[Federal Register Volume 84, Number 94 (Wednesday, May 15, 2019)]
[Notices]
[Pages 21853-21861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09964]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85813; File No. SR-NASDAQ-2019-033]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend the Equity 7 Pricing Schedule, Sections 112, 123, 135, 146, 155
and 158
May 9, 2019.
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 April 25, 2019, 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 Equity 7 Pricing Schedule,
Sections 112, 123, 135, 146, 155, and 158 to: (i) Reduce fees for trial
periods, pre-production systems development, academic use, and
technical and administrative support services; and (ii) specify that
the $500,000 enterprise license for the distribution of Depth-of-Book
data includes Professional Subscribers. These proposed changes are
described in further detail below.
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.
[[Page 21854]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
As part of an ongoing effort to increase the transparency of market
data rules and lower fees and administrative costs for market data
customers, the Exchange proposes to: (i) Reduce fees for trial periods,
pre-production systems development, academic use, and technical and
administrative support services; and (ii) specify that the $500,000
enterprise license for the distribution of Depth-of-Book data includes
Professional Subscribers.\3\ The proposed waivers of fees and other
charges apply to the market data products and services listed in
proposed Section 112(a).\4\
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\3\ The Exchange initially filed the proposed changes on April
12, 2019, (SR-Nasdaq-2019-030). The Exchange withdrew that filing on
April 25, 2019, and submitted this filing.
\4\ The following sections are listed in Section 112(a): 119
(Market Data Distributor Fees), 121 (Nasdaq Report Center), 122
(Historical Research and Administrative Reports), 123 (Nasdaq Depth-
of-Book Data), 126 (Distribution Models), 135 (Nasdaq Monthly
Administrative Fee), 137 (Nasdaq FilterView Service), 139 (NLS and
NLS Plus Data Feeds), 140 (Nasdaq Share Volume Service), 146 (Nasdaq
Trading Insights), 147 (Nasdaq Basic), 152 (Nasdaq Daily Short
Volume and Monthly Short Sale Transaction Files), 157 (Nasdaq
MatchView Feed) and 158 (QView).
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Nothing in this filing raises any fee charged by the Exchange. On
the contrary, the Exchange anticipates that the proposal will lower
fees for some customers.
Current Section 112
Proposed Section 112 will replace current Section 112, which sets
forth a terminal fee for receiving Nasdaq Level 2 or Level 3 service.
The Nasdaq Level 2 service referenced in this rule was a UTP Plan
service managed by Nasdaq as administrator of the Plan ``that
provide[d] Subscribers with query capability with respect to quotations
and sizes in securities included in the Nasdaq System, best bid and
asked quotations, and Transaction Reports.'' \5\ Nasdaq Level 3 was a
UTP Plan service ``that provide[d] Nasdaq market participants with
input and query capability with respect to quotations and sizes in
securities included in the Nasdaq System, best bid and asked
quotations, and Transaction Reports.'' \6\ These services have not been
offered by the UTP Plan since Amendment 17 to the Plan, which went into
effect in September 2006.\7\ Removal of this section will not alter any
fee or service offered by the Exchange, as this service is not
currently offered by the Exchange.
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\5\ Securities Exchange Act Release No. 34-53131 (January 17,
2006), 71 FR 3896 (January 24, 2006) (S7-24-89) (defining Level 2
service).
\6\ Id. (defining Level 3 service).
\7\ Securities Exchange Act Release No. 34-54426 (September 12,
2006), 71 FR 54852 (September 19, 2006) (S7-24-89) (replacing the
definitions of Level 2 and Level 3 services with unrelated terms).
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Proposed Section 112
The specific changes proposed by the Exchange, and the purposes of
each, are as follows:
1. Fee Waivers
The Exchange currently waives market data fees to: (i) Encourage a
new or potential customer to test a product or service through trial
offers; (ii) allow a new distributor time to develop its systems and
procedures before disseminating Exchange information; (iii) provide
data for academic research or classroom-related activity; and (iv)
allow distributors to use Exchange information for technical and
administrative support services not directly related to external
distribution or securities trading. Some of these fee waivers are
partially or fully codified in the Nasdaq rule book, while others are
set forth in policies published on NasdaqTrader.com,\8\ or are an
established practice of the Exchange not explicitly described in the
rule book or in published policies. The Exchange proposes to reduce
fees for multiple products by codifying uniform fee waivers for trial
periods, pre-production systems development, academic use, and
technical and administrative support services.
