-listed securities.
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    Consolidated volume reflects the consolidated volume at the time 
that the NLS Plus trade message is generated, and includes the volume 
for the issue symbol as reported on the consolidated market data feed. 
The consolidated volume is based on the real-time trades reported via 
the UTP Trade Data Feed (``UTDF'') and delayed trades reported via CTA. 
NASDAQ OMX calculates the real-time trading volume for its trading 
venues, and then adds the real-time trading volume for the other (non-
NASDAQ OMX) trading venues as reported via the UTDF data feed. For non-
NASDAQ-listed issues, the consolidated volume is based on trades 
reported via SIAC's Consolidated Tape System (``CTS'') for the issue 
symbol. The Exchange calculates the real-time trading volume for its 
trading venues, and then adds the 15-minute delayed trading volume for 
the other (non-NASDAQ OMX) trading venues as reported via the CTS data 
feed.\14\ The second data point that is not sourced from NLS, BX Last 
Sale, and PSX Last Sale is Bloomberg ID. This composite ID is a 
component of Bloomberg's Open Symbology and acts as a global security 
identifier that Bloomberg assigns to securities, and is available free 
of charge.\15\
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    \14\ In order to distribute data derived from UTDF and CTA, 
NASDAQ OMX must pay monthly redistributor fees. However, because 
these fees are paid on an enterprise-wide basis and NASDAQ OMX 
includes such derived data in other data products, the use of the 
data in NLS Plus does not result in an additional incremental cost.
    \15\ See http://bsym.bloomberg.com/sym/pages/bbgid-fact-sheet.pdf; http://bsym.bloomberg.com/sym/pages/NASDAQ_Adopts_BSYM.pdf.
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    NLS Plus may be received by itself or in combination with NASDAQ 
Basic.\16\ In the latter case, the subscriber receives all of the 
elements contained in NLS Plus as well as the best bid and best offer 
information provided by NASDAQ Basic.
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    \16\ As provided in NASDAQ Rule 7047, NASDAQ Basic provides the 
information contained in NLS, together with NASDAQ's best bid and 
best offer.
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    The Exchange believes that market data distributors may use the NLS 
Plus data feed to feed stock tickers, portfolio trackers, trade alert 
programs, time and sale graphs, and other display systems.
    The Exchange proposes one housekeeping change. The Exchange adds 
the phrase ``BX Last Sale'' in BX Rule 7039(a) to make it clear that 
section (a) refers to BX Last Sale (whereas proposed section (b) refers 
to NLS Plus). This change is non-substantive.
    With respect to latency, the path for distribution of NLS Plus is 
not faster than the path for distribution that would be used by a 
market data vendor to distribute an independently created NLS Plus-like 
product. As such, the NLS Plus data feed is a data product that a 
competing market data vendor could create and sell without being in a 
disadvantaged position relative to the Exchange. In recognition that 
the Exchange is the source of its own market data and with NASDAQ and 
PSX being equity markets owned by NASDAQ OMX, the Exchange represents 
that the source of the market data it would use to create proposed NLS 
Plus is available to other vendors. In fact, the overwhelming majority 
of

[[Page 50673]]

