[Federal Register Volume 75, Number 130 (Thursday, July 8, 2010)]
[Notices]
[Pages 39315-39319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-16567]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62428; File No. SR-NASDAQ-2010-081]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Order Granting Accelerated Approval to a Proposed
Rule Change To Extend the Last Sale Data Feeds Pilot Program
July 1, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 39316]]
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 30, 2010, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II 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, and is approving the
proposal on an accelerated basis.
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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
NASDAQ is proposing to extend for three months the pilot that
created the NASDAQ Last Sale (``NLS'') market data products. NLS allows
data distributors to have access to real-time market data for a capped
fee, enabling those distributors to provide free access to the data to
millions of individual investors via the Internet and television.
Specifically, NASDAQ offers the ``NASDAQ Last Sale for NASDAQ'' and
``NASDAQ Last Sale for NYSE/Amex'' data feeds containing last sale
activity in U.S. equities within the NASDAQ Market Center and reported
to the jointly-operated FINRA/NASDAQ Trade Reporting Facility (``FINRA/
NASDAQ TRF''). The purpose of this proposal is to extend the existing
pilot program for a three-month period beginning on July 1, 2010.
This pilot program supports the aspiration of Regulation NMS to
increase the availability of proprietary data by allowing market forces
to determine the amount of proprietary market data information that is
made available to the public and at what price. During the current
pilot period, the program has vastly increased the availability of
NASDAQ proprietary market data to individual investors. Based upon data
from NLS distributors, NASDAQ believes that since its launch in July
2008, the NLS data has been viewed by over 50,000,000 investors on Web
sites operated by Google, Interactive Data, and Dow Jones, among
others.
The text of the proposed rule change is below. Proposed new
language is in italics; proposed deletions are in brackets.\3\
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\3\ Changes are marked to the rule text that appears in the
electronic NASDAQ Manual found at http://nasdaqomx.cchwallstreet.com.
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* * * * *
7039. NASDAQ Last Sale Data Feeds
(a) For a [six] three month pilot period commencing on [January]
July 1, 2010, NASDAQ shall offer two proprietary data feeds
containing real-time last sale information for trades executed on
NASDAQ or reported to the NASDAQ/FINRA Trade Reporting Facility.
(1) ``NASDAQ Last Sale for NASDAQ'' shall contain all
transaction reports for NASDAQ-listed stocks; and
(2) ``NASDAQ Last Sale for NYSE/Amex'' shall contain all such
transaction reports for NYSE- and NYSE Amex-listed stocks.
(b)-(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, NASDAQ 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 III below. NASDAQ 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
Prior to the launch of NLS, public investors that wished to view
market data to monitor their portfolios generally had two choices: (1)
Pay for real-time market data or (2) use free data that is 15 to 20
minutes delayed. To increase consumer choice, NASDAQ proposed a pilot
to offer access to real-time market data to data distributors for a
capped fee, enabling those distributors to disseminate the data via the
Internet and television at no cost to millions of Internet users and
television viewers. NASDAQ now proposes a three-month extension of that
pilot program on the same terms as applicable today.\4\
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\4\ NASDAQ previously stated that it would file a proposed rule
change seeking permanent approval of the NLS pilot. NASDAQ has also
informed Commission staff that it will consult with FINRA to develop
a proposed rule change by FINRA to seek permanent Commission
approval for inclusion of FINRA/NASDAQ TRF data in NLS. Because
NASDAQ and FINRA have not completed their consultations regarding
such a proposed rule change, NASDAQ is not yet in a position to file
for permanent approval of NLS. Accordingly, NASDAQ is filing to seek
a three-month extension of the existing pilot.
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The NLS pilot created two separate ``Level 1'' products containing
last sale activity within the NASDAQ market and reported to the
jointly-operated FINRA/NASDAQ TRF. First, the ``NASDAQ Last Sale for
NASDAQ Data Product,'' a real-time data feed that provides real-time
last sale information including execution price, volume, and time for
executions occurring within the NASDAQ system as well as those reported
to the FINRA/NASDAQ TRF. Second, the NASDAQ Last Sale for NYSE/Amex
data product that provides real-time last sale information including
execution price, volume, and time for NYSE- and NYSE Amex-securities
executions occurring within the NASDAQ system as well as those reported
to the FINRA/NASDAQ TRF.
NASDAQ established two different pricing models, one for clients
that are able to maintain username/password entitlement systems and/or
quote counting mechanisms to account for usage, and a second for those
that are not. Firms with the ability to maintain username/password
entitlement systems and/or quote counting mechanisms will be eligible
for a specified fee schedule for the NASDAQ Last Sale for NASDAQ
Product and a separate fee schedule for the NASDAQ Last Sale for NYSE/
Amex Product: Firms that were unable to maintain username/password
entitlement systems and/or quote counting mechanisms will also have
multiple options for purchasing the NASDAQ Last Sale data. These firms
chose between a ``Unique Visitor'' model for Internet delivery or a
``Household'' model for television delivery. Unique Visitor and
Household populations must be reported monthly and must be validated by
a third-party vendor or ratings agency approved by NASDAQ at NASDAQ's
sole discretion. In addition, to reflect the growing confluence between
these media outlets, NASDAQ offered a reduction in fees when a single
distributor distributes NASDAQ Last Sale Data Products via multiple
distribution mechanisms.
Second, NASDAQ established a cap on the monthly fee, currently set
at $50,000 per month for all NASDAQ Last Sale products. The fee cap
enables NASDAQ to compete effectively against other exchanges that also
offer last sale data for purchase or at no charge.