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\8\ All references to NasdaqTrader.com refer to the current
website and any successor website, as specified at proposed Section
112(b)(1).
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1. Trial Offers
The Exchange currently extends trial offers for three products:
Depth-of-Book products at Section 123, Nasdaq Trading Insights at
Section 146, and QView at Section 158.\9\ The Exchange proposes to
reduce fees for new, prospective or returning customers by replacing
these three product-specific fee waivers with a standard waiver
applicable to any market data product listed at Section 112(a), and any
version of a listed product identified by the Exchange as eligible for
an offer on NasdaqTrader.com.
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\9\ The Exchange also allows distributors to provide trial or
demonstration access to subscribers as part of the marketing
process. See http://www.nasdaqtrader.com/content/AdministrationSupport/Policy/FEEEXEMPTIONSPOLICY.pdf.
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The three trial offers currently offered by the Exchange differ
somewhat in scope and limitations. The Depth-of-Book trial offer at
Section 123(e) allows for a one-time 30-day waiver of subscriber fees
for all new and potential individual subscribers:
30-Day Free-Trial Offer: Nasdaq shall offer all new individual
Subscribers and potential new individual Subscribers a 30-day waiver
of the Subscriber fees for Nasdaq TotalView. This fee waiver period
shall be applied on a rolling basis, determined by the date on which
a new individual Subscriber or potential individual Subscriber is
first entitled by a Distributor to receive access to Nasdaq
TotalView. A Distributor may only provide this waiver to a specific
individual Subscriber once.
Nasdaq Trading Insights at Section 146(b)(1) provides a trial offer
that is available once per firm for each version of the product,
provided that it is cancelled before the end of the 30-day period to
avoid monthly fees:
30-Day Trial Offer. Upon request, Nasdaq shall provide firms a
30-day waiver of the fees for the Nasdaq Trading Insights product,
which consists of all four components listed above in (a)(1)-(a)(4).
However, availability of the Liquidity Dynamics Analysis component
is currently delayed. This waiver may be provided only once per firm
for each version of the product, as designated by Nasdaq. A firm
will be charged the monthly fee rate listed below in (b)(2) if it
does not cancel by the conclusion of the trial offer.
The QView product at Section 158 contains a trial offer that is
available to returning purchasers (not just new or prospective
customers) for a period of time not to exceed 30 days for each version
of QView or the Latency Optics add-on service:
The Exchange shall waive fees under this Section for 30 days for
any new, prospective or returning purchaser of either QView or the
Latency Optics add-on service. This waiver will be available only
once per customer for any version of QView or the add-on service.
The Exchange proposes to reduce fees across multiple products by
replacing these three disparate offers with a single, standard offer
for any product version listed as eligible on NasdaqTrader.com and
specifically identified in subsection (a) of proposed Section 112. The
proposed offer will waive fees for up to 30 days,\10\ will be available
to new, prospective, or returning \11\ distributors, recipients and
[[Page 21855]]
users,\12\ and is limited to 30 days over a twelve month period for
each version of the product.\13\ While the products eligible for this
offer are listed in Section 112(a),\14\ the specific versions of these
products eligible for the waiver will be identified on NasdaqTrader.com
to allow the Exchange an opportunity to extend such offers to new
versions of a product as such versions become available, and to
withdraw older versions from eligibility that the Exchange has elected
to no longer promote. The Exchange will provide a 30-day notice for the
withdrawal of any version of any product or service from eligibility.
Distributors may extend trial offers to recipients or users for fees
associated with any product or service listed in proposed Section
112(a) and version listed as eligible for a Trial Offer on
NasdaqTrader.com,\15\ subject to the usage reporting requirements,\16\
and the Exchange will waive any fees owed by the distributor for the
underlying customer. Distributors will administer this trial offer
program for recipients and users on behalf of the Exchange, making
trial offers available to new, prospective, or returning recipients and
users on the same basis as the Exchange.
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\10\ A customer may elect to utilize less than 30 days for a
trial offer if it intends to preserve the option of using whatever
time remains on the offer period at a later date within the twelve
month period.
\11\ A new customer is a customer that has never purchased the
product or service subject to the trial offer, and has decided to
purchase the product. A prospective customer is a customer that has
never purchased the product or service subject to the trial offer,
and has not yet decided whether to purchase the product. A returning
customer is a customer that had purchased the product or service at
one time, but cancelled that service at least six months before the
trial offer is to take place.