the data elements and messages \17\ in NLS Plus are exactly the same 
as, and in fact are sourced from, NLS, BX Last Sale, and PSX Last Sale, 
each of which is available to other market data vendors.\18\ The 
Exchange, NASDAQ, and PSX will continue to make available these 
individual underlying data elements, and thus, the source of the market 
data that would be used to create the proposed NLS Plus is the same as 
what is available to other market data vendors.
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    \17\ See text related to notes 14 and 15 supra.
    \18\ Only two data elements are, as discussed above, sourced 
from other publicly accessible or obtainable resources.
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    In order to create NLS Plus, the system creating and supporting NLS 
Plus receives the individual data feeds from each of the NASDAQ OMX 
equity markets and, in turn, aggregates and summarizes that data to 
create NLS Plus and then distribute it to end users. This is the same 
process that a competing market data vendor would undergo should it 
want to create a market data product similar to NLS Plus to distribute 
to its end users. A competing market data vendor could receive the 
individual data feeds from each of the NASDAQ OMX equity markets at the 
same time the system creating and supporting NLS Plus would for it to 
create NLS Plus. Therefore, a competing market data vendor could, as 
discussed, obtain the underlying data elements from the NASDAQ OMX 
equity markets on the same latency basis as the system that would be 
performing the aggregation and consolidation of proposed NLS Plus, and 
provide a similar product to its customers with the same latency they 
could achieve by purchasing NLS Plus from the Exchange. As such, the 
Exchange would not have any unfair advantage over competing market data 
vendors with respect to NLS Plus. Moreover, in terms of NLS itself, the 
Exchange would access the underlying feed from the same point as would 
a market data vendor; as discussed, the Exchange would not have a speed 
advantage. Likewise, NLS Plus would not have any speed advantage vis-
[agrave]-vis competing market data vendors with respect to access to 
end user customers.
    With regard to cost, the Exchange will file a separate proposal 
with the Commission regarding fees that will be similar in nature to 
NASDAQ Rule 7039(d). The proposal would be designed to ensure that 
vendors could compete with the Exchange by creating a similar product 
as NLS Plus. The Exchange expects that the pricing will reflect the 
incremental cost of the aggregation and consolidation function for NLS 
Plus, and would not be lower than the cost to a vendor creating a 
competing product, including the cost of receiving the underlying data 
feeds. The pricing the Exchange would charge clients for NLS Plus would 
enable a vendor to receive the underlying data feeds and offer a 
similar product on a competitive basis and with no greater cost than 
the Exchange. For these reasons, the Exchange believes that vendors 
could readily offer a product similar to NLS Plus on a competitive 
basis at a similar cost.
    As described in more detail below, the Exchange believes that the 
NLS Plus data offering benefits the public and investors and that the 
proposal is consistent with the Act.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\19\ in general, and with 
Section 6(b)(5) of the Act,\20\ in particular, in that the proposal is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, 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.
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    \19\ 15 U.S.C. 78f.
    \20\ 15 U.S.C. 78f(b)(5).
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    The proposal is to add section (b) to BX Rule 7039 regarding the 
NLS Plus data offering. The Exchange believes that the proposal 
facilitates transactions in securities, removes impediments to and 
perfects the mechanism of a free and open market and a national market 
system, and, in general, protects investors and the public interest by 
making permanent the availability of an additional means by which 
investors may access information about securities transactions, thereby 
providing investors with additional options for accessing information 
that may help to inform their trading decisions. Given that Section 11A 
the Act \21\ requires the dissemination of last sale reports in core 
data, the Exchange believes that the inclusion of the same data in NLS 
Plus is also consistent with the Act.
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    \21\ 15 U.S.C. 78k-1.
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    The Exchange notes that the Commission has determined that the 
inclusion of NLS Plus in NASDAQ Rule 7039(d), upon which proposed BX 
Rule 7039(b) is modelled, was consistent with the Act.\22\ The 
Commission has also recently approved data products on several 
exchanges that are similar to NLS Plus, and specifically determined 
that the approved data products were consistent with the Act.\23\ NLS 
Plus provides market participants with an additional option for 
receiving market data that has already been the subject of a proposed 
rule change and that is available from many market data vendors.
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    \22\ See Securities Exchange Act Release No. 75257 (June 22, 
2015), 80 FR 36862 (June 26, 2015) (SR-NASDAQ-2015-055).
    \23\ See supra note 5.
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    In adopting Regulation NMS, the Commission granted SROs and broker-
dealers (``BDs'') 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. The 
Exchange believes that the NLS Plus market data product is precisely 
the sort of market data product that the Commission envisioned when it 
adopted Regulation NMS. The Commission concluded that Regulation NMS--
by deregulating 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.\24\
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    \24\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).

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 BDs at 
all, it follows that the price at which such data is sold should be set 
by the market as well.
    The Exchange will file a separate proposal regarding NLS Plus 
fees.\25\ The decision of the United States Court of Appeals for the 
District of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. 
Cir. 2010) (``NetCoalition I''),

[[Page 50674]]

