[Federal Register Volume 81, Number 161 (Friday, August 19, 2016)]
[Notices]
[Pages 55513-55517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19799]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78578; File No. SR-NASDAQ-2016-109]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Nasdaq Rule 7047

August 15, 2016.
    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 3, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') a 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

    Nasdaq is proposing to amend Rule 7047 (Nasdaq Basic) \3\ with 
language indicating the removal of certain credits that a Distributor 
\4\ is eligible to receive in respect to Nasdaq Basic.\5\
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    \3\ References to rules are to Nasdaq rules, unless otherwise 
noted.
    \4\ The term ``Distributor'' refers to any entity that receives 
Nasdaq Basic data directly from Nasdaq or indirectly through another 
entity and then distributes it to one or more Subscribers. Rule 7047 
(d)(1).
    \5\ Nasdaq Basic, which is discussed below, is a proprietary 
data product that provides a low cost alternative to other Level 1 
offerings. Rule 7047. Level 1 provides primary market data such as 
bid/ask price and size and last price and size.
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    While changes pursuant to this proposal are effective upon filing, 
the Exchange has designated these changes to be operative on September 
1, 2016.
    The text of the proposed rule change is available at 
nasdaq.cchwallstreet.com, at Nasdaq's principal office, 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, 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 those 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 parts 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 Rule 7047(c) with language 
indicating that the Distributor fee for Nasdaq Basic will be uniformly 
applied to all Distributors, regardless of any user fees, immediately 
after approval to receive Nasdaq Basic, at the current fee of $1,500 
per month.\6\
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    \6\ Now, as discussed below, each Distributor is eligible to 
receive a credit against its monthly Distributor Fee for Nasdaq 
Basic equal to the amount of its monthly user fees for Nasdaq Basic 
up to a maximum of $1,500. Rule 7047(c).
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    Nasdaq Basic is a proprietary data product that provides a low cost 
alternative to the other Level 1 offerings. Nasdaq Basic provides the 
best bid and offer and last sale information for all U.S. exchange-
listed securities based on liquidity within the Nasdaq market center, 
as well as trades reported to the FINRA/Nasdaq Trade Reporting 
Facility\TM\ (TRF\TM\) (``FINRA/Nasdaq TRF'').\7\ Thus, Nasdaq Basic 
provides

[[Page 55514]]