\12\ Some market data products are exclusive to distributors,
recipients, or users, respectively. When announcing a product as
eligible for a trial offer on NasdaqTrader.com, the Exchange will
specify which of these three groups will be eligible for the offer
in accordance with the applicable rule.
\13\ The waiver may be taken in discontinuous segments, meaning,
for example, that a customer may end the trial offer after a two
week period, preserving the remaining time for further testing to
take place at a later date within the 12 month period.
\14\ For historical reports, the waiver will be for one month of
data. Historical data are offered in Sections 122 (Historical
Research and Administrative Reports), 140 (Nasdaq Share Volume
Service), and 152 (Nasdaq Daily Short Volume and Monthly Short Sale
Transaction Files), all of which may include historical data.
\15\ As noted above, all references to NasdaqTrader.com refer to
the current website and any successor website, as specified at
proposed Section 112(b)(1).
\16\ The usage reporting requirements for any distributor
undergoing a trial offer shall be the same as distributors in full
production. The trial offer proposal imposes no new reporting
requirement.
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Proposed Section 112(b)(1) reads as follows:
Trial Offers. The Exchange shall waive any fee for up to 30
days, which may be taken in discontinuous segments, for any new,
prospective, or returning distributor, recipient or user for any
product or service listed in Subsection (a), for any version listed
as eligible for a trial offer on Nasdaqtrader.com or any successor
website (collectively, ``Nasdaqtrader.com''), provided that:
(A) The waiver is limited to 30 days for each version of the
product or service over any 12 month period;
(B) The product or service is listed in Subsection (a), and the
specific version of the product or service is listed as eligible for
a trial offer on NasdaqTrader.com (the Exchange will provide a 30-
day notice for the withdrawal of any version of product or service
from eligibility); and
(C) The Exchange shall waive any fee to a distributor for any
new, prospective or returning recipient or user for up to 30 days,
which may be taken in discontinuous segments, for any product or
service listed in Subsection (a) and any version listed as eligible
for a trial offer on Nasdaqtrader.com, where the distributor is
itself waiving its own fees to such new, prospective, or returning
recipient or user for the same period of time, subject to usage
reporting requirements set forth on NasdaqTrader.com.
As conforming changes, the Exchange proposes to delete the current
trial offers at Sections 123(e), 146(b)(1), and 158(c) and renumber the
remaining subparagraphs in Section 146.\17\
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\17\ The Exchange also proposes to remove an outdated reference
to a trial period ending March 21, 2011, at Section 155 (Short Sale
Monitor).
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The purpose of the proposal is to reduce fees for new, prospective,
or returning customers and to improve transparency and consistency in
the application of trial offers. The proposed changes will not increase
any fee or charge.
2. Pre-Production Waivers
The Exchange currently waives fees for new distributors for up to
three months to allow them time to prepare systems and procedures for
the distribution of Exchange information.\18\ Distributors require data
for testing and development before actually distributing such data, and
the waiver reflects a long-standing industry and Exchange practice to
waive fees during this period. The current policy, published on
NasdaqTrader.com, provides that distributors may be exempt from
distributor, subscriber and monthly administrative fees for up to three
months ``while the Distributor is receiving a Data Feed and is in the
process of development work to facilitate the intended internal or
external distribution of the data.'' \19\ Fees commence at the end of
the three month period, or when the distributor starts to distribute
the data, whichever comes first.\20\
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\18\ See http://www.nasdaqtrader.com/content/AdministrationSupport/Policy/FEEEXEMPTIONSPOLICY.pdf.
\19\ See id.
\20\ See id.
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The Exchange proposes to reduce fees for distributors by
introducing a pre-production waiver at Section 112(b)(2). The waiver
will be available for any product or service identified in Subsection
(a) and any version listed as eligible for such a waiver on
NasdaqTrader.com. The proposed rule will specify that the Exchange
shall waive distributor, subscriber and monthly administrative fees for
up to 3 months \21\ to allow the distributor to prepare its systems and
procedures for ``production'' (i.e., the distribution of Exchange
information); the waiver will remain in place for the period of time
required to prepare systems and procedures for production, or when
production begins, whichever is earlier.\22\ The version of the
products eligible for the pre-production waiver will be listed on
NasdaqTrader.com. Distributors must apply for this waiver and report to
the Exchange how the information is used, providing the same categories
of data as distributors in production.\23\ The Exchange will approve
the pre-production waiver for any distributor that successfully
demonstrates through its application and reporting that it meets all of
the criteria set forth in proposed Section 112(b)(2).\24\ The proposed
rule reads as follows:
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\21\ The pre-production waiver may be less than 3 months if the
distributor requires less time to prepare its systems and procedures
for production, or if production begins in less than 3 months.
