[Federal Register Volume 83, Number 151 (Monday, August 6, 2018)]
[Notices]
[Pages 38428-38434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16720]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-83751; File No. SR-NASDAQ-2018-058]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Lower Fees and Administrative Costs for Distributors of Nasdaq Basic,
Nasdaq Last Sale, NLS Plus and the Nasdaq Depth-of-Book Products
Through a Consolidated Enterprise License
July 31, 2018.
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 July 17, 2018, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to lower fees and administrative costs for
Distributors of Nasdaq Basic, Nasdaq Last Sale (``NLS''), NLS Plus and
the Nasdaq Depth-of-Book products (TotalView and Level 2) by
introducing a consolidated enterprise license for the Display Usage of
all five products. This market data enterprise license will allow
Distributors who are broker-dealers or Investment Advisers to
disseminate these products to a wide audience for a monthly fee of
$600,000, with the opportunity to lower that fee further to $500,000
per month if the Distributor contracts for twelve months of the service
in advance. The proposed enterprise license will be introduced through
an amendment to Rule \3\ 7032, which is currently reserved. The
proposal is described in further detail below.
---------------------------------------------------------------------------
\3\ References to rules are to Nasdaq rules, unless otherwise
noted.
---------------------------------------------------------------------------
This amendment is immediately effective upon filing.\4\
---------------------------------------------------------------------------
\4\ This proposed change was initially filed on July 3, 2018,
and became immediately effective on that date. See SR-NASDAQ-2018-
055, available at http://nasdaq.cchwallstreet.com/. A firm eligible
to purchase the proposed license may purchase it for the month of
July, effective on July 3, 2018, and the monthly fee for the license
will be prorated for the period July 3 through July 31, 2018. Any
fees owed by the purchaser of the enterprise license for the use of
Nasdaq Basic, NLS, NLS Plus and the Nasdaq Depth-of-Book products on
July 1 and July 2, 2018, will also be prorated accordingly.
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
website 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 lower fees and administrative costs for
Distributors \5\ of Nasdaq Basic, NLS, NLS Plus and the Nasdaq Depth-
of-Book products (TotalView and Level 2) by introducing a consolidated
enterprise license for the Display Usage \6\ of all five products. This
license will allow Distributors who are broker-dealers or Investment
Advisers \7\ to disseminate these products to a wide audience for a
monthly fee of $600,000, with the opportunity to lower that fee further
to $500,000 per month if they contract for twelve months of service in
advance. No fees will increase as a result of this license. As
discussed below, this fee reduction responds to competitive pressures
exerted by other exchanges that sell market data.
---------------------------------------------------------------------------
\5\ ``Distributor'' will be defined in proposed Rule 7032(c)(3)
by reference to Rules 7023(a)(4), 7039(f)(3), and 7047(d)(1) to
reflect the current definitions of that term as set forth in each of
these rules. Those definitions will continue to apply to each
product, respectively. At a later date, Nasdaq will submit an
additional proposed rule change to consolidate generally-applicable
definitions and move these definitions to a new rule that will apply
to all market data fee rules in the 7000 series.
\6\ ``Display Usage'' will be defined in Rule 7032(c)(2) by
reference to Rules 7023(a)(2), 7039(f)(2), and 7047(d)(2), to
reflect the current definitions of that term as set forth in each of
these rules. Those definitions will continue to apply to each
product, respectively.
\7\ ``Investment Adviser'' will be defined in proposed Rule
7032(c)(4) by reference to Section 202(a)(11) of the Investment
Advisers Act of 1940, as ``any person who, for compensation, engages
in the business of advising others, either directly or through
publications or writings, as to the value of securities or as to the
advisability of investing in, purchasing, or selling securities, or
who, for compensation and as part of a regular business, issues or
promulgates analyses or reports concerning securities . . . .''
---------------------------------------------------------------------------
Current Enterprise License Fees
The Exchange currently offers enterprise licenses for Depth-of-Book
products and Nasdaq Basic. There is no enterprise license for the
distribution of NLS to the general investing public, but there is a cap
of $41,500 per month on such fees, and NLS may also be distributed
under one of the enterprise licenses for Nasdaq Basic.\8\
---------------------------------------------------------------------------
\8\ See Rule 7048(b)(5) (providing that a broker-dealer that
purchases this enterprise license will also have the right to
distribute NLS data to an unlimited number of Professional and Non-
Professional Subscribers who are natural persons and with whom the
broker-dealer has a brokerage relationship). In addition, there is
an enterprise license for specialized usage of NLS at Rule
7039(c)(3), but specialized usage is not relevant to this proposal,
which focuses on distribution to the general investing public and
the professionals servicing retail investors through brokerage or
retail advisory accounts.