upheld the Commission's reliance upon competitive markets to set 
reasonable and equitably allocated fees for market data. ``In fact, the 
legislative history indicates that the Congress intended that the 
market system `evolve through the interplay of competitive forces as 
unnecessary regulatory restrictions are removed' and that the SEC wield 
its regulatory power `in those situations where competition may not be 
sufficient,' such as in the creation of a `consolidated transactional 
reporting system.' NetCoalition I, at 535 (quoting H.R. Rep. No. 94-
229, at 92 (1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323). The 
court agreed with the Commission's conclusion that ``Congress intended 
that `competitive forces should dictate the services and practices that 
constitute the U.S. national market system for trading equity 
securities.' '' \26\
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    \25\ The Exchange expects that the fee structure for NLS Plus 
will reflect an amount that is no less than the cost to a market 
data vendor to obtain all the underlying feeds, plus an amount to be 
determined that would reflect the value of the aggregation and 
consolidation function.
    \26\ NetCoalition I, at 535.
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    The Court in NetCoalition I, while upholding the Commission's 
conclusion that competitive forces may be relied upon to establish the 
fairness of prices, nevertheless concluded that the record in that case 
did not adequately support the Commission's conclusions as to the 
competitive nature of the market for NYSE Arca's data product at issue 
in that case. As explained below in the Exchange's Statement on Burden 
on Competition, however, the Exchange believes that there is 
substantial evidence of competition in the marketplace for data that 
was not in the record in the NetCoalition I case, and that the 
Commission is entitled to rely upon such evidence in concluding fees 
are the product of competition, and therefore in accordance with the 
relevant statutory standards.\27\ Moreover, the Exchange further notes 
that the product at issue in this filing--a last sale data product that 
replicates a subset of the information available through ``core'' data 
products whose fees have been reviewed and approved by the SEC--is 
quite different from the NYSE Arca depth-of-book data product at issue 
in NetCoalition I. Accordingly, any findings of the court with respect 
to that product may not be relevant to the product at issue in this 
filing.
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    \27\ It should also be noted that Section 916 of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank 
Act'') has amended paragraph (A) of Section 19(b)(3) of the Act, 15 
U.S.C. 78s(b)(3), to make it clear that all exchange fees, including 
fees for market data, may be filed by exchanges on an immediately 
effective basis. See also NetCoalition v. SEC, 715 F.3d 342 (D.C. 
Cir. 2013) (``NetCoalition II'') (finding no jurisdiction to review 
Commission's non-suspension of immediately effective fee changes).
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    Moreover, data products such as NLS Plus are a means by which 
exchanges compete to attract order flow. To the extent that exchanges 
are successful in such competition, they earn trading revenues and also 
enhance the value of their data products by increasing the amount of 
data they are able to provide. Conversely, to the extent that exchanges 
are unsuccessful, the inputs needed to add value to data products are 
diminished. Accordingly, the need to compete for order flow places 
substantial pressure upon exchanges to keep their fees for both 
executions and data reasonable.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 
is true of all NASDAQ's non-core data products, NASDAQ's ability to 
offer and price NLS Plus 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 market-specific data and free delayed 
consolidated data; and (3) the inherent contestability of the market 
for proprietary last sale data.
    In addition, as described in detail above, NLS Plus competes 
directly with a myriad of similar products and potential products of 
market data vendors. NASDAQ OMX Information LLC was constructed 
specifically to establish a level playing field with market data 
vendors and to preserve fair competition between them. Therefore, 
NASDAQ OMX Information LLC receives NLS, BX Last Sale, and PSX Last 
Sale from each NASDAQ-operated exchange in the same manner, at the same 
speed, and reflecting the same fees as for all market data vendors. 
Therefore, NASDAQ Information LLC has no competitive advantage with 
respect to these last sale products and NASDAQ commits to maintaining 
this level playing field in the future. In other words, NASDAQ will 
continue to disseminate separately the underlying last sale products to 
avoid creating a latency differential between NASDAQ OMX Information 
LLC and other market data vendors, and to avoid creating a pricing 
advantage for NASDAQ OMX Information LLC.
    NLS Plus joins the existing market for proprietary last sale data 
products that 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. Similarly, with respect to the FINRA/NASDAQ TRF 
data that is a component of NLS and NLS Plus, allowing exchanges to 
operate TRFs has permitted them to earn revenues by providing 
technology and data in support of the non-exchange segment of the 
market. This revenue opportunity has also resulted in fierce 
competition between the two current TRF operators, with both TRFs 
charging extremely low trade reporting fees and rebating the majority 
of the revenues they receive from core market data to the parties 
reporting trades.
    Transaction execution and proprietary data products are 
complementary in that market data is both an input and a byproduct of 
the execution service. In fact, market data and trade execution are a 
paradigmatic example of joint products with joint costs. The decision 
whether and on which platform to post an order will depend on the 
attributes of the platform where the order can be posted, including the 
execution fees, data quality and price, and distribution of its data 
products. Without trade executions, exchange data products cannot 
exist. Moreover, data products are valuable to many end users only 
insofar as they provide information that end users expect will assist 
them or their customers in making trading decisions.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. The total return that a 
trading platform earns reflects the revenues it receives from both 
products and the joint costs it incurs. Moreover, the operation of the 
exchange is characterized by high fixed costs and low marginal costs. 
This cost structure is common in content and content distribution 
industries such as software, where developing new software typically 
requires a large initial investment (and continuing large investments 
to upgrade the software), but once the software is developed, the 
incremental cost of providing that software to an additional user is

