[Federal Register Volume 75, Number 87 (Thursday, May 6, 2010)]
[Notices]
[Pages 25014-25018]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10597]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62001; File No. SR-BX-2010-027]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing of Proposed Rule Change To Establish New Fee for TotalView
Service Available to Non-Professionals and To Establish an Optional
Non-Display Usage Cap for Internal Distributors of TotalView
April 29, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\
[[Page 25015]]
notice is hereby given that on April 23, 2010, NASDAQ OMX BX, Inc. (the
``Exchange'') filed with the Securities and Exchange Commission
(``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 establish a $1 per month fee for non-
professional use of real-time quotation and order information from the
BX Market Center quoting and trading of The NASDAQ Stock Market LLC
(``Nasdaq''), The New York Stock Exchange LLC (``NYSE''), NYSE Amex LLC
(``Amex'') and other regional exchange-listed securities; and (ii) to
approve the creation of an optional non-display usage cap of $16,000
per month for internal distributors of BX TotalView.
The text of the proposed rule change is below. Proposed new
language is in italics and proposed deletions are in brackets.
* * * * *
7023. BX TotalView
(a) BX TotalView Entitlement
The BX TotalView entitlement allows a subscriber to see all
individual NASDAQ OMX BX Equities System participant orders and quotes
displayed in the system [as well as] the aggregate size of such orders
and quotes at each price level, and the trade data for executions that
occur within [in the execution functionality of] the NASDAQ OMX BX
Equities System.
(1) Except as provided elsewhere in this rule, [in (a)(2)], for the
BX TotalView entitlement there shall be a $20 monthly charge for each
Subscriber of BX TotalView for Nasdaq issues and a $20 monthly charge
for each Subscriber of BX TotalView for NYSE and regional issues.
(2) As an alternative to (a)(1), a market participant may purchase
an enterprise license at a rate of $16,000 per month for internal use
of non-display data. The enterprise license entitles a distributor to
provide BX TotalView to an unlimited number of non-display devices
within its firm.
(3) Free-Trial Offers
(A)-(B) No change.
(b) Non-Professional Services
(1) The charge to be paid by non-professional subscribers for
access to TotalView Service through an authorized vendor shall be $1.00
per interrogation device per month.
(2) A ``non-professional'' is a natural person who is neither:
(A) registered or qualified in any capacity with the Commission,
the Commodities Futures Trading Commission, any state securities
agency, any securities exchange or association, or any commodities or
futures contract market or association;
(B) engaged as an ``investment adviser'' as that term is defined in
Section 201(11) of the Investment Advisors Act of 1940 (whether or not
registered or qualified under that Act); nor
(C) employed by a bank or other organization exempt from
registration under federal or state securities laws to perform
functions that would require registration or qualification if such
functions were performed for an organization not so exempt.
(c) No change.
* * * * *
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: (i) To establish a $1 per month fee for non-
professional use of real-time quotation and order information from the
BX Market Center quoting and trading of Nasdaq-, NYSE-, Amex- and other
regional exchange-listed securities; and (ii) to approve the creation
of an optional non-display usage cap of $16,000 per month for internal
distributors of BX TotalView.
BX TotalView $1 Fee for Non-Professional Subscribers:
The Exchange proposes to establish a new fee for its BX TotalView
data product that is similar to that of Nasdaq. Like Nasdaq TotalView,
BX TotalView provides all displayed quotes and orders in the market,
with attribution to the relevant market participant, at every price
level, as well as total displayed anonymous interest at every price
level.
To encourage more competition in the trading and quoting of U.S.
exchange-listed stocks, as well as to encourage subscribership to
Exchange full-depth products, the Exchange is proposing Rule 7023(b) to
establish a $1 per month fee for non-professional subscribers to BX
TotalView.\3\ BX TotalView consists of real-time market participant
quotation information regarding the Exchange's trading of Nasdaq-,
NYSE-, Amex- and other exchange-listed stocks.
