[Federal Register Volume 75, Number 116 (Thursday, June 17, 2010)]
[Notices]
[Pages 34490-34491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-14600]
[[Page 34490]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62258; File No. SR-BX-2010-027]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order
Approving 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
June 10, 2010.
I. Introduction
On April 23, 2010, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
(i) 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) approve the creation of
an optional non-display usage cap of $16,000 per month for internal
distributors of BX TotalView. The proposed rule change was published
for comment in the Federal Register on May 6, 2010.\3\ The Commission
received no comment letters on the proposed rule change. This order
approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 62001 (April 29,
2010), 75 FR 25014 (May 6, 2010) (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange is proposing to establish a $1 per month fee for non-
professional subscribers to BX TotalView.\4\ BX TotalView consists of
real-time market participant quotation information regarding the
Exchange's trading of Nasdaq-, NYSE-, Amex- and other exchange-listed
stocks. The new fee for the BX TotalView data product is similar to the
fees charged by 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.
---------------------------------------------------------------------------
\4\ 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.
---------------------------------------------------------------------------
The Commission has previously only approved a fee of $20 per month
for both BX TotalView for Nasdaq and BX TotalView for NYSE and all
other regional exchange-listed issues combined.\5\ BX intended to
establish these as separate fees, and charged users beginning in
January 2010, a fee of $20 per month for BX TotalView for Nasdaq and an
additional fee of $20 for BX TotalView for NYSE and all other regional
exchange-listed issues. Therefore, BX is proposing to amend Rule
7023(a)(1) to 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 BX
originally intended. The Exchange has represented that all such fees
charged exceeding the $20 combined fee as currently stated in the
rulebook are being refunded.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 59615 (March 20,
2009), 74 FR 14604 (March 31, 2009) (SR-BX-2009-005).
---------------------------------------------------------------------------
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 BX Equities
System. BX notes that 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.
In addition, the Exchange is proposing to amend Rule 7023 to
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. The Exchange
notes that this fee cap is substantially similar to a recent Nasdaq
filing.\6\
---------------------------------------------------------------------------
\6\ See Securities Exchange Act Release No. 61700 (March 12,
2010), 75 FR 13172 (March 18, 2010) (SR-NASDAQ-2010-034).
---------------------------------------------------------------------------
III. Discussion and Commission Findings
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\7\ In
particular, it is consistent with Section 6(b)(4) of the Act,\8\ which
requires that the rules of a national securities exchange provide for
the equitable allocation of reasonable dues, fees, and other charges
among its members and issuers and other parties using its facilities,
and Section 6(b)(5) of the Act,\9\ which requires, among other things,
that the rules of a national securities exchange be designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, to protect investors and the public interest,
and not be designed to permit unfair discrimination between customers,
issuers, brokers, or dealers.
---------------------------------------------------------------------------
\7\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\8\ 15 U.S.C. 78f(b)(4).
\9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission also finds that the proposed rule change is
consistent with the provisions of Section 6(b)(8) of the Act,\10\ which
requires that the rules of an exchange not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act. Finally, the Commission finds that the proposed rule change
is consistent with Rule 603(a) of Regulation NMS,\11\ adopted under
Section 11A(c)(1) of the Act, which requires an exclusive processor
that distributes information with respect to quotations for or
transactions in an NMS stock to do so on terms that are fair and
reasonable and that are not unreasonably discriminatory.\12\
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b)(8).
\11\ 17 CFR 242.603(a).
\12\ BX is an exclusive processor of BX depth-of-book data under
Section 3(a)(22)(B) of the Act, 15 U.S.C. 78c(a)(22)(B), which
defines an exclusive processor as, among other things, an exchange
that distributes data on an exclusive basis on its own behalf.
---------------------------------------------------------------------------
On December 2, 2008, the Commission issued an approval order
(``Order'') that sets forth a market-based approach for analyzing
proposals by self-regulatory organizations to impose fees for ``non-
core'' market data products, such as the BX TotalView data feeds.\13\
The Commission believes that that the proposed rule change is
consistent with the Act for the reasons noted in the NYSE Arca Order
and the 2009 Order approving fees for the BX TotalView data feeds.\14\
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (Order Setting Aside Action by
Delegated Authority and Approving Proposed Rule Change Relating to
NYSE Arca Data) (the ``NYSE Arca Order'').
\14\ See supra notes 5 and 13.
