[Federal Register Volume 82, Number 215 (Wednesday, November 8, 2017)]
[Notices]
[Pages 51894-51897]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-24254]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82003; File No. SR-NASDAQ-2017-113]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Exchange's Fees at Rule 7058
November 2, 2017.
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 October 20, 2017, The Nasdaq Stock Market LLC (``Nasdaq'' 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 the Exchange's fees at Rule 7058 to:
(i) Offer to waive fees under this Rule for 30 days for any new,
prospective, or returning purchaser of either QView or the Latency
Optics add-on service; and (ii) remove language offering a subscription
to TradeInfo for up to five users at no additional cost to subscribers
of the Latency Optics add-on service.
The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaq.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 Exchange proposes to amend its fees at Rule 7058 to: (i) Offer
to waive fees under this Rule for 30 days for any new, prospective, or
returning purchaser of either QView or the Latency Optics add-on
service; and (ii) remove language offering a subscription to TradeInfo
for up to five users at no additional cost to subscribers of the
Latency Optics add-on service, along with conforming changes. The
purposes of the proposed changes are to: (i) Encourage new,
prospective, and returning purchasers of either QView or the Latency
Optics add-on service to examine these products more closely and
thereby increase the number of customers for this product; and (ii)
remove a rarely used fee provision in order to render the Latency
Optics subscription easier to administer.
Current Products
QView
QView is a web-based tool designed to provide a subscribing member
with the ability to track its trading activity on the Exchange through
both real-time and historical order and execution summaries, available
on a daily or a monthly basis. The QView dashboard allows the member to
view a summary of its executions and open orders,
[[Page 51895]]
including, but not limited to: The number of executions and their
dollar value; executions by symbol; total volume; whether an order has
been added or removed; whether the order is for a buy or a sell;
whether an order is open; and information related to routing
strategies. QView also includes ranking and market share statistics,
such as how the subscribing member firm ranks in Nasdaq market activity
as compared to other Nasdaq participants. QView data may be segregated
by individual Market Participant Identifiers (MPIDs) or ports. QView
was developed to work in conjunction with TradeInfo (discussed below)
to allow the QView purchaser to view specific order and execution
information provided by the QView dashboard interface.
As set forth in Rule 7058(a), members may subscribe to QView for a
fee of $600 per month.
Latency Optics
A member that subscribes to QView may also purchase the Latency
Optics add-on service, which provides the member with the ability to
monitor three types of latency for order messages and compare that
latency to the average on the Nasdaq system: \3\ (1) Roundtrip time
between order entry and receipt of acknowledgement; (2) roundtrip time
between order entry and the time that the order appears on the
TotalView ITCH multicast feed; and (3) the roundtrip time between the
entry of an order cancellation request and the time that the message in
reply is received by the client device. Data is displayed graphically
and in table format, and may be segregated by MPID or ports.
Subscribers may also set hourly or end-of-day alert notifications.
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\3\ The service measures the historical latency of the member
firm's order messages sent to and from the Nasdaq Market Center
through the member firm's OUCH ports and received on ITCH ports. See
Securities Exchange Act Release No. 68617 (January 10, 2013), 78 FR
3480 (January 16, 2013) (SR-NASDAQ-2013-15) [sic]. OUCH ports are
used for order entry; multicast ITCH ports are used for the
dissemination of ITCH multicast feeds.
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As set forth in Rule 7058(b), the Latency Optics add-on is
available for a fee of $2,900 per month.
TradeInfo
TradeInfo is a web-based tool that allows a member to see the
status of orders, executions, cancels and breaks, generate reports for
download, and cancel or correct open orders.
As set forth in Rule 7015(f), TradeInfo is complementary as part of
the Nasdaq workstation or may be purchased separately for a fee of $95
per user per month. Under Rule 7058(b), a purchaser of the Latency
Optics add-on may obtain TradeInfo for up to 5 users at no additional
cost.
Proposed Changes
The Exchange proposes to: (i) Introduce a fee waiver for 30 days
for any new, prospective or returning purchaser of either QView or the
Latency Optics add-on service to encourage testing and dissemination of
the product; and (ii) remove a rarely used provision of Rule 7058 that
offers subscribers of the Latency Optics add-on service a subscription
to TradeInfo for up to five users at no additional cost.
The Exchange proposes to initiate the new fee waiver program to
foster interest in QView or the Latency Optics add-on service and
encourage sales for both products. The waiver will be available only
once per customer for any version of either product. New versions will
be announced by the Exchange on www.nasdaqtrader.com.
The Exchange also proposes to remove a rarely used provision of
Rule 7058 that offers subscribers of the Latency Optics add-on service
a subscription to TradeInfo for up to five users at no additional cost.
As stated in Rule 7015(f), TradeInfo is complementary as part of the
Nasdaq workstation. Because TradeInfo is already available free of
charge with the Nasdaq workstation, customers have expressed little
interest in this discount, and that provision has been rarely, if ever,
used. As such, the Exchange proposes to eliminate that provision.\4\
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\4\ As a conforming change, the Exchange proposes to delete an
obsolete reference to a free trial period that expired in September
2013. In addition, a comma is added after the phrase ``In
addition,'' in Rule 7058(b) to correct a grammatical error.