Distributors bear the burden of demonstrating to the Exchange that
the full 3 month period is required, based on its application and
reporting as set forth on NasdaqTrader.com.
\22\ Distributors may engage in further systems development
after production has begun, but the proposed waiver shall not apply
to any such post-production systems development.
\23\ The usage reporting requirements for any distributor in
Pre-Production shall be the same as distributors in full production.
\24\ Typically, distributors will only be eligible for one pre-
production waiver, as eligibility for the waiver ends once
production begins. Nevertheless, distributors that terminate their
relationship with Nasdaq may be eligible for a second waiver to the
extent that changes in technology require additional pre-production
development prior to restarting production.
Pre-Production Waivers. The Exchange shall waive any fees for a
distributor that requires time to prepare its systems and procedures
to distribute Exchange information, provided that:
(A) The waiver is only available for the period of time required
to prepare systems and procedures to distribute Exchange
information, or the start of production, whichever occurs first, for
a period of time not to exceed 3 months;
(B) The waiver will only be available for products or services
identified in Subsection (a) above and the version is listed as
eligible for such a waiver on NasdaqTrader.com; and
(C) The waiver must be pre-approved by the Exchange based on an
application and subject to usage reporting requirements set forth on
NasdaqTrader.com that demonstrate compliance with the rules set
forth herein.
[[Page 21856]]
The purpose of the proposal is to reduce development costs for new
distributors entering into production and to improve transparency and
consistency in the application of pre-production waivers. The proposal
does not increase any fee or charge.
3. Academic Waivers
The Exchange has implemented an academic waiver policy that allows
colleges, universities, and other accredited academic institutions to
obtain a fee waiver for students and professors engaged in research or
teaching.\25\ To obtain the waiver, academic institutions must execute
all agreements required for the product or service, report the number
of subscribers, devices or other applicable units of count to Nasdaq on
a monthly basis, and reapply on a yearly basis for continued
eligibility.\26\ Academic waivers may not be used for actual (as
opposed to simulated) securities trading, and the waiver does not cover
the following uses of data: vocational education, university endowment
programs, unaccredited academic institutions, use in support of actual
securities trading, external distribution of the data, or off-site
distribution of the data.\27\
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\25\ See http://www.nasdaqtrader.com/content/AdministrationSupport/Policy/ACADEMICWAIVERPOLICY.pdf. Note that the
waiver does not cover access or telecommunications charges. Section
135 also provides that the Exchange may waive its monthly
Administrative Fee for colleges and universities for devices used by
students and professors in performing university or college research
or classroom-related activities.
\26\ See id.
\27\ See id.
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The Exchange proposes to encourage the use of Exchange information
by academic institutions by eliminating the enumerated fees and
expanding the academic waiver policy to include certain financial
literacy programs. An accredited college or university or non-profit
financial literacy program would be able to apply to either a
distributor or the Exchange for the academic waiver, as is currently
allowed under the existing policy. All applicants that can demonstrate
that all of the criteria set forth in Section 112(b)(3) are met will be
approved for the waiver by the Exchange or the distributor. The
proposed rule would allow non-profit financial literacy programs to
apply for a waiver as well--a policy which has been followed informally
in the past, but which the Exchange now proposes to formalize as part
of the rule book. Beneficiaries of the academic waiver would be
required to reapply on a yearly basis, sign any agreement required to
obtain that product or service, and report usage, subject to the same
usage reporting requirements as non-academic recipients. No information
obtained under this type of waiver may be distributed externally except
in support of certain non-profit financial literacy programs or to
support teaching or research at an accredited college or
university.\28\ Information disseminated pursuant to the academic
waiver may not be used for actual (as opposed to simulated) trading
activity, or to support for-profit activity, including, but not limited
to, any use of Exchange information by an academic institution to
provide services to a for-profit entity in support of any business or
trading activity. Distributors may administer the academic waiver
program on behalf of the Exchange on the same basis as the Exchange.
Proposed Section 112(b)(3) reads as follows:
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\28\ Non-profit financial literacy programs may distribute
Nasdaq data to primary and secondary school students and other
underserved groups for computer-assisted learning.