Nasdaq Last Sale (``NLS'') together with best bid and offer information 
from Nasdaq.
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    \7\ ``FINRA'' is the Financial Industry Regulatory Authority.
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    NLS was approved by the Commission in June of 2008. NLS is a non-
core market data product designed for distribution through internet 
portals and broadcast television, as well as distribution to 
individuals that access the data via a username/password-identified 
account and/or quote-counting mechanisms.\8\ NLS includes two data 
elements: (1) Last sale transaction reports from the Nasdaq Market 
Center, and (2) last sale transaction reports from the FINRA/Nasdaq 
TRF.\9\ As such, NLS is a ``non-core'' product that provides a subset 
of the ``core'' quotation and last sale data provided by securities 
information processors (``SIPs'') under the CQ/CT Plan and the Nasdaq 
Unlisted Trading Privileges (``UTP'') Plan.
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    \8\ See Securities Exchange Act Release No. 57965 (June 16, 
2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-060) (approval 
order establishing NLS pilot). See also Securities Exchange Act 
Release No. 71351 (January 17, 2014), 79 FR 4200 (January 24, 2014) 
(SR-NASDAQ-2014-006) (notice of filing and immediate effectiveness 
regarding permanent approval of NLS pilot).
    \9\ See Rule 7039(a)-(c).
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    Nasdaq Basic, another non-core market data product, was approved by 
the Commission about a year later in March of 2009.\10\ As originally 
proposed, the Nasdaq Basic product was to provide two data feeds: (1) A 
feed carrying the best bid and offer on the Nasdaq Market Center, and 
(2) a feed containing NLS which carries last sale transaction reports 
from Nasdaq and from the FINRA/Nasdaq TRF.
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    \10\ See Securities Exchange Act Release No. 59582 (March 16, 
2009), 74 FR 12423 (March 24, 2009) (SR-NASDAQ-2008-102) (order 
approving Nasdaq Basic pilot and finding it to be consistent with 
Sections 6(b)(4), (5) and (8) of the Act and Rule 603(a) under 
Regulation NMS). See also Securities Exchange Act Release No. 65527 
(October 11, 2011), 76 FR 64147 (October 17, 2011) (SR-NASDAQ-2011-
129) (notice of filing and immediate effectiveness re permanent 
approval of Nasdaq Basic pilot).
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    Nasdaq Basic, which is described in current Rule 7047, was expanded 
to three separate components, which may be purchased individually or in 
combination.\11\ The Nasdaq Basic components are: (i) Nasdaq Basic for 
Nasdaq, which contains the best bid and offer on the Nasdaq Market 
Center and last sale transaction reports for Nasdaq and the FINRA/
Nasdaq TRF for Nasdaq-listed stocks, (ii) Nasdaq Basic for NYSE, which 
contains the best bid and offer on the Nasdaq Market Center and last 
sale transaction reports for Nasdaq and the FINRA/Nasdaq TRF for NYSE-
listed stocks, and (iii) Nasdaq Basic for NYSE MKT, which contains the 
best bid and offer on the Nasdaq Market Center and last sale 
transaction reports for Nasdaq and the FINRA/Nasdaq TRF for stocks 
listed on NYSE MKT and other listing venues whose quotes and trade 
reports are disseminated on Tape B.\12\
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    \11\ See Rule 7047.
    \12\ 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 UTP Plan.
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    The fee structure for Nasdaq Basic features a fee for Professional 
Subscribers and a reduced fee for Non-Professional Subscribers.\13\ The 
current monthly fees for Non-Professional Subscribers are $0.50 per 
Subscriber for Nasdaq Basic for Nasdaq, $0.25 per Subscriber for Nasdaq 
Basic for NYSE, and $0.25 per Subscriber for Nasdaq Basic for NYSE MKT. 
The current monthly fees for Professional Subscribers are $13 per 
Subscriber for Nasdaq Basic for Nasdaq, $6.50 per Subscriber for Nasdaq 
Basic for NYSE, and $6.50 per Subscriber for Nasdaq Basic for NYSE MKT. 
There is also a per query option for use cases that do not require a 
monthly subscription for unlimited usage, a distributor fee for 
internal and external distribution, and certain credits for Nasdaq 
Basic users.\14\
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    \13\ Per Rule 7047(d)(3): (A) A ``Non-Professional Subscriber'' 
is a natural person who is not (i) registered or qualified in any 
capacity with the Commission, the Commodity Futures Trading 