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The proposed changes do not affect the cost of any other Nasdaq
product.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\5\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\6\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility, and is
not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(4) and (5).
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The fee waiver proposal is an equitable allocation of reasonable
dues, fees and other charges because it will reduce fees for new,
prospective, and returning purchasers of QView or Latency Optics, while
not disadvantaging continuing subscribers because their fees will not
change. Moreover, the additional subscriptions resulting from the fee
waiver will increase market transparency, and, as the total number of
subscribers increases, the additional subscriptions will decrease the
likelihood of future fee increases as a result of rising fixed costs.
Removal of the provision in Rule 7058(b) allowing a free
subscription to TradeInfo for five users is an equitable allocation of
reasonable dues, fees and other charges because all members will be
charged the same fees for the same product. Moreover, the proposed
change will have little substantive impact on fees because the discount
was rarely, if ever, used. This proposed change will not permit unfair
discrimination between customers, issuers, brokers, or dealers because
the proposal will remove a basis for price differentiation among
customers that currently exists.\7\
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\7\ Availability of QView, the Latency Optics add-on service and
TradeInfo is already limited to members of the Exchange, which is
not unfair discrimination because the information provided solely
concerns a member firm's trading activity on the Exchange.
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In adopting Regulation NMS,\8\ the Commission granted SROs 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. Regulation
NMS--deregulating the market in proprietary data--furthers the Act's
goals of facilitating efficiency and competition:
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\8\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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[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.\9\
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\9\ Id.
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Nasdaq believes that QView, the Latency Optics add-on and
TradeInfo--which provide members with the ability to track order flow,
observe latency and obtain order data--is precisely the sort of market
data product that the Commission envisioned when it adopted Regulation
NMS.
[[Page 51896]]
In NetCoalition v. Securities and Exchange Commission \10\
(``NetCoalition'') the D.C. Circuit upheld the Commission's use of a
market-based approach in evaluating the fairness of market data fees
against a challenge claiming that Congress mandated a cost-based
approach.\11\ As the court emphasized, the Commission ``intended in
Regulation NMS that `market forces, rather than regulatory
requirements' play a role in determining the market data . . . to be
made available to investors and at what cost.'' \12\ ``No one disputes
that competition for order flow is `fierce.' . . . As the SEC
explained, `[i]n the U.S. national market system, buyers and sellers of
securities, and the broker-dealers that act as their order-routing
agents, have a wide range of choices of where to route orders for
execution'; [and] `no exchange can afford to take its market share
percentages for granted' because `no exchange possesses a monopoly,
regulatory or otherwise, in the execution of order flow from broker
dealers'. . . .'' \13\
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\10\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\11\ See NetCoalition, at 534-535.
\12\ Id. at 537.
\13\ Id. at 539 (quoting Securities Exchange Act Release No.
59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008)
(SR-NYSEArca-2006-21)).
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Data products such as QView, the Latency Optics add-on and
TradeInfo 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. The need to
compete for order flow places substantial pressure upon exchanges to
keep their fees for both executions and data reasonable.\14\
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\14\ 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).
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Fees for QView, the Latency Optics add-on and TradeInfo are
optional in that they apply only to firms that elect to purchase these
products, which, like all proprietary data products, they may cancel at
any time.
For all of the reasons set forth above, the Exchange has provided a
substantial basis demonstrating that the proposed fee is equitable,
fair, reasonable and not unreasonably discriminatory, and therefore
consistent with and in furtherance of the purposes of the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule changes will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. Introduction of the proposed
fee waiver will enhance competition by increasing customer familiarity
with the product, thereby leading to more informed purchase decisions.
Further, the product itself enhances competition by promoting
transparency, and the increased use of the product generated by the fee
waiver will increase the amount of information available to the market.
Moreover, removal of the provision in 7058(b) allowing a free
subscription to TradeInfo for five users will enhance competition by
simplifying the fee structure for these products.
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.
Exchanges compete with each other for listings, trades, and market data
itself. 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.
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 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).\15\ 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.
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\15\ 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).
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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. The level of competition and contestability in the market is
evident in the numerous alternative venues that compete for order flow,
including 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 the BATS exchanges.
Firms make decisions regarding market data based on the total cost
of interacting with the Exchange, and an ``excessive'' price for one
product has the potential to impair revenues from all products. If the
price of QView, the Latency Optics add-on or TradeInfo were to become
unattractive to member firms,\16\ those firms would opt not to purchase
the product, or may reduce
[[Page 51897]]
their purchases of other products sold by the Exchange.
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\16\ Only member firms can purchase QView, the Latency Optics
add-on, and TradeInfo.
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For all of the reasons set forth above, the Exchange does not
believe that the proposed rule changes will impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act.
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\17\
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\17\ 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: (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 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
Send an email to [email protected]. Please include
File Number SR-NASDAQ-2017-113 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-NASDAQ-2017-113. 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. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASDAQ-2017-113 and should
be submitted on or before November 29, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-24254 Filed 11-7-17; 8:45 am]
BILLING CODE 8011-01-P