(3) Academic Waivers. Any accredited college or university, as
well as non-profit financial literacy programs dedicated to serve
primary or secondary school students or other underserved
populations, may apply to a distributor or the Exchange to waive any
fee or charge for any product or service identified in Subsection
(a) and any version listed as eligible for such a waiver on
NasdaqTrader.com, and used by students or professors to perform
academic research or classroom-related activities. All such
applications for waiver shall be approved by the Exchange or the
distributor based on a determination that all of the criteria set
forth herein are met, specifically the following:
(A) Recipients of an academic waiver must reapply on a yearly
basis, must sign any agreement required to obtain that product or
service, and report usage as specified on NasdaqTrader.com; and
(B) No information provided under an academic waiver may be
distributed externally, except in support of non-profit financial
literacy programs or to support teaching or research at an
accredited college or university, or used in any way for actual
(rather than simulated) trading, or to support for-profit activity,
including, but not limited to, any use of Exchange information by an
academic institution to provide services to a for-profit entity in
support of any business or trading activity.
As a conforming change, the Exchange proposes to delete the last
sentence of current Section 135, which relates to an academic waiver
for administrative fees,\29\ as superfluous in light of the addition of
proposed Section 112(b)(3).
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\29\ Section 135 currently states: ``Nasdaq may waive the
foregoing fee for colleges and universities for devices used by
students and professors in performing university or college research
or classroom-related activities.''
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The purpose of this proposal is to promote university-level
research and teaching, as well as overall financial literacy, by
lowering the cost for professors, teachers and students and certain
financial literacy programs to obtain and utilize Exchange information.
The proposal will not increase any fee or charge.
4. Technical and Administrative Support
The Exchange currently exempts subscribers that are used in an
enumerated list of indirect support functions--but not directly
involved in the distribution of Exchange information or the trading of
securities--from monthly subscriber fees.\30\ This internal usage
policy is described on NasdaqTrader.com, and derives from a long-
standing industry practice of exempting support functions from fees.
The currently-exempted support functions are: advertising, account
maintenance, authorizations and entitlements, customer service, data
control, data quality, development,\31\ demonstration, distributor
software sales, promotion, technical operations, technical support,
testing and trade shows.\32\ A distributor making use of this internal
usage policy must provide Nasdaq with information about, or a
demonstration of, how each technical and administrative support
subscriber is used, and must be prepared to identify all administrative
entitlements during any onsite review.\33\ This fee waiver does not
apply to a subscriber supporting the news, research or trading
divisions of the distributor, or used in any way to support the trading
of securities.\34\ Exempt subscribers may only be used by employees of
the distributor and must be located on the distributor's premises
(unless the subscriber is used for sales or marketing).\35\
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\30\ See http://www.nasdaqtrader.com/content/AdministrationSupport/Policy/FEEEXEMPTIONSPOLICY.pdf.
\31\ ``Development'' in this context refers to post-production
systems development, in contrast to pre-production systems
development, discussed above.
\32\ See http://www.nasdaqtrader.com/content/AdministrationSupport/Policy/FEEEXEMPTIONSPOLICY.pdf.
\33\ See id.
\34\ See id.
\35\ See id.
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The Exchange proposes to lower distributor's fees by codifying this
policy in its rule book, and to re-designate the name of the policy
from ``internal usage'' to ``technical and administrative support.''
The proposed technical and administrative support
[[Page 21857]]
waiver will exempt the same support services from fees as the current
policy: Advertising, account maintenance, authorizations and
entitlements, customer service, data control, data quality,
development, demonstration, distributor software sales, promotion,\36\
technical operations, technical support and testing. As is the case
under current policy, the fee waiver would not apply to a subscriber
supporting the news, research or trading divisions of the distributor.
All such waivers will be approved by the Exchange if the distributor
demonstrates through materials submitted with the application, and
ongoing reporting, that all of the criteria set forth in the rule are
met.\37\ Reporting for subscribers engaged in technical and
administrative support will be the same as required for fee-liable
subscribers, and such usage reporting requirements will be set forth on
NasdaqTrader.com. As required under the current policy, the distributor
must be able to provide Nasdaq with information about, or a
demonstration of, how each technical and administrative support
subscriber is used, and must be prepared to identify all technical and
administrative entitlements during any onsite review. The
aforementioned subscribers must be located on the distributor's
premises, unless used for sales or marketing. No Exchange information
obtained under such waiver may be distributed externally or used in
support of trading activities.