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\3\ Both NYSE Arca, Inc. and the New York Stock Exchange LLC
offer full-depth products. See, e.g., Securities Exchange Act
Release No. 53469 (March 10, 2006), 71 FR 14045 (March 20, 2006)
(SR-PCX-2006-24) and Securities Exchange Act Release No. 44138
(December 7, 2001), 66 FR 64895 (December 14, 2001) (SR-NYSE-2001-
42), respectively.
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The Commission has previously only approved a fee of $20 per month
for both BX TotalView for Nasdaq and NYSE and all other regional
exchange-listed issues combined. BX intended to establish these as
separate fees and charged users beginning in January of 2010 a fee of
$20 per month for BX TotalView and an additional fee of $20 for NYSE
and all other regional exchange-listed issues. Therefore, Rule
7023(a)(1) is being amended to correct this inadvertent error since the
existing rule language does not clearly establish a fee of $20 per
month for BX TotalView for Nasdaq issues and a separate fee of $20 per
month for BX TotalView for NYSE and all other regional exchange-listed
issues, as intended. All such fees exceeding the $20 combined fee as
currently stated in the rulebook are being refunded and BX will
continue to assess a single $20 fee until this proposed rule change is
approved. The Exchange notes that it operates in a highly competitive
market in which market participants can readily switch to competing
venues if they deem fee levels at a particular venue to be excessive.
The Exchange believes that its fees continue to be reasonable and
equitably allocated.
The Exchange believes that establishing a $1 per month fee for non-
professional subscribers to BX TotalView will promote wider
distribution of data and benefit investors wishing to use that data in
making investment decisions. The establishment of non-professional fees
is a well-established practice of the network processors that
distribute real-time consolidated data for Nasdaq, NYSE, and Amex
stocks. As such, non-professional fees have been determined to be
consistent with the Act and also
[[Page 25016]]
to be in the best interests of investors and the public.
The fees are not unreasonably discriminatory, since the fees for
non-professionals are uniform for all non-professionals. The fees are
fair and reasonable in that they compare favorably to fees charged by
other exchanges for comparable products.
Rule 7023(a) is also being amended to clarify the data that is
included in the BX TotalView Entitlement specifically includes trade
data for executions that occur within the NASDAQ OMX Equities System.
The data included remains consistent with what has always been included
in the BX TotalView Entitlement, as well as the data included in the
Nasdaq TotalView Entitlement. This revision is intended for
clarification purposes only.
BX TotalView Enterprise License:
The Exchange is proposing to amend Exchange Rule 7023 and establish
an optional $16,000 per month non-display BX TotalView fee cap for
internal distributors, which would encompass both BX TotalView for
Nasdaq issues and BX TotalView for NYSE and regional issues. The BX
TotalView fee cap would not include distributor fees. By providing this
non-display usage cap, firms will have more administrative flexibility
in their consumption of BX TotalView information.
Currently, the Exchange requires that internal distributors count
and report each server and display device that processes BX TotalView-
ITCH data as a professional BX TotalView user. Some firms report
upwards of 500 devices, while other firms report as few as one non-
display device using BX TotalView-ITCH data.
The Exchange proposes to permit a market participant to purchase an
enterprise license at a rate of $16,000 per month for non-display usage
in a firm. As the number of devices increase, so does the
administrative burden on the end customer of counting these devices.
For firms that feel they are near the capped amount, this new
enterprise license helps relieve this administrative burden.
Additionally, firms would purchase this optional enterprise license to
reduce fees so no firms would experience a fee increase as a result of
this filing. The Exchange's filing is substantially similar to a recent
Nasdaq filing.\4\
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\4\ See Securities Exchange Act Release No. 61700 (March 12,
2010), 75 FR 13172 (March 18, 2010) (SR-NASDAQ-2010-034).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\5\ in general, and with
Sections 6(b)(4) and 6(b)(5) of the Act,\6\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and issuers and other persons using any
facility or system which the Exchange operates or controls and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\5\ 15 U.S.C. 78f.
\6\ 15 U.S.C. 78f(b)(4), (5).