---------------------------------------------------------------------------
Depth-of-Book Products
Nasdaq offers two Depth-of-Book products, TotalView and Level 2.\9\
TotalView, Nasdaq's premier Depth-of-Book product, provides complete,
real-time depth data for Nasdaq and non-
[[Page 38429]]
Nasdaq-listed securities, including all orders and quotes from all
Nasdaq members displayed in the Nasdaq Market Center, the aggregate
size of such orders and quotes, and Net Order Imbalance Information,
which supplies data on the daily auctions that take place at the open
and close of the market, as well as in the context of an IPO or after a
halt.\10\ Nasdaq Level 2, which will be retired as a separate product
after transition to TotalView is complete for all Distributors,\11\
provides the best-priced orders from each Nasdaq member on the Nasdaq
Market Center for Nasdaq-listed securities.
---------------------------------------------------------------------------
\9\ See Rule 7023(a)(1). The Exchange proposes to incorporate
the definition of Depth-of-Book data currently set forth at Rule
7023(a)(1) by reference at proposed Rule 7032(c)(1). Rule 7023(a)(1)
defines Depth-of-Book as ``data feeds containing price quotations at
more than one price level''; the Depth-of-Book data feeds are Nasdaq
Level 2, which means ``with respect to stocks listed on Nasdaq, the
best-priced orders or quotes from each Nasdaq member displayed in
the Nasdaq Market Center,'' and Nasdaq TotalView, which means ``with
respect to stocks listed on Nasdaq and on an exchange other than
Nasdaq, all orders and quotes from all Nasdaq members displayed in
the Nasdaq Market Center as well as the aggregate size of such
orders and quotes at each price level in the execution functionality
of the Nasdaq Market Center.''
\10\ See Securities Exchange Act Release No. 79863 (January 23,
2017), 82 FR 8632 (January 27, 2017) (SR-NASDAQ-2017-004). Net Order
Imbalance Information refers to data relating to buy and sell
interest at the open and close of the trading day, in the context of
an Initial Public Offering, and after a trading halt. See Securities
Exchange Act Release No. 80891 (June 8, 2017), 82 FR 27318 (June 14,
2017) (SR-NASDAQ-2017-054).
\11\ See Securities Exchange Act Release No. 79863 (January 23,
2017) 82 FR 8632 (January 27, 2017) (SR-NASDAQ-2017-004) (explaining
that Level 2 will be retired as a separate product).
---------------------------------------------------------------------------
The Exchange offers three enterprise licenses for its Depth-of-Book
products. The first allows a Distributor that is also a broker-dealer
to pay a monthly fee of $25,000, plus $9 per month for each Non-
Professional Subscriber and $60 per month for each Professional
Subscriber, for the right to distribute Nasdaq TotalView internally for
Display Usage or externally to Non-Professional Subscribers with whom
the firm has a brokerage relationship.\12\
---------------------------------------------------------------------------
\12\ See Rule 7023(c)(1).
---------------------------------------------------------------------------
The second allows a Distributor that is also a broker-dealer to pay
a monthly fee of $100,000, plus $9 per month for each Non-Professional
Subscriber and $60 per month for each Professional Subscriber, for the
right to distribute TotalView for Display Usage internally, or
externally to both Professional and Non-Professional Subscribers with
whom the firm has a brokerage relationship.\13\
---------------------------------------------------------------------------
\13\ See Rule 7023(c)(2). Note that the $100,000 license at
paragraph (c)(2) allows for external distribution to both
Professional and Non-Professional Subscribers with whom the firm has
a brokerage relationship, while the $25,000 license at paragraph
(c)(1) is limited to Non-Professional Subscribers.
---------------------------------------------------------------------------
The third allows a Distributor that is also a broker-dealer to pay
a monthly fee of $500,000 to provide Nasdaq Level 2 or Nasdaq TotalView
for Display Usage by Non-Professional Subscribers with whom the firm
has a brokerage relationship, with no additional per Subscriber fees,
albeit with Distributor fees.\14\
---------------------------------------------------------------------------
\14\ See Rule 7023(c)(3).
---------------------------------------------------------------------------
Nasdaq Basic
Nasdaq Basic is a real-time market data product that offers best
bid and offer and last sale information for all U.S. exchange-listed
securities from the Nasdaq Market Center and the FINRA/Nasdaq Trade
Reporting Facility (``TRF'').\15\ It is comprised of three components,
which may be purchased individually or in combination: (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
covers NYSE-listed stocks, and (iii) Nasdaq Basic for NYSE American
(formerly NYSE MKT), which provides data on stocks listed on NYSE
American and other listing venues whose quotes and trade reports are
disseminated on Tape B. Nasdaq Basic provides customers with: (i)
Nasdaq Basic Quotes (``QBBO''), the best bid and offer and associated
size available in the Nasdaq Market Center, as well as last sale
transaction reports; (ii) Nasdaq opening and closing prices, as well as
IPO and trading halt cross prices; and (iii) general Exchange
information, including systems status reports, trading halt
information, and a stock directory.