---------------------------------------------------------------------------
The proposal before the Commission relates to fees for BX
TotalView, which are non-core, depth of book market data
[[Page 34491]]
products. As in the Commission's NYSE Arca Order analysis, at least two
broad types of significant competitive forces applied to BX in setting
the terms of this proposal: (i) BX's compelling need to attract order
flow from market participants; and (ii) the availability to market
participants of alternatives to purchasing BX's depth-of-book order
data. Attracting order flow is the core competitive concern of any
national securities exchange, including BX. Attracting order flow is an
essential part of a national securities exchange's competitive success.
If a national securities exchange cannot attract order flow to its
market, it will not be able to execute transactions. If a national
securities exchange cannot execute transactions on its market, it will
not generate transaction revenue. If a national securities exchange
cannot attract orders or execute transactions on its market, it will
not have market data to distribute, for a fee or otherwise, and will
not earn market data revenue and thus not be competitive with other
exchanges that have this ability.
BX must compete vigorously for order flow to maintain its share of
trading volume. This compelling need to attract order flow imposes
significant pressure on BX to act reasonably in setting its fees for BX
market data, particularly given that the market participants that must
pay such fees often will be the same market participants from whom BX
must attract order flow. These market participants particularly include
the large broker-dealer firms that control the handling of a large
volume of customer and proprietary order flow. Given the portability of
order flow from one trading venue to another, any exchange that sought
to charge unreasonably high data fees would risk alienating many of the
same customers on whose orders it depends for competitive survival.\15\
---------------------------------------------------------------------------
\15\ See NYSE Arca Order, supra note 13, at 74783.
---------------------------------------------------------------------------
In addition to the need to attract order flow, the availability of
alternatives to BX's TotalView data significantly affects the terms on
which BX can distribute this market data.\16\ In setting the fees for
its BX TotalView data, BX must consider the extent to which market
participants would choose one or more alternatives instead of
purchasing the Exchange's data.\17\ Of course, the most basic source of
information generally available at an exchange is the complete record
of an exchange's transactions that is provided in the core data
feeds.\18\ In this respect, the core data feeds that include an
exchange's own transaction information are a significant alternative to
the exchange's market data product.\19\ For more specific information
concerning depth, market participants can choose among products offered
by the various exchanges and ECNs.\20\ The various self-regulatory
organizations, the several Trade Reporting Facilities of FINRA, and
ECNs that produce proprietary data are all sources of competition. In
addition, market participants can assess depth with tools other than
market data, such as ``pinging'' orders that search out both displayed
and nondisplayed size at all price points within an order's limit
price.\21\
---------------------------------------------------------------------------
\16\ See Richard Posner, Economic Analysis of Law Sec. 9.1 (5th
ed. 1998) (discussing the theory of monopolies and pricing). See
also U.S. Dep't of Justice & Fed'l Trade Comm'n, Horizontal Merger
Guidelines Sec. 1.11 (1992), as revised (1997) (explaining the
importance of alternatives to the presence of competition and the
definition of markets and market power). Courts frequently refer to
the Department of Justice and Federal Trade Commission merger
guidelines to define product markets and evaluate market power. See,
e.g., FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1 (D.D.C.
2007); FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004). In
considering antitrust issues, courts have recognized the value of
competition in producing lower prices. See, e.g., Leegin Creative
Leather Products v. PSKS, Inc., 127 S. Ct. 2705 (2007); Atlanta
Richfield Co. v. United States Petroleum Co., 495 U.S. 328 (1990);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574
(1986); State Oil Co. v. Khan, 522 U.S. 3 (1997); Northern Pacific
Railway Co. v. U.S., 356 U.S. 1 (1958).
\17\ See NYSE Arca Order, supra note 13, at 74783.
\18\ Id.
\19\ Id.
\20\ Id. at 74784.
\21\ Id.
---------------------------------------------------------------------------
In sum, there are a variety of alternative sources of information
that impose significant competitive pressures on BX in setting the
terms for distributing its depth-of-book order data. The Commission
believes that the availability of those alternatives, as well as BX's
compelling need to attract order flow, imposed significant competitive
pressure on BX to act equitably, fairly, and reasonably in setting the
terms of its proposal.
Because BX was subject to significant competitive forces in setting
the terms of the proposal, the Commission will approve the proposal in
the absence of a substantial countervailing basis to find that its
terms nevertheless fail to meet an applicable requirement of the Act or
the rules thereunder. An analysis of the proposal does not provide such
a basis. Further, the Commission did not receive any comment letters
raising concerns of a substantial countervailing basis that the terms
of the proposal failed to meet the requirements of the Act or the rules
thereunder.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-BX-2010-027) be, and it hereby is,
approved.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
---------------------------------------------------------------------------
\22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-14600 Filed 6-16-10; 8:45 am]
BILLING CODE 8010-01-P