Commission, any state securities agency, any securities exchange or 
association, or (ii) any commodities or futures contract market or 
association; engaged as an ``investment adviser'' as that term is 
defined in Section 201(11) of the Investment Advisers Act of 1940 
(whether or not registered or qualified under that Act); or (iii) 
employed by a bank or other organization exempt from registration 
under federal or state securities laws to perform functions that 
would require registration or qualification if such functions were 
performed for an organization not so exempt. (B) A ``Professional 
Subscriber'' is any Subscriber other than a Non-Professional 
Subscriber.
    \14\ See Rule 7047. See also Securities Exchange Act Release No. 
72620 (July 16, 2014), 79 FR 42572 (July 22, 2014) (SR-NASDAQ-2014-
070) (notice of filing and immediate effectiveness regarding Nasdaq 
Basic fees).
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    There is also a separate Distributor fee for Nasdaq Basic.\15\ 
Currently, each Distributor of any Nasdaq Basic product shall pay a fee 
of $1,500 per month for either internal or external distribution or 
both.\16\ Currently, each Distributor is eligible to receive a credit 
against its monthly Distributor Fee for Nasdaq Basic equal to the 
amount of its monthly user fees for Nasdaq Basic up to a maximum of 
$1,500 (the ``credit''). The Exchange now proposes to eliminate the 
credit from subsection (c)(2) of Rule 7047.\17\ Going forward, the 
Exchange proposes to apply the Distributor Fee (currently $1,500 per 
month) for all Distributors of Nasdaq Basic immediately after the 
Exchange approves a Distributor for the product.
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    \15\ In addition, there is also an enterprise license available 
for certain Nasdaq Basic recipients. Rule 7047(b)(4) states in part, 
for example: (4) As an alternative to (b)(1), a broker-dealer may 
purchase an enterprise license for internal Professional Subscribers 
to receive Nasdaq Basic for Nasdaq, Nasdaq Basic for NYSE, and 
Nasdaq Basic for NYSE MKT. The fee will be $365,000 per month; 
provided, however, that if the broker-dealer obtains the license 
with respect to usage of Nasdaq Basic provided by an External 
Distributor that controls display of the product, the fee will be 
$365,000 per month for up to 16,000 internal Professional 
Subscribers, plus $2 for each additional internal Professional 
Subscriber over 16,000; and provided further that the broker-dealer 
must obtain a separate enterprise license for each External 
Distributor that controls display of the product if it wishes such 
External Distributor to be covered by an enterprise license rather 
than per-Subscriber fees.
    \16\ Internal distribution is where a Distributor receives 
Nasdaq Basic data and then distributes that data to one or more 
Subscribers within the Distributor's own entity. External 
distribution is where a Distributor receives Nasdaq Basic data and 
then distributes that data to one or more Subscribers outside the 
Distributor's own entity. Rule 7047(d)(1).
    \17\ Subsection (c)(3) of Rule 7047 will be re-numbered to 
subsection (c)(2), and will continue to state: A Distributor may pay 
$1,500 per month to distribute data derived from Nasdaq Basic to an 
unlimited number of non-professional subscribers. This fee is in 
addition to the Distributor Fee listed in (c)(1).
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    The Exchange believes that the proposed rule change is reasonable 
and proper. This is because Distributors will not be disadvantaged by 
the rule change because this would be applied to all Distributors after 
approval to receive Nasdaq Basic data. The credit was implemented in 
order to incentivize new firms to subscribe to Nasdaq Basic and grow 
the product. Due to strong product growth and continued overall 
industry cost savings with Nasdaq Basic compared to Level 1 data, as 
well as the administrative burden of maintaining the credit, the 
Exchange believes the change to remove the Distributor fee credit as 
described will not deter new subscribers or be unfairly discriminatory. 
Charging a monthly fixed fee without a credit available to all eligible 
Distributors makes this product similar to nearly all other Nasdaq data 
products and makes its administration less burdensome on the Exchange.
2. Statutory Basis
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 6 of the Act,\18\ in general, and with 
Sections 6(b)(4) and (5) of the Act,\19\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among its members, issuers and other