---------------------------------------------------------------------------
\15\ The Exchange proposes to use the same definition for
``Nasdaq Basic'' currently set forth in Rule 7047(a), incorporated
by reference in proposed Rule 7032(c)(5). Rule 7047(a) defines
Nasdaq Basic as ``proprietary data feeds containing real-time market
information from the Nasdaq Market Center and the FINRA/Nasdaq Trade
Reporting Facility (`TRF'). (1) `Nasdaq Basic for Nasdaq' shall
contain Nasdaq's best bid and offer and last sale for Nasdaq-listed
stocks from Nasdaq and the FINRA/Nasdaq TRF; and (2) `Nasdaq Basic
for NYSE' shall contain Nasdaq's best bid and offer and last sale
for NYSE-listed stocks from Nasdaq and the FINRA/Nasdaq TRF. (3)
`Nasdaq Basic for NYSE MKT' shall contain Nasdaq's best bid and
offer and last sale for stocks listed on NYSE MKT and other Tape B
listing venues from Nasdaq and the FINRA/Nasdaq TRF.''
---------------------------------------------------------------------------
The Exchange offers two enterprise licenses for Nasdaq Basic. The
first is aimed primarily at internal distribution for professionals,
allowing the dissemination of Nasdaq Basic or Derived Data therefrom
for a fee of $365,000 per month, provided that if the broker-dealer
obtains the license for 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.\16\ This license includes access to NLS for the Distributor's
own securities and those of up to ten of its competitors or peers for
Display Usage on the broker-dealer's internal website.\17\
---------------------------------------------------------------------------
\16\ See Rule 7047(b)(4).
\17\ Distributor fees at Rule 7047(c)(1) are excluded from this
license.
---------------------------------------------------------------------------
The second is directed primarily at external distribution to
investors with brokerage relationships. Nasdaq Basic or Derived Data
therefrom, as well as NLS, may be distributed to an unlimited number of
Professional and Non-Professional Subscribers who are natural persons
and who have a brokerage relationship with the broker-dealer for a
monthly fee of $100,000.\18\ Information also may be distributed to
4,500 internal Professional Subscribers, provided that the information
may only be used to support brokerage services,\19\ and any internal
electronic system used to distribute such information must be approved
by Nasdaq.\20\ The license does not cover the Distributor fee for
Nasdaq Basic,\21\ and is subject to reporting requirements regarding
the number of Professional and Non-Professional Subscribers.
---------------------------------------------------------------------------
\18\ See Rule 7047(b)(5).
\19\ Such information may not be used in support of proprietary
trading, surveillance activities, or other functions solely for the
benefit of the broker-dealer. Also, a Professional Subscriber who
obtains Nasdaq Basic through his or her own brokerage relationship
with the broker-dealer may not use that data within the scope of any
professional engagement or registration. See Rule 7047(b)(5).
\20\ A separate enterprise license is required for each discrete
electronic system that is approved by Nasdaq and used by the broker-
dealer. See Rule 7047(b)(5).
\21\ See Rule 7047(c)(1).
---------------------------------------------------------------------------
NLS
NLS is composed of two proprietary data feeds containing real-time
last sale information for trades executed on the Nasdaq exchange or
reported to the FINRA/Nasdaq TRF: (i) NLS for Nasdaq, which contains
transaction reports for Nasdaq-listed stocks, and (ii) NLS for NYSE/
NYSE American, which contains transaction reports for NYSE-listed
stocks and stocks listed on NYSE American and other Tape B listing
venues.\22\
---------------------------------------------------------------------------
\22\ The Exchange proposes to use the definition for ``NLS''
currently set forth at Rule 7039(a), incorporated by reference in
proposed Rule 7032(c)(6). Rule 7039(a) defines NLS as ``two
proprietary data feeds containing real-time last sale information
for trades executed on Nasdaq or reported to the FINRA/Nasdaq Trade
Reporting Facility. `Nasdaq Last Sale for Nasdaq' contains all such
transaction reports for Nasdaq-listed stocks, and `Nasdaq Last Sale
for NYSE/NYSE American' contains all such transaction reports for
NYSE-listed stocks and stocks listed on NYSE American and other Tape
B listing venues.''