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Specifically, the BX TotalView fee for non-professional
subscribers, the Exchange makes all services and products subject to
these fees available on a non-discriminatory basis to similarly
situated recipients. All fees are structured in manner comparable to
corresponding fees of Nasdaq already in effect. The proposed fees for
BX TotalView are equitably allocated since the fees for non-
professionals are uniform for all non-professionals. The fees are fair
and reasonable in that they compare favorably to fees charged by other
exchanges for comparable products.
The Exchange proposes to increase the existing $20 combined fee for
both BX TotalView for Nasdaq and NYSE and all other regional exchange-
listed issues by charging two separate $20 fees per month. One $20 fee
would be charged for BX TotalView for Nasdaq and the other $20 fee
would be charged for NYSE and all other regional exchange-listed
issues. The $20 increase per month for subscribers is modest.
Additionally, the Exchange notes that it operates in a highly
competitive market in which market participants can readily switch to
competing venues if they deem fee levels at a particular venue to be
excessive. The Exchange believes that its fees continue to be
reasonable and equitably allocated.
The Exchange's competitive response to pricing pressures in a
competitive marketplace is consistent with what the Commission has
described as ``the clear intent of Congress in adopting Section 11A of
the Exchange Act that, whenever possible, competitive forces should
dictate the services and practices that constitute the U.S. national
market system for trading equity securities.'' \7\ Specifically with
respect to pricing of non-core data products, the Commission has stated
that ``[t]he Exchange Act and its legislative history strongly support
the Commission's reliance on competition, whenever possible, in meeting
its regulatory responsibilities.'' \8\ A price reduction in response to
competitive forces, such as the proposal here, is the essence of
competition.
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\7\ Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\8\ Id.
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The Exchange believes that it is neither inequitable nor unfairly
discriminatory to provide volume-based discounts to members that
contribute to the success of both the transaction execution and data
businesses, in light of the link between these businesses that the
Commission has recognized. In doing so, the Exchange not only
acknowledges the multiple contributions of such customers to its
profitability and the value it provides to other customers, but also
provides incentives for other firms to increase their use of the
Exchange's services across these business lines.
Discounts based on a member's aggregate volumes of usage have
routinely been adopted by exchanges (and by participants in many other
industries), even though a member that reduces its volumes by trading
in other markets may no longer qualify for the discount. For example,
Nasdaq has volume pricing discounts for transaction executions and data
currently in effect under Rules 7018 and 7023. A member that opts to
provide high volumes of liquidity and distribute TotalView to large
numbers of subscribers under an enterprise license currently receives
favorable pricing for both executions and data, based on the aggregate
volume of business that it brings to the exchange. If the member opts
to direct order flow to another exchange or distribute other data
products in lieu of TotalView, the discount will no longer be
available--not because the member is being penalized, but simply
because its consumption of products has dropped to a level that no
longer justifies discounted pricing.
As the Commission has found, market data and execution services are
effectively a joint product--one in which market data is both an input
to, and a byproduct of, trade execution.\9\ Accordingly, the Exchange
believes that it is entirely appropriate that the benefits to the
Exchange when a member provides liquidity and consumes and distributes
data should be shared with the customers that provide those benefits.
Notably, the Act does not prohibit all distinctions among customers,
but rather discrimination that is unfair. And, 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
[[Page 25017]]
unfair behavior.'' \10\ Accordingly, ``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.'' \11\ The proposal here was
made not only in the presence of competition, but it is a direct
product of competitive forces.
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\9\ Id.
\10\ Id.
\11\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition. To the contrary, the Exchange's
proposed price reduction in response to competitive pricing offers is
the essence of competition. As the Supreme Court has recognized,
``cutting prices in order to increase business often is the very
essence of competition.'' Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 594 (1986).
If competitors lose business to the Exchange because the Exchange
offers more attractive pricing, that is not a reduction of competition.