[[Page 50675]]

typically small, or even zero (e.g., if the software can be downloaded 
over the internet after being purchased).\28\ In the Exchange's case, 
it is costly to build and maintain a trading platform, but the 
incremental cost of trading each additional share on an existing 
platform, or distributing an additional instance of data, is very low. 
Market information and executions are each produced jointly (in the 
sense that the activities of trading and placing orders are the source 
of the information that is distributed) and are each subject to 
significant scale economies. In such cases, marginal cost pricing is 
not feasible because if all sales were priced at the margin, the 
Exchange would be unable to defray its platform costs of providing the 
joint products. Similarly, data products cannot make use of TRF trade 
reports without the raw material of the trade reports themselves, and 
therefore necessitate the costs of operating, regulating,\29\ and 
maintaining a trade reporting system, costs that must be covered 
through the fees charged for use of the facility and sales of 
associated data.
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    \28\ See William J. Baumol and Daniel G. Swanson, ``The New 
Economy and Ubiquitous Competitive Price Discrimination: Identifying 
Defensible Criteria of Market Power,'' Antitrust Law Journal, Vol. 
70, No. 3 (2003).
    \29\ It should be noted that the costs of operating the FINRA/
NASDAQ TRF borne by NASDAQ include regulatory charges paid by NASDAQ 
to FINRA.
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    An exchange's BD customers view the costs of transaction executions 
and of data as a unified cost of doing business with the exchange. A BD 
will direct orders to a particular exchange only if the expected 
revenues from executing trades on the exchange exceed net transaction 
execution costs and the cost of data that the BD chooses to buy to 
support its trading decisions (or those of its customers). The choice 
of data products is, in turn, a product of the value of the products in 
making profitable trading decisions. If the cost of the product exceeds 
its expected value, the BD will choose not to buy it. Moreover, as a BD 
chooses to direct fewer orders to a particular exchange, the value of 
the product to that BD decreases, for two reasons. First, the product 
will contain less information, because executions of the BD's trading 
activity will not be reflected in it. Second, and perhaps more 
important, the product will be less valuable to that BD because it does 
not provide information about the venue to which it is directing its 
orders. Data from the competing venue to which the BD is directing 
orders will become correspondingly more valuable.
    Similarly, in the case of products such as NLS Plus that are 
distributed through market data vendors, the vendors provide 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 BDs, 
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. 
Exchanges, TRFs, 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. 
Moreover, the Exchange believes that products such as NLS Plus can 
enhance order flow to the Exchange by providing more widespread 
distribution of information about transactions in real time, thereby 
encouraging wider participation in the market by investors with access 
to the internet or television. Conversely, the value of such products 
to distributors and investors decreases if order flow falls, because 
the products contain less content.
    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products, but different platforms may choose from a range of possible, 
and equally reasonable, pricing strategies as the means of recovering 
total costs. The Exchange pays rebates for orders that access 
liquidity, charges relatively low prices for market information and 
charges relatively low prices for orders providing liquidity. Other 
platforms may choose a strategy of paying rebates to attract liquidity, 
and setting relatively higher prices for market information. Still 
others may provide most data free of charge and rely exclusively on 
transaction fees to recover their costs. Finally, some platforms may 
incentivize use by providing opportunities for equity ownership, which 
may allow them to charge lower direct fees for executions and data.
    In this environment, there is no economic basis for regulating 
maximum prices for one of the joint products in an industry in which 
suppliers face competitive constraints with regard to the joint 
offering. Such regulation is unnecessary because an ``excessive'' price 
for one of the joint products will ultimately have to be reflected in 
lower prices for other products sold by the firm, or otherwise the firm 
will experience a loss in the volume of its sales that will be adverse 
to its overall profitability. In other words, an increase in the price 
of data will ultimately have to be accompanied by a decrease in the 
cost of executions, or the volume of both data and executions will 
fall.
    The level of competition and contestability in the market is 
evident in the numerous alternative venues that compete for order flow, 
including eleven SRO markets, as well as internalizing 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 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 MKT, NYSE Arca, and BATS/Direct Edge.
    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 BDs' 
production of proprietary data products. The potential sources of 
proprietary products are virtually limitless. Notably, the potential 
sources of data include the BDs that submit trade reports to TRFs and 
that have the ability to consolidate and distribute their data without 
the involvement of FINRA or an exchange-operated TRF.