---------------------------------------------------------------------------
NLS is designed to enable market data Distributors to provide
access to Exchange information to millions of individual investors
through website
[[Page 38430]]
distribution.\23\ This design is reflected in the pricing schedule, in
which one set of prices is dedicated to distribution to the general
investing public, and another for specialized usage by Professionals,
or usage that otherwise does not fit within the models for distribution
to the general investing public.\24\
---------------------------------------------------------------------------
\23\ See Securities Exchange Act Release No. 57965 (June 16,
2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-060) (approving
SR-NASDAQ-2006-060, as amended by Amendment Nos. 1 and 2, to
implement NLS on a pilot basis).
\24\ See Securities Exchange Act Release No. 82723 (February 15,
2018), 83 FR 7812 (February 22, 2018) (SR-NASDAQ-2018-010)
(describing the NLS fee schedules).
---------------------------------------------------------------------------
There is no enterprise license for distribution to the general
investing public, but such dissemination is subject to a fee cap of
$41,500 per month.\25\ Distributors under the specialized fee schedule,
however, may purchase an enterprise license for a monthly fee of
$365,000 per month,\26\ which is patterned after a similar enterprise
license for Nasdaq Basic.\27\
---------------------------------------------------------------------------
\25\ See Rule 7039(b)(4) (identifying the fee cap); Rule
7039(b)(1)-(3) (identifying fees for the Per User, Per Query and Per
Device fee models).
\26\ See Rule 7039(c)(3).
\27\ See Rule 7047(b)(4) (setting forth an enterprise license
for Nasdaq Basic for $365,000 per month).
---------------------------------------------------------------------------
NLS Plus
NLS Plus provides last sale information and consolidated volume
data for the Nasdaq Stock Market, Nasdaq BX, Nasdaq PSX and the FINRA/
Nasdaq TRF, and cumulative volume for real-time trading activity across
all U.S. exchanges.\28\ It may be purchased by itself or in combination
with Nasdaq Basic. NLS Plus provides customers with Trade Price, Trade
Size, Sale Condition Modifiers, Cumulative Consolidated Market Volume,
End of Day Trade Summary, Adjusted Closing Price, IPO information,
Bloomberg ID, and regulatory information such as Market Wide Circuit
Breaker, Regulation SHO Short Sale Price Test Restricted Indicator,
Trading Action, and Symbol Directory.
---------------------------------------------------------------------------
\28\ The Exchange proposes that ``NLS Plus'' in proposed Rule
7032 have the same meaning as currently set forth at Rule 7039(e),
to be incorporated by reference in proposed Rule 7032(c)(7). Rule
7039(e) defines NLS Plus in part as ``a comprehensive data feed
produced by Nasdaq Information LLC. It provides last sale data as
well as consolidated volume of Nasdaq U.S. equity markets (The
Nasdaq Stock Market (`Nasdaq'), Nasdaq BX (`BX'), and Nasdaq PSX
(`PSX')) and the FINRA/Nasdaq Trade Reporting Facility (`TRF').
Nasdaq Last Sale Plus also reflects cumulative volume real-time
trading activity across all U.S. exchanges for Tape C securities. .
. . ''
---------------------------------------------------------------------------
Fees for NLS Plus are based on the fees for its underlying
components, as well as a Distributor fee,\29\ a data consolidation fee
of $350 per month, and administrative fees for Nasdaq, BX, and PSX data
feeds as set forth in their respective rule books.\30\ There is no
enterprise license for NLS Plus, but the distribution fees for the
general investing public are capped at $41,500, under the same cap that
applies to NLS.
---------------------------------------------------------------------------
\29\ See Rule 7039(d).
\30\ See Nasdaq Rule 7035; BX Rule 7035; and Phlx Pricing
Schedule Sec. VIII. All administrative fees are charged on a per
Distributor, rather than a per product, basis. Currently, there are
no user or Distributor fees applicable to BX Last Sale or PSX Last
Sale. However, if BX or Phlx were to adopt user fees for these
products in the future, the fees would also apply to persons
receiving these products by means of NLS Plus.