[[Page 55515]]

persons using its facilities, and does not unfairly discriminate 
between customers, issuers, brokers or dealers.
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    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(4) and (5).
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    The Nasdaq Basic product provides a subset of the data that is also 
provided by the Level 1 data feed available under the Nasdaq UTP Plan. 
Moreover, the current fees for Nasdaq Basic, similarly to the fees for 
NLS and NLS Plus, having been previously established, and the 
Commission has either specifically determined them to be consistent 
with the Act or has permitted them to become effective on an 
immediately effective basis.\20\ Thus, this proposed rule change does 
not change a fee of the Exchange, but rather eliminates the Distributor 
fee credit, such that going forward the Exchange will uniformly apply 
the Distributor fee for all subscribers of Nasdaq Basic. However, to 
the extent that the proposed rule change is effectively a proposed fee 
that has already been approved, Nasdaq believes that this also provides 
further justification that the proposed credit elimination provides for 
the equitable allocation of reasonable dues, fees and other charges 
among members and issuers and other persons using any facility or 
system which Nasdaq operates or controls, and is not designed to permit 
unfair discrimination between customers, issuers, brokers, or 
dealers,\21\ in that the change reflects the full value of the product 
without increase in its cost.
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    \20\ See, e.g., Securities Exchange Act Release Nos. 59582 
(March 16, 2009), 74 FR 12423 (March 24, 2009) (SR-NASDAQ-2008-102) 
(finding current per user and per subscriber fees to be consistent 
with the Act); 59933 (May 15, 2009), 74 FR 24889 (May 26, 2009) (SR-
NASDAQ-2009-208[sic]) (finding current distributor fees for Nasdaq 
Basic to be consistent with the Act); 64994 (July 29, 2011), 76 FR 
47621 (August 5, 2011) (SR-NASDAQ-2011-091) (immediate effectiveness 
of optional derived data fee); and 65526 (October 11, 2011), 76 FR 
64137 (October 17, 2011) (SR-NASDAQ-2011-130) (immediate 
effectiveness of enterprise license fee). Similarly, Non-
Professional, as opposed to Professional, fees have been established 
and approved. See Securities Exchange Act Release Nos. 21856 (March 
15, 1985), 50 FR 11472 (March 21, 1985) (SR-NASD-85-1); and 57965 
(June 16, 2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-060). 
See also Securities Exchange Act Release No. 72620 (July 16, 2014), 
79 FR 42572 (July 22, 2014) (SR-NASDAQ-2014-070) (notice of filing 
and immediate effectiveness regarding Nasdaq Basic fees). See also 
Securities Exchange Act Release No. 75600 (August 4, 2015), 80 FR 
47968 (August 10, 2015) (SR-NASDAQ-2015-88) (notice of filing and 
immediate effectiveness regarding NLS fees).
    \21\ 15 U.S.C. 78f(b)(4), (5).
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    The proposed credit elimination continues to reflect an equitable 
allocation and continues to be not unfairly discriminatory. Nasdaq 
Basic, like NLS and NLS Plus, are voluntary products for which market 
participants can readily substitute core data feeds that provide 
quotation and last sale information. Accordingly, Nasdaq is constrained 
from pricing such products in a manner that would be inequitable or 
unfairly discriminatory. The distinction between fees for professional 
and non-professional users, and between Distributors and other users, 
is consistent with the distinction made under Commission-approved fees 
for core data, and the applicable fees are lower than applicable fees 
for core data to reflect the lesser quantum of data made available. The 
Exchange believes that the proposed rule change is reasonable, 
equitable and not unfairly discriminatory. This is because current 
Distributors will not be disadvantaged by the rule change, because even 
if the credit deletion could be seen in the nature of a fee increase, 
current Distributors have been able to take advantage of the credit 
under current Rule 7047. And, on a going forward basis the monthly 
Distributor fee would be applied uniformly to all Distributors after 
approval to receive Nasdaq Basic data, which would help with the 
administration of costs by the Exchange.
    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. Nasdaq 
believes that its Nasdaq Basic, as also NLS and NLS Plus, market data 
products are 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.\22\
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    \22\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting 
Release'').

    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.
    Moreover, fee liable data products such as Nasdaq Basic, and also 
NLS and NLS Plus, are a means by which exchanges compete to attract 
order flow, and this proposal simply codifies the relevant fee 
structure into an Exchange rule. 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.
    The Exchange believes that data products 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.
    The fee structure for Nasdaq Basic, similarly to NLS and NLS Plus, 
also continues to reflect an equitable allocation and continues not be 
unfairly discriminatory, because these are voluntary products which 
market participants can readily substitute (or put together 
themselves).\23\ Accordingly, Nasdaq is constrained from providing such 
products in a manner that would be inequitable or unfairly 
discriminatory. Moreover, the fee schedules for Nasdaq Basic, as also 
for NLS and NLS Plus, are designed to ensure that the fees charged are 
tailored to the specific usage patterns of a range of potential 
customers. Thus, for example, Professional Subscriber fees provide a 
means for brokerage customers to use the information internally; and 
the distinction between fees for Professional and Non-Professional 
users, as also Distributors,