[[Page 50676]]

    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 NYSE 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 a core data product, 
an SRO proprietary product, and/or a non-SRO proprietary product, the 
data available in proprietary products is exponentially greater than 
the actual number of orders and transaction reports that exist in the 
marketplace. Indeed, in the case of NLS Plus, the data provided through 
that product appears both in (i) real-time core data products offered 
by the SIPs for a fee, (ii) free SIP data products with a 15-minute 
time delay, and (iii) individual exchange data products, and finds a 
close substitute in last-sale products of competing venues.
    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 of entrants 
that swiftly grew into some of the largest electronic trading platforms 
and proprietary data producers: Archipelago, Bloomberg Tradebook, 
Island, RediBook, Attain, TracECN, BATS Trading and BATS/Direct Edge. A 
proliferation of dark pools and other ATSs operate profitably with 
fragmentary shares of consolidated market volume.
    Regulation NMS, by deregulating the market for proprietary data, 
has increased the contestability of that market. While BDs have 
previously published their proprietary data individually, Regulation 
NMS encourages market data vendors and BDs 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 and Thomson 
Reuters. In Europe, Cinnober aggregates and disseminates data from over 
40 brokers and multilateral trading facilities.\30\
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    \30\ See http://www.cinnober.com/boat-trade-reporting.
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    In the case of TRFs, the rapid entry of several exchanges into this 
space in 2006-2007 following the development and Commission approval of 
the TRF structure demonstrates the contestability of this aspect of the 
market.\31\ Given the demand for trade reporting services that is 
itself a by-product of the fierce competition for transaction 
executions--characterized notably by a proliferation of ATSs and BDs 
offering internalization--any supra-competitive increase in the fees 
associated with trade reporting or TRF data would shift trade report 
volumes from one of the existing TRFs to the other \32\ and create 
incentives for other TRF operators to enter the space. Alternatively, 
because BDs reporting to TRFs are themselves free to consolidate the 
market data that they report, the market for over-the-counter data 
itself, separate and apart from the markets for execution and trade 
reporting services--is fully contestable.
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    \31\ The low cost exit of two TRFs from the market is also 
evidence of a contestable market, because new entrants are reluctant 
to enter a market where exit may involve substantial shut-down 
costs.
    \32\ It should be noted that the FINRA/NYSE TRF has, in recent 
weeks, received reports for almost 10% of all over-the-counter 
volume in NMS stocks.
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    Moreover, 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.
    In this environment, a super-competitive increase in the fees 
charged for either transactions or data has the potential to impair 
revenues from both products. ``No one disputes that competition for 
order flow is `fierce'.'' NetCoalition I at 539. The existence of 
fierce competition for order flow implies a high degree of price 
sensitivity on the part of BDs with order flow, since they may readily 
reduce costs by directing orders toward the lowest-cost trading venues. 
A BD that shifted its order flow from one platform to another in 
response to order execution price differentials would both reduce the 
value of that platform's market data and reduce its own need to consume 
data from the disfavored platform. If a platform increases its market 
data fees, the change will affect the overall cost of doing business 
with the platform, and affected BDs will assess whether they can lower 
their trading costs by directing orders elsewhere and thereby lessening 
the need for the more expensive data. Similarly, increases in the cost 
of NLS Plus would impair the willingness of distributors to take a 
product for which there are numerous alternatives, impacting NLS Plus 
data revenues, the value of NLS Plus as a tool for attracting order 
flow, and ultimately, the volume of orders routed to the Exchange and 
the value of its other data products.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) \33\ of the Act and 
subparagraph (f)(6) of Rule 19b-4 thereunder.\34\
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    \33\ 15 U.S.C. 78s(b)(3)(A).
    \34\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule change should be approved or disapproved.

IV. 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

[[Page 50677]]

     Send an email to [email protected]. Please include 
File Number SR-BX-2015-047 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BX-2015-047. This file 
number should be included on the subject line if email 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, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 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-BX-2015-047 and 
should be submitted on or before September 10, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-20549 Filed 8-19-15; 8:45 am]
BILLING CODE 8011-01-P