---------------------------------------------------------------------------
Proposed Market Data Enterprise License
The Exchange proposes to introduce a market data enterprise license
that will reduce Exchange fees and administrative costs for
Distributors \31\ that disseminate Nasdaq Basic, NLS, NLS Plus,
TotalView and Level 2. Distributors that are broker-dealers or
Investment Advisers \32\ will be able to distribute information for
Display Usage for all five products to an unlimited number of
recipients for a monthly fee of $600,000, with an opportunity to lower
that fee to $500,000 per month if they contract for twelve months of
service in advance. Depth-of-Book information and Nasdaq Basic may be
distributed pursuant to this market data enterprise license only for
display usage and in the context of a brokerage relationship with a
broker-dealer or an engagement with an Investment Adviser, and the
Exchange must pre-approve any such platform to ensure that it is
reasonably designed to meet this and other requirements identified in
the text of the proposed rule. NLS and NLS Plus will be available for
unlimited external distribution through one of the mechanisms available
for distribution to the general investing public, which the Exchange
expects to be the most efficient method for reaching the general
investing public. Purchase of the enterprise license will eliminate
per-Subscriber fees for Depth-of-Book data,\33\ user fees for Nasdaq
Basic,\34\ distribution fees for the general investing public for
NLS,\35\ and incremental NLS Plus fees,\36\ whether such fees are paid
directly to the Exchange or indirectly through another Distributor.\37\
This enterprise license will offer a new fee option for Distributors of
multiple market data products. No fee will increase as a result of this
proposal.
---------------------------------------------------------------------------
\31\ As noted above, ``Distributor'' will be defined in proposed
Rule 7032(c)(3) by reference to Rules 7023(a)(4), 7039(f)(3), and
7047(d)(1) to reflect the current definitions of that term as set
forth in each of these rules. Those definitions will continue to
apply to each product, respectively. See n.5.
\32\ ``Investment Adviser'' shall have the same meaning in
proposed Rule 7032 as set forth in Section 202(a)(11) of the
Investment Advisers Act of 1940, incorporated by reference at
proposed Rule 7032(c)(4). See n.7.
\33\ See Rule 7023(b).
\34\ See Rule 7047(b).
\35\ See Rule 7039(b).
\36\ See Rule 7039(e).
\37\ A Distributor may receive Information subject to the
proposed enterprise license either directly from the Exchange or
indirectly through another Distributor. To the degree that any
Distributor pays to the Exchange Subscriber fees for Depth-of-Book
data at Rule 7023(b), User Fees for Nasdaq Basic at Rule 7047(b),
Distribution Model fees for the General Investing Public for NLS at
Rule 7039(b), and NLS Plus fees at Rule 7039(e) on behalf of the
purchaser of the proposed market data enterprise license, those fees
paid to the Exchange shall reduce the applicable monthly enterprise
license fee owed by the amount paid.
---------------------------------------------------------------------------
Distributors that intend to purchase the market data enterprise
license for at least twelve months may elect to purchase this product
in advance for a monthly fee of $500,000. This feature is intended to
simplify cost projections and budgeting for both Distributors and the
Exchange. Distributors that elect not to purchase this particular
feature will nevertheless be able to obtain all of the market data
information offered by the product by paying the standard fee of
$600,000 per month. Distributors that elect to pay the monthly fee will
be able to switch to the annual fee at any time, and those that elect
to purchase the annual contract would be able to change to the monthly
contract, with notice, at the end of the twelve month period.
The Exchange believes that the proposed market data enterprise
license will reduce exchange fees, lower administrative costs for
Distributors, and help expand the availability of market information to
investors, and thereby increase participation in financial markets.
Reduce Exchange Fees: The proposed market data enterprise license
will lower fees by consolidating the features of three existing
enterprise licenses at a lower cost, and with an expanded scope. The
three current enterprise licenses that offer some, but not all,\38\ of
the features of the proposed license are: (i) The $500,000 per month
enterprise license for Depth-of-Book; \39\ (ii) the
[[Page 38431]]
$365,000 per month license for internal distribution of Nasdaq Basic;
and (iii) the $100,000 per month license for external distribution of
Nasdaq Basic.
---------------------------------------------------------------------------
\38\ While the scope of each of the three current enterprise
licenses is not identical to the proposed license, the Exchange
believes that this comparison is a good approximation for the cost
reduction generated by the proposal.
\39\ The two other enterprise licenses for Depth-of-Book, the
$25,000 enterprise license for distribution of TotalView, see Rule
7023(c)(1), and the $100,000 license for the right to distribute
TotalView for certain Subscribers internally and externally, see
Rule 7023(c)(2), are not comparable to the proposed license in that
these two current licenses include substantial per Subscriber fees,
while the proposed license does not.
---------------------------------------------------------------------------
As explained above, the $500,000 enterprise license for Depth-of-
Book products allows a Distributor that is also a broker-dealer to
distribute Nasdaq Level 2 or TotalView for Display Usage by Non-
Professional Subscribers with whom the firm has a brokerage
relationship.\40\ This Depth-of-Book fee is nearly equal to the
proposed market data enterprise license fee without a twelve month
commitment--and exactly the same as the proposed fee for Distributors
that contract for twelve months of service--yet without the inclusion
of Nasdaq Basic, NLS and NLS Plus.