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\36\ Trade shows, which are listed separately under the current
policy, continue to be covered under the waiver as a type of
``promotion'' activity.
\37\ All distributors currently operating under an internal
usage waiver will be automatically approved for the technical and
administrative support waiver for the nine months following the date
of effectiveness of this proposed change, allowing the Exchange an
opportunity to evaluate technical and administrative support usage.
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Proposed Section 112(b)(4) reads as follows:
Technical and Administrative Support Waivers. ``Technical and
Administrative Support'' is defined as the following activities of
the distributor: Advertising, account maintenance, authorizations
and entitlements, customer service, data control, data quality,
development, demonstration, distributor software sales, promotion,
technical operations, technical support and testing. The Exchange
shall waive any fee or charge for the Technical and Administrative
Support of a distributor, provided that:
(A) The distributor provides Nasdaq with information about, or a
demonstration of, how each technical and administrative support
subscriber is used, is able to identify all technical and
administrative entitlements during an onsite review by Nasdaq
representatives, and demonstrates to the Exchange through
application and reporting that all of the criteria set forth herein
are met;
(B) Any distributor granted such a waiver shall report exempt
usage in the same manner as non-exempt usage as set forth on
NasdaqTrader.com;
(C) Exempt subscribers must be located on the distributor's
premises, unless used for sales or marketing; and
(D) No Exchange information obtained under such waiver may be
distributed externally or used in support of trading activities.
The purpose of the proposed change is to eliminate the enumerated
subscriber fees for technical and administrative support activities,
thereby facilitating the accurate and efficient distribution of
Exchange information by lowering the cost of support services essential
for such distribution, and to improve transparency and consistency in
the application of such waivers. The proposed change will not increase
any fee or charge.
2. Broker-Dealer Enterprise License
The Exchange currently offers an enterprise license to enable
broker-dealers to distribute Nasdaq Level 2 or Nasdaq TotalView service
for Display Usage to customers with whom the firm has a brokerage
relationship. Section 123(c)(3) states as follows:
As an alternative to subsections (1) and (2) above, a
Distributor that is also a brokerdealer may 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. This Enterprise License shall not apply to
relevant Level 1 or Depth Distributor fees.
The Exchange proposes to modify Section 123(c)(3) to include
Professional Subscribers with whom the firm has a brokerage
relationship within the scope of the enterprise license. In 2010, when
the Exchange first proposed that the enterprise license be distributed
to Non-Professional Subscribers with whom the firm has a brokerage
relationship, the Exchange explained that the enterprise license covers
not only non-professional customers, but also includes ``an allowance
to distribute data to external professional subscribers with which the
firm has a brokerage relationship,'' and the Exchange would ``permit[]
distributors to designate an entire user population as `non-
professional' provided that the number of professional subscribers
within that user population does not exceed ten percent (10%) of the
total population.''\38\
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\38\ See Securities Exchange Act Release No. 63084 (October 13,
2010), 75 FR 64379 (October 19, 2010) (SR-NASDAQ-2010-125).
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As part of its effort to ease administrative burdens on its
customers, the Exchange proposes to modify the text of Section
123(c)(3) to explicitly state that Nasdaq information may be
distributed to both Professional and Non-Professional Subscribers in
the context of a brokerage relationship. This will increase the value
of the enterprise license to distributors by removing the 10 percent
limitation and explicitly applying coverage to Professionals who
receive the information in the context of a brokerage relationship,
while also lowering the administrative burden on broker-dealers by
eliminating any need to count Professional and Non-Professional
Subscribers separately. The Exchange also proposes to effect a number
of minor technical corrections.\39\ The revised language is as follows:
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\39\ The Exchange also proposes to add a hyphen to the word
``broker-dealer'' in Section 123(c)(3), and to correct an internal
reference in Section 123(b)(1)(C) by replacing a reference to
subsection (4) with a reference to subsection (3).
As an alternative to subsections (1) and (2) above, a
Distributor that is also a broker-dealer may pay a monthly fee of
$500,000 to provide Nasdaq Level 2 or Nasdaq TotalView for Display
Usage by Professional or Non-Professional Subscribers with whom the
firm has a brokerage relationship. This Enterprise License shall not
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apply to relevant Level 1 or Depth Distributor fees.