Rather, it is a result of competition. As the Supreme Court has
recognized:
When a firm * * * lowers prices but maintains them above
predatory levels, the business lost by rivals cannot be viewed as an
``anticompetitive'' consequence of the claimed violation. A firm
complaining about the harm it suffers from nonpredatory price
competition ``is really claiming that it [is] unable to raise
prices.'' This is not antitrust injury; indeed, ``cutting prices in
order to increase business often is the very essence of
competition.'' The antitrust laws were enacted for ``the protection
of competition, not competitors.''
Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 337-38
(1990) (emphasis in original; citations omitted).
Likewise with respect to the Exchange Act, Congress has ``expressed
its preference for the Commission to rely on competition'' with respect
to market information.\12\ Accordingly, in circumstances analogous to
those here, the Commission has stated that ``reliance on competitive
forces is the most appropriate and effective means to assess whether
terms for the distribution of non-core data are equitable, fair and
reasonable, and not unreasonably discriminatory. If competitive forces
are operative, the self-interest of the exchanges themselves will work
powerfully to constrain unreasonable or unfair behavior.'' \13\
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\12\ Id.
\13\ Id.
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As the Commission recently recognized,\14\ the market for
transaction execution and routing services is highly competitive, and
the market for proprietary data products is complementary to it, since
the ultimate goal of such products is to attract further order flow to
an exchange. Thus, exchanges lack the ability to set fees for
executions or data at inappropriately high levels. Order flow is
immediately transportable to other venues in response to differences in
cost or value. Similarly, if data fees are set at inappropriate levels,
customers that control order flow will not make use of the data and
will be more inclined to send order flow to exchanges providing data at
fees they consider more reasonable.
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\14\ Id.
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The market for proprietary data products is currently competitive
and inherently contestable because there is fierce competition for the
inputs necessary to the creation of proprietary data and strict pricing
discipline for the proprietary products themselves. Numerous exchanges
compete with each other for listings, trades, and market data itself,
providing virtually limitless opportunities for entrepreneurs who wish
to produce and distribute their own market data. This proprietary data
is produced by each individual exchange, as well as other entities, in
a vigorously competitive market.
With regard to the market for executions, broker-dealers currently
have numerous alternative venues for their order flow, including
multiple competing self-regulatory organization (``SRO'') markets, as
well as broker-dealers (``BDs'') and aggregators such as the Direct
Edge and LavaFlow electronic communications networks (``ECNs''). Each
SRO market competes to produce transaction reports via trade
executions, and FINRA-regulated Trade Reporting Facilities (``TRFs'')
compete to attract internalized transaction reports. It is common for
BDs to further and exploit this competition by sending their order flow
and transaction reports to multiple markets, rather than providing them
all to a single market.
Competitive markets for order flow, executions, and transaction
reports provide pricing discipline for the inputs of proprietary data
products. The large number of SROs, TRFs, and ECNs that currently
produce proprietary data or are currently capable of producing it
provides further pricing discipline for proprietary data products. Each
SRO, TRF, ECN and BD is currently permitted to produce proprietary data
products, and many currently do or have announced plans to do so,
including NASDAQ, NYSE, NYSEArca, BATS, and Direct Edge.
Any ECN or BD can combine with any other ECN, broker-dealer, or
multiple ECNs or BDs to produce jointly proprietary data products.
Additionally, non-BDs such as order routers like LAVA, as well as
market data vendors can facilitate single or multiple broker-dealers'
production of proprietary data products. The potential sources of
proprietary products are virtually limitless.
The fact that proprietary data from ECNs, BDs, and vendors can by-
pass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and distribution of proprietary
data products, as Archipelago and BATS
Trading did prior to registering as SROs. Second, because a single
order or transaction report can appear in an SRO proprietary product, a
non-SRO proprietary product, or both, the data available in proprietary
products is exponentially greater than the actual number of orders and
transaction reports that exist in the marketplace writ large.
Market data vendors provide another form of price discipline for
proprietary data products because they control the primary means of
access to end users. Although their business models may differ, vendors
exercise pricing discipline because they can simply refuse to purchase
any proprietary data product that fails to provide sufficient value.