---------------------------------------------------------------------------
\40\ See Rule 7023(c)(3).
---------------------------------------------------------------------------
To distribute Nasdaq Basic and NLS using currently available
enterprise licenses, a Distributor would be required to purchase two
enterprise licenses for Nasdaq Basic--the $365,000 per month license
for internal distribution and the $100,000 per month license for
external distribution--in addition to the $500,000 enterprise license
for Depth-of-Book products.
The $365,000 per month enterprise license for Nasdaq Basic, aimed
primarily at internal distribution for professionals, allows the
dissemination of Nasdaq Basic for $365,000 per month, provided 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.\41\
---------------------------------------------------------------------------
\41\ See Rule 7047(b)(4).
---------------------------------------------------------------------------
The $100,000 per month enterprise license allows the distribution
of Nasdaq Basic and NLS to an unlimited number of Professional and Non-
Professional Subscribers who are natural persons in the context of a
brokerage relationship.\42\ Nasdaq Basic may also be distributed to up
to and including 4,500 internal Professional Subscribers employed by
the broker-dealer in support of brokerage services to investors on an
approved platform.\43\ Even with the purchase of these two additional
licenses, the Distributor would also be required to pay any additional
fees for NLS Plus.\44\ The proposed fees for the market data enterprise
license, which would provide the same data \45\ as the $365,000 per
month enterprise license for Nasdaq Basic designed for internal use,
the $100,000 per month enterprise license for Nasdaq Basic designed for
external use, the $500,000 enterprise license for Depth-of-Book
products, and applicable fees for NLS and NLS Plus, are substantially
less than the sum of the currently available enterprise licenses.
Savings for the Distributor could be over $4 million per year as a
result.
---------------------------------------------------------------------------
\42\ See Rule 7047(b)(5). Note that Nasdaq Basic can be
distributed to customers under this license on a password-protected
website, but Nasdaq Basic would not be available for open
distribution.
\43\ A separate enterprise license is required for each discrete
electronic system that is approved by Nasdaq and used by the broker-
dealer. See Rule 7047(b)(5).
\44\ See Nasdaq Rule 7035; BX Rule 7035; and Phlx Pricing
Schedule Sec. VIII. All administrative fees are charged on a per
Distributor, rather than a per product, basis. Currently, there are
no user or Distributor fees applicable to BX Last Sale or PSX Last
Sale. However, if BX or Phlx were to adopt user fees for these
products in the future, the fees would also apply to persons
receiving these products by means of NLS Plus.
\45\ The underlying content for each product (i.e., Nasdaq Basic
and Nasdaq Depth-of-Book data) is identical under each license,
although the restrictions on each license are somewhat different, as
described in the rule book.
---------------------------------------------------------------------------
Lower Administrative Costs: The proposed market data enterprise
license reduces administrative costs for Distributors by eliminating
monthly and yearly reporting of Professional and Non-Professional
Subscribers, a requirement that may be costly to administer. The market
data enterprise license will have no requirement that the Distributor
count and report individual Professionals and Non-Professionals on a
monthly basis, but rather would simply require the Distributor to
obtain approval for the platform used to disseminate such information
as reasonably designed to ensure consistency with the proposed Rule.
Increase Availability of Market Data for the Retail Investor: The
proposed license is designed to make an array of market data products
more easily accessible to the retail investor. Broker-dealers and
Investment Advisers (which did not previously have access to any of the
underlying enterprise licenses) would be able to share information from
TotalView, Level 2, Nasdaq Basic, NLS and NLS Plus with their
customers, without regard to current distinctions between fees for
Professional and Non-Professional users, creating a seamless experience
in which the firm and its customers can share market data information.
Because the cost to the Distributor of adding another customer would be
zero, the proposed enterprise license will create an incentive to
distribute the data widely to investors.
In summary, the proposed market data enterprise license will: (i)
Offer Distributors a new, lower-fee option for Distributors of
TotalView, Level 2, Nasdaq Basic, NLS and NLS Plus; (ii) reduce
administrative costs by lowering reporting requirements for
Professional and Non-Professional Subscribers; and (iii) provide a
mechanism to render market data more readily accessible to retail
investors by reducing the cost of distribution to new investors.\46\
---------------------------------------------------------------------------
\46\ The proposed enterprise license will be introduced through
an amendment to Rule 7032, which is currently reserved. Removal of
the reserved Rule will have no impact on any market data fee or
product.