The purpose of the proposal is to increase the value of the
enterprise license to distributors by expanding coverage to
professionals who receive the information in the context of a brokerage
relationship, and to lower the administrative burden on broker-dealers
by not requiring the broker-dealer to count the number of Professional
Subscribers separately. The proposed change will not increase any fee
or charge.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\40\ in general, and Section 6(b)(4) in particular,
because it provides for the equitable allocation of reasonable dues,
fees, and other charges among its members, issuers and other persons
using its facilities, and furthers the objectives of Section 6(b)(5) of
the Act,\41\ in particular, in that it fosters cooperation and
coordination with persons engaged in processing information and
facilitating transactions in securities and does not unfairly
discriminate between customers, issuers, brokers or dealers.
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\40\ 15 U.S.C. 78f(b).
\41\ 15 U.S.C. 78f(b)(5).
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[[Page 21858]]
As described above, the Exchange proposes to: (i) Codify fee
waivers for trial offers, pre-production systems development, academic
use, and technical and administrative support services; and (ii) modify
the $500,000 enterprise license for the external distribution of Depth-
of-Book data to allow distribution to all customers with whom the
distributor has a brokerage relationship, including both Professional
and Non-Professional Subscribers. For the reasons set forth below, each
provides for the equitable allocation of reasonable dues, fees, and
other charges among its members, issuers and other persons using its
facilities, fosters cooperation and coordination with persons engaged
in processing information and facilitating transactions in securities,
and does not unfairly discriminate between customers, issuers, brokers
or dealers.
Fee Waivers
The Exchange proposes to codify fee waivers for trial offers, pre-
production systems development, academic use, and technical and
administrative support. Each is an equitable allocation of reasonable
dues, fees and other charges, and fosters cooperation and coordination
with persons engaged in processing information and facilitating
transactions in securities. Codifying these waivers will, among other
things: (i) Allow new, prospective or returning customers an
opportunity to test Exchange data free of charge, thereby lowering the
cost of distributing Exchange information; (ii) reduce the cost of
systems development for new distributors, thereby lowering their
barriers to entry; (iii) lower the cost of academic research, teaching,
and financial literacy programs, thereby promoting overall financial
education; (iv) and lower the cost of data distribution by lowering the
cost of technical and administrative support for distributors, thereby
facilitating the accurate and efficient distribution of Exchange
information by lowering the cost of support services essential for such
distribution.
The proposed fee waivers do not unfairly discriminate between
customers, issuers, brokers or dealers because: (i) Providing new,
prospective or returning customers an opportunity to test Exchange data
free of charge encourages the entry of new distributors and promotes
the dissemination of Exchange information; (ii) reducing the cost of
systems development for new distributors also encourages the entry of
new distributors and promotes the dissemination of Exchange
information; (iii) encouraging academic research by lowering the cost
of research and teaching, and spreading financial literacy by
facilitating financial education for underserved populations, promotes
education in, and the understanding of, financial markets; and (iv)
lowering the cost of data distribution by reducing the cost of
technical and administrative support for distributors facilitates the
accurate and efficient distribution of Exchange information by lowering
the cost of support services essential for such distribution.
Trial Offers: Establishing a uniform standard for trial offers is
an equitable allocation of reasonable dues, fees and other charges and
fosters cooperation and coordination with persons engaged in processing
information and facilitating transactions in securities by providing
new, prospective or returning customers an opportunity to test Exchange
data free of charge before purchasing the service. This will encourage
the entry of new distributors and thereby promote the dissemination of
Exchange information. The proposed section will also establish a
framework for the consistent administration of trial offers across
products, thereby avoiding potential disputes related to administering
trials for different products that have slightly different terms.
Publication of products and services on NasdaqTrader.com will,
moreover, provide all current and potential customers the latest
information identifying which products and services are eligible for
trial offers. The proposed changes for trial offers do not unfairly
discriminate between customers, issuers, brokers or dealers because
providing new, prospective or returning customers an opportunity to
test Exchange data free of charge will encourage the entry of new
distributors and promote the dissemination of Exchange information. The
Exchange will allow all eligible customers to take advantage of the
same trial offers on the same terms.
Systems Development: Establishing a uniform waiver policy with
regard to pre-production systems development is an equitable allocation
of reasonable dues, fees and other charges, and fosters cooperation and
coordination with persons engaged in processing information and
facilitating transactions, by reducing the cost of systems development
for new distributors, thereby lowering barriers to entry and
encouraging broader dissemination of information. All new distributors
will have the opportunity to prepare their systems using the proposed
waiver, and current distributors have already had the benefit of this
long-standing policy.