The Exchange and other producers of proprietary data products must
understand and respond to these varying business models and pricing
disciplines in order to successfully market proprietary data products.
In addition to the competition and price discipline described
above, the market for proprietary data products is also highly
contestable because market entry is rapid, inexpensive, and profitable.
The history of electronic trading is replete with examples of entrants
that swiftly grew into some of the largest electronic trading platforms
and proprietary data producers: Archipelago, Bloomberg Tradebook,
Island, RediBook, Attain, TracECN, BATS Trading, and Direct Edge.
Today, BATS publishes its data at no charge on its website in order to
attract order flow, and it uses market data revenue rebates from the
resulting executions to maintain low execution charges for its
users.\15\ Several ECNs have existed
[[Page 25018]]
profitably for many years with a minimal share of trading, including
Bloomberg Tradebook and LavaFlow.
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\15\ However, on April 9, 2010 the Commission approved BATS
proposed rule change to begin offering and charging for three new
data products, which include BATS Last Sale Feed, BATS Historical
Data Products, and a data product called BATS Market Insight. See
Securities Exchange Act Release No.61885 (April 9, 2010), 75 FR
20018 (April 16, 2010).
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The proposed rule change is a direct response to this competition.
It recognizes the concern that the order flow and data product use that
such firms currently bring to the Exchange may migrate elsewhere if
their contributions are not appropriately recognized. At the same time,
if other customers determine that their fees are too high in comparison
to those paid by firms qualifying for the discount, they will take
their business to other venues. Thus, the proposal must strike a
balance between growing and retaining the business of actual and
potential firms and the business of firms that lack the volume of
business to become eligible. In light of the highly competitive nature
of these markets, the Exchange's revenues and market share are likely
to be diminished by the proposal if it strikes this balance in the
wrong way.\16\
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\16\ The Commission has recognized that an exchange's failure to
strike this balance correctly will only harm the exchange. ``[M]any
market participants would be unlikely to purchase the exchange's
data products if it sets fees that are inequitable, unfair,
unreasonable, or unreasonably discriminatory * * *. For example, an
exchange's attempt to impose unreasonably or unfairly discriminatory
fees on a certain category of customers would likely be counter-
productive for the exchange because, in a competitive environment,
such customers generally would be able to respond by using
alternatives to the exchanges data.'' Id.
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Finally, the concern identified by the Commission with respect to
``an exchange proposal that seeks to penalize market participants for
trading in markets other than the proposing exchange'' is inapplicable
here.\17\ It is important that the Commission avoid stifling
competition on the merits--including competition on price--out of a
concern for protecting competitors from pricing pressure. Indeed, the
Supreme Court has cautioned that ``mistaken inferences in cases''
involving alleged harm to competitors from low prices ``are especially
costly, because they chill the very conduct the antitrust laws are
designed to protect.'' Matsushita, 475 U.S. at 594.
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\17\ Id.
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A concern that access to market data could be used to ``penalize''
market participants for trading in other markets may be plausible only
if (a) the market data of the exchange in question is so essential to
customers that the exchange has market power by virtue of the data, (b)
the exchange requires customers to trade on its platform in exchange
for access to the market data, and (c) competition on the merits is
thwarted by the conditioning. None of those conditions is met here. As
noted above, there is robust competition for market data, and customers
can and do switch among various providers of market data. It would thus
be implausible to suggest that the Exchange has any market power by
virtue of its market data. Second, the Exchange has not attempted to
condition access to market data on a customer's refusal to use a
competitor's platform. Nor has the Exchange attempted to impose a
``penalty'' on anyone--to the contrary, it is proposing a price
reduction to respond to competitive offers. And, as noted above, the
price reduction proposed here is the essence of competition, rather
than an effort to thwart competition on the merits.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be 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 e-mail to [email protected]. Please include
File Number SR-BX-2010-027 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2010-027. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of the
filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-BX-2010-027 and should be submitted on or before May 27,
2010.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-10597 Filed 5-5-10; 8:45 am]
BILLING CODE 8011-01-P