---------------------------------------------------------------------------
This proposal demonstrates the effectiveness of the competitive
market in maintaining low costs, enhancing the customer experience, and
encouraging the dissemination of market data to the general investing
public. As set forth in greater detail below, the Commission granted
Self-Regulatory Organizations (``SROs'') and broker-dealers increased
authority and flexibility to offer new and unique market data to the
public when it adopted Regulation NMS. It was believed that this
authority would expand the amount of data available to consumers, and
also spur innovation and competition in the provision of market data.
This market data enterprise license demonstrates the benefits of
competition. A number of other SROs offer enterprise licenses for their
market data products,\47\ but this multi-product enterprise license is
an innovation for the Exchange--and indeed all SROs--that demonstrates
the power of the competitive market to spur innovation and change.
---------------------------------------------------------------------------
\47\ See, e.g., Enterprise Fee for the Cboe Equities One Feed,
available at https://markets.cboe.com/us/equities/market_data_products/bats_one/.
---------------------------------------------------------------------------
The proposed enterprise license is optional in that Nasdaq is not
required to offer it and Distributors are not required to purchase it.
Firms can discontinue its use at any time and for any reason, and may
decide to purchase Nasdaq market data products individually or
substitute Nasdaq products with competing products from other
exchanges.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\48\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\49\ 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
[[Page 38432]]
discrimination between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------
\48\ 15 U.S.C. 78f(b).
\49\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
As described above, the proposed market data enterprise license
will lower fees, reduce administrative costs, and expand the
availability of market data to retail investors, which may lead to
increased participation in financial markets. Distributors that are
broker-dealers or Investment Advisers will be able to disseminate
TotalView, Level 2, Nasdaq Basic, NLS and NLS Plus to an unlimited
audience for display in the context of the brokerage or advisory
relationship for a monthly fee of $600,000, or $500,000 per month for
Distributors that contract with the Exchange in advance for twelve
months of service.
The proposal will lower fees for Distributors able to reach the
largest audiences of retail investors. Discounts for broader
dissemination of market data information have routinely been adopted by
exchanges and permitted by the Commission as equitable allocations of
reasonable dues, fees and other charges.\50\ Moreover, the specific
feature of the proposal that will allow Distributors to lower fees to
$500,000 for a twelve month contract is also an equitable allocation
because all Distributors will have the same option of choosing between
the stability of a fixed, lower rate, and the more flexible option of
maintaining the ability to change market data products after a month of
service. Distributors will be free to move from the monthly to the
annual rate at any time, or from the annual to a monthly fee, with
notice, at the expiration of the twelve month period.
---------------------------------------------------------------------------
\50\ For example, the Commission has permitted pricing discounts
for market data under Nasdaq Rules 7023(c) and 7047(b). See also
Securities Exchange Act Release No. 82182 (November 30, 2017), 82 FR
57627 (December 6, 2017) (SR-NYSE-2017-60) (changing an enterprise
fee for NYSE BBO and NYSE Trades).
---------------------------------------------------------------------------
The existence of this proposal demonstrates the existence of an
effective, competitive market because this proposal resulted from a
need to generate innovative approaches in response to competition from
other exchanges that offer enterprise licenses for market data.\51\ As
the Commission has recognized, ``[i]f competitive forces are operative,
the self-interest of the exchanges themselves will work powerfully to
constrain unreasonable or unfair behavior,'' \52\ and ``the existence
of significant competition provides a substantial basis for finding
that the terms of an exchange's fee proposal are equitable, fair,
reasonable, and not unreasonably or unfairly discriminatory.'' \53\ The
proposed enterprise license will be subject to significant competition
from other exchanges because each Distributor will have the ability to
accept or reject the license depending on whether it will or will not
lower its fees, and because other exchanges will be able to offer their
own competitive responses. As the Commission has held in the past, the
presence of competition provides a substantial basis for a finding that
the proposal will be an equitable allocation of reasonable dues, fees
and other charges.\54\
---------------------------------------------------------------------------
\51\ See n. 47.
\52\ Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\53\ Id.
\54\ Id.
---------------------------------------------------------------------------
Furthermore, the proposed enterprise license will not unfairly
discriminate between customers, issuers, brokers or dealers. The Act
does not prohibit all distinctions among customers, but only
discrimination that is unfair, and it is not unfair discrimination to
charge those Distributors that are able to reach the largest audiences
of retail investors a lower fee for incremental investors in order to
encourage the widespread distribution of market data. This principle
has been repeatedly endorsed by the Commission, as evidenced by the
approval of enterprise licenses for Depth-of-Book products and Nasdaq
Basic discussed above. Moreover, the proposed enterprise license will
be subject to significant competition, and that competition will ensure
that there is no unfair discrimination. Each Distributor will be able
to accept or reject the license depending on whether it will or will
not lower costs for that particular Distributor, and, if the license is
not sufficiently competitive, the Exchange may lose market share.