[[Page 55516]]

is consistent with the distinction made under Commission-approved fees 
for core data, and the applicable fees are lower than applicable fees 
for core data to reflect the lesser quantum of data made available. The 
range of fee options further ensures that customers are not charged a 
fee that is inequitably disproportionate to the use that they make of 
the product.
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    \23\ See, e.g., Securities Exchange Act Release No. 75257 (June 
22, 2015), 80 FR 36862 (June 26, 2015) (SR-NASDAQ-2015-055) (order 
approving NLS Plus), wherein the Exchange notes that NLS Plus is a 
data product that a competing market data vendor could create and 
sell on his own without being in a disadvantaged position relative 
to the Exchange.
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    In summary, deletion of the Distributor credit so that the 
Distributor fee for Nasdaq Basic will be uniformly applied to all 
Distributors, regardless of any user fees, will help to protect a free 
and open market by continuing to provide additional non-core data 
(offered on an optional basis for a fee) to the marketplace and by 
providing investors with greater choices.\24\ Additionally, the 
proposal would not permit unfair discrimination because Basic will be 
available to all Distributors as discussed.
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    \24\ See Sec. Indus. Fin. Mkts. Ass'n (SIFMA), Initial Decision 
Release No. 1015, 2016 SEC LEXIS 2278 (ALJ June 1, 2016) (finding 
the existence of vigorous competition with respect to non-core 
market data). See also 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'') (upholding the 
Commission's reliance upon competitive markets to set reasonable and 
equitably allocated fees for market data).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed fee structure is 
designed to ensure a fair and reasonable use of Exchange resources by 
allowing the Exchange to recoup costs while continuing to offer its 
data products at competitive rates to firms.
    The market for data products is extremely competitive and firms may 
freely choose alternative venues and data vendors based on the 
aggregate fees assessed, the data offered, and the value provided. This 
rule proposal does not burden competition, which continues to offer 
alternative data products and, like the Exchange, set fees, but rather 
reflects the competition between data feed vendors and will further 
enhance such competition. Nasdaq Basic, like NLS and NLS Plus, compete 
directly with existing similar products and potential products of 
market data vendors. Nasdaq Basic, like NLS and NLS Plus, are part of 
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 Nasdaq Basic, 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 
typically small, or even zero (e.g., if the software can be downloaded 
over the internet after being purchased).\25\ In Nasdaq'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, Nasdaq 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,\26\ 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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    \25\ 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).
    \26\ 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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    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. Nasdaq pays rebates and credits to attract orders, charges 
relatively low prices for market information and charges relatively 
high prices for accessing posted liquidity. Other platforms may choose 
a strategy of paying lower liquidity rebates to attract orders, setting 
relatively low prices for accessing posted liquidity, and setting 
relatively high 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

[[Page 55517]]

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.\27\
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    \27\ Moreover, 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.
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    The proposed fee structure is designed to ensure a fair and 
reasonable use of Exchange resources by allowing the Exchange to recoup 
costs and ease administrative burden while continuing to offer its data 
products at competitive rates to firms.

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

    Written comments were neither solicited nor received.

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

    The foregoing change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\28\
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    \28\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    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 necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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
     Send an email to [email protected]. Please include 
File Number SR-NASDAQ-2016-109 on the subject line.

Paper comments

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

All submissions should refer to File Number SR-NASDAQ-2016-109. 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 such 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-2016-109, and should 
be submitted on or before September 9, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-19799 Filed 8-18-16; 8:45 am]
 BILLING CODE 8011-01-P