These waivers do not unfairly discriminate between customers,
issuers, brokers or dealers because reducing costs for new distributors
encourages the entry of new distributors and promotes the dissemination
of Exchange information, and all new distributors will be able to
benefit from the policy.
Academic Waivers: Establishing a uniform policy for academic
waivers for research or classroom-related activity is an equitable
allocation of reasonable dues, fees and other charges, and fosters
cooperation and coordination with persons engaged in processing
information and facilitating transactions in securities, because
lowering the cost of research, teaching, and financial education will
improve market operations by encouraging the dissemination of financial
information. A fee waiver is, moreover, appropriate where the
information obtained cannot be used to sell financial services or
engage in any other for-profit activity, but rather to encourage
research, teaching and financial literacy.
Academic waivers do not unfairly discriminate between customers,
issuers, brokers or dealers because lowering the cost of research,
teaching and financial education promotes the ability of the general
investing public to effectively participate in financial markets.
Academic institutions and financial literacy programs are, moreover,
not profit-making entities and it is reasonable to waive fees for
entities not engaged in for-profit activities.
Technical and Administrative Support: Allowing distributors to use
Exchange information for administrative and technical support services
is an equitable allocation of reasonable dues, fees and other charges,
and fosters cooperation and coordination with persons engaged in
processing information and facilitating transactions in securities,
because the proposal will facilitate the accurate and efficient
distribution of Exchange information by lowering the cost of support
services essential for such distribution. All distributors will be
eligible for the same waiver for the same administrative and support
functions.
Technical and administrative support waivers do not unfairly
discriminate between customers, issuers, brokers or dealers because the
proposal will facilitate the accurate and efficient distribution of
Exchange information by lowering the cost of support services essential
for such distribution. These waivers also will be available to all
distributors on the same terms.
[[Page 21859]]
Enterprise License
Expanding the availability of the enterprise license at Section
123(c)(3) to Professional Subscribers with whom the firm has a
brokerage relationship is an equitable allocation of reasonable dues,
fees and other charges and fosters cooperation and coordination with
persons engaged in processing information and facilitating transactions
in securities because the proposal will lower the administrative burden
on broker-dealers by not requiring the broker-dealer to count the
number of Professional Subscribers separately. All broker-dealers
purchasing the license will be treated the same, without regard to
whether the customer is Professional or a Non-Professional.
The proposal does not unfairly discriminate between customers,
issuers, brokers or dealers for the same reasons. The proposal will
lower the administrative burden on broker-dealers by not requiring the
broker-dealer to count the number of Professional Subscribers
separately. Removing the distinction between Professional and Non-
Professional customers in a brokerage relationship lessens current
distinctions among broker-dealers.
In adopting Regulation NMS, the Commission granted self-regulatory
organizations (``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.\42\
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\42\ 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 market data products affected by this proposal are all
voluntary products for which market participants can readily find
substitutes. Accordingly, Nasdaq is constrained from pricing these
products in a manner that would be inequitable or unfairly
discriminatory. Moreover, the fees for these products, like all
proprietary data fees, are constrained by the Exchange's need to
compete for order flow.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposals will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act. All of the proposed changes--to codify fee
waivers and expand the application of an enterprise license--do not
impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Act, but rather enhance competition
by providing both current and potential customers better, more precise
information in making purchasing decisions.
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.
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).\43\
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\43\ 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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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 TRF trade
reports without the raw material of the trade reports themselves, and
therefore necessitate the costs of operating, regulating,\44\ and
maintaining a trade reporting system, costs that must be covered
through the fees charged for use
[[Page 21860]]
of the facility and sales of associated data.
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\44\ It should be noted that the costs of operating the FINRA/
Nasdaq TRF borne by Nasdaq include regulatory charges paid by Nasdaq
to FINRA.
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An exchange's 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 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.\45\
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\45\ Cf. Ohio v. American Express, 138 S. Ct. 2274 (2018)
(recognizing the need to analyze both sides of a two sided platform
market in order to determine its competitiveness).
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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 ATSs, including dark pools and ECNs. Each SRO market competes
to produce transaction reports via trade executions, and the 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 CBOE.
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.\46\
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\46\ 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-2019-033 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.
[[Page 21861]]
All submissions should refer to File Number SR-NASDAQ-2019-033. 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-2019-033 and should be submitted
on or before June 5, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
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\47\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09964 Filed 5-14-19; 8:45 am]
BILLING CODE 8011-01-P