In adopting Regulation NMS, 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. 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.\55\
---------------------------------------------------------------------------
\55\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting
Release'').
The Commission was speaking to the question of whether broker-
dealers should be subject to a regulatory requirement to purchase data,
such as Depth-of-Book data, that is in excess of the data provided
through the consolidated tape feeds, and the Commission concluded that
the choice should be left to them. Accordingly, Regulation NMS removed
unnecessary regulatory restrictions on the ability of exchanges to sell
their own data, thereby advancing the goals of the Act and the
principles reflected in its legislative history. If the free market
should determine whether proprietary data is sold to broker-dealers at
all, it follows that the price at which such data is sold should be set
by the market as well.
The proposed enterprise license will compete with other enterprise
licenses of the Exchange, underlying fee schedules promulgated by the
Exchange, and enterprise licenses and fee structures implemented by
other exchanges. As such, it is a voluntary product for which market
participants can readily find substitutes. Accordingly, Nasdaq is
constrained from introducing a fee that would be inequitable or
unfairly discriminatory.
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. This proposal will: (i) Offer
Distributors a new, lower fee option for TotalView, Level 2, Nasdaq
Basic, NLS and NLS Plus; (ii) save administrative costs for
Distributors by lowering reporting requirements for Professional and
Non-Professional Subscribers; and (iii) establish a mechanism to render
market data more readily accessible to retail investors, thereby
encouraging broader dissemination of information. It will not impose a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act, but rather will enhance competition by
introducing an innovative fee structure for market data, lowering
prices and enhancing competition.
The market for data products is extremely competitive and firms may
freely choose alternative venues and
[[Page 38433]]
data vendors based on the aggregate fees assessed, the data offered,
and the value provided. 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.
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, the cost of implementing cybersecurity to protect the data
from external threats 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).\56\
---------------------------------------------------------------------------
\56\ 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).
---------------------------------------------------------------------------
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 each are
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 trade
reports from the TRF without the raw material of the trade reports
themselves, and therefore necessitate the costs of operating,
regulating,\57\ 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.
---------------------------------------------------------------------------
\57\ It should be noted that the costs of operating the FINRA/
Nasdaq TRF borne by Nasdaq include regulatory charges paid by Nasdaq
to FINRA.
---------------------------------------------------------------------------
An exchange's broker-dealer customers view the costs of transaction
executions and of data as a unified cost of doing business with the
exchange. A broker-dealer will disfavor a particular exchange if the
expected revenues from executing trades on the exchange do not exceed
net transaction execution costs and the cost of data that the broker-
dealer 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 broker-dealer will
choose not to buy it. Moreover, as a broker-dealer chooses to direct
fewer orders to a particular exchange, the value of the product to that
broker-dealer decreases, for two reasons. First, the product will
contain less information, because executions of the broker-dealer's
trading activity will not be reflected in it. Second, and perhaps more
important, the product will be less valuable to that broker-dealer
because it does not provide information about the venue to which it is
directing its orders. Data from the competing venue to which the
broker-dealer is directing more orders will become correspondingly more
valuable.
Similarly, 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 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 impose a discipline by providing
only data that will enable them to attract ``eyeballs'' that contribute
to their advertising revenue. Retail broker-dealers offer their retail
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, Nasdaq believes that market data
products can enhance order flow to Nasdaq 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. Nasdaq pays rebates 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 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
[[Page 38434]]
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.\58\
---------------------------------------------------------------------------
\58\ Cf. Ohio v. American Express, No. 16-1454 (S. Ct. June 25,
2018), https://www.supremecourt.gov/opinions/17pdf/16-1454_5h26.pdf
(recognizing the need to analyze both sides of a two sided platform
market in order to determine its competitiveness).
---------------------------------------------------------------------------
Moreover, the level of competition and contestability in the market
is evident in the numerous alternative venues that compete for order
flow, including SRO markets, internalizing broker-dealers 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 broker-dealers to further 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, broker-dealers, 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 broker-dealer is currently permitted to produce
proprietary data products, and many currently do or have announced
plans to do so, including Nasdaq, NYSE, NYSE American, NYSE Arca, IEX,
and BATS/Direct Edge.
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.\59\
---------------------------------------------------------------------------
\59\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------
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-2018-058 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-2018-058. 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 website (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 website 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-2018-058 and should be submitted
on or before August 27, 2018.
---------------------------------------------------------------------------
\60\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\60\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2018-16720 Filed 8-3-18; 8:45 am]
BILLING CODE 8011-01-P