As with the distribution of other NASDAQ proprietary products, all
distributors of the NASDAQ Last Sale for NASDAQ and/or NASDAQ Last Sale
for NYSE/Amex products would pay a single $1,500/month NASDAQ Last Sale
Distributor Fee in addition to any applicable usage fees. The $1,500
monthly fee will apply to all distributors and will not vary based on
whether the distributor distributes the data internally or externally
or
[[Page 39317]]
distributes the data via both the Internet and television.
2. Statutory Basis
NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act,\5\ in general, and with Section
6(b)(4) of the Act,\6\ in particular, in that it provides an equitable
allocation of reasonable fees among users and recipients of NASDAQ
data. In adopting Regulation NMS, the Commission granted self-
regulatory organizations 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.
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\5\ 15 U.S.C. 78f.
\6\ 15 U.S.C. 78f(b)(4).
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The NASDAQ Last Sale market data products proposed here appear to
be precisely the sort of market data product that the Commission
envisioned when it adopted Regulation NMS. The Commission concluded
that Regulation NMS--by lessening regulation of 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.\7\
\7\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70
FR 37496 (June 29, 2005).
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By removing ``unnecessary regulatory restrictions'' on the ability
of exchanges to sell their own data, Regulation NMS advanced 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.
NASDAQ's ability to price its Last Sale Data Products is
constrained by (1) competition between exchanges and other trading
platforms that compete with each other in a variety of dimensions; (2)
the existence of inexpensive real-time consolidated data and free
delayed consolidated data, and (3) the inherent contestability of the
market for proprietary last sale data.
The market for proprietary last sale 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.
Broker-dealers currently have numerous alternative venues for their
order flow, including ten self-regulatory organization (``SRO'')
markets, as well as internalizing broker-dealers (``BDs'') and various
forms of alternative trading systems (``ATSs''), including dark pools
and electronic communication networks (``ECNs''). Each SRO market
competes to produce transaction reports via trade executions, and two
FINRA-regulated 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, BDs, and ATSs that currently
produce proprietary data or are currently capable of producing it
provides further pricing discipline for proprietary data products. Each
SRO, TRF, ATS, and BD is currently permitted to produce proprietary
data products, and many currently do or have announced plans to do so,
including NASDAQ, NYSE, NYSE Amex, NYSEArca, and BATS.
Any ATS or BD can combine with any other ATS, BD, or multiple ATSs
or BDs to produce joint proprietary data products. Additionally, order
routers and 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 ATSs, BDs, and vendors can by-
pass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and sale of proprietary data
products, as BATS and Arca did before registering as exchanges by
publishing proprietary book data on the Internet. 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.
Consolidated data provides two additional measures of pricing
discipline for proprietary data products that are a subset of the
consolidated data stream. First, the consolidated data is widely
available in real-time at $1 per month for non-professional users.
Second, consolidated data is also available at no cost with a 15- or
20- minute delay. Because consolidated data contains marketwide
information, it effectively places a cap on the fees assessed for
proprietary data (such as last sale data) that is simply a subset of
the consolidated data. The mere availability of low-cost or free
consolidated data provides a powerful form of pricing discipline for
proprietary data products that contain data elements that are a subset
of the consolidated data, by highlighting the optional nature of
proprietary products.
Market data vendors provide another form of 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 such as Bloomberg and Reuters
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, such as Google, impose a discipline by
providing only data that will enable them to attract ``eyeballs'' that
contribute to their advertising revenue. Retail broker-dealers, such as
Schwab and Fidelity, offer their 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. NASDAQ 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.
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 entrants
that swiftly grew into some of the largest electronic trading platforms
and proprietary data producers: Archipelago, Bloomberg Tradebook,
Island, RediBook, Attain, TracECN,
[[Page 39318]]
BATS Trading and Direct Edge. Today, BATS publishes its data at no
charge on its Web site 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.\8\ A proliferation of dark pools
and other ATSs operate profitably with fragmentary shares of
consolidated market volume.
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\8\ However, BATS recently received approval 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) (SR-BATS-2010-002).
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Regulation NMS, by deregulating the market for proprietary data,
has increased the contestability of that market. While broker-dealers
have previously published their proprietary data individually,
Regulation NMS encourages market data vendors and broker-dealers to
produce proprietary products cooperatively in a manner never before
possible. Multiple market data vendors already have the capability to
aggregate data and disseminate it on a profitable scale, including
Bloomberg, Reuters and Thomson.
In establishing the price for the NASDAQ Last Sale Products, NASDAQ
considered the competitiveness of the market for last sale data and all
of the implications of that competition. NASDAQ believes that it has
considered all relevant factors and has not considered irrelevant
factors in order to establish a fair, reasonable, and not unreasonably
discriminatory fee and an equitable allocation of fees among all users.
The existence of numerous alternatives to NLS, including real-time
consolidated data, free delayed consolidated data, and proprietary data
from other sources ensures that NASDAQ cannot set unreasonable fees, or
fees that are unreasonably discriminatory, without losing business to
these alternatives. Accordingly, NASDAQ believes that the acceptance of
the NLS product in the marketplace demonstrates the consistency of
these fees with applicable statutory standards.
B. Self-Regulatory Organization's Statement on Burden on Competition
NASDAQ does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. To the contrary,
the NASDAQ Last Sale Products respond to and enhance competition that
already exists in the market.
On May 28, 2008, the Internet portal Yahoo! began offering its Web
site viewers real-time last sale data provided by BATS Trading.
NASDAQ's last sale data products compete directly with the BATS product
disseminated via Yahoo! In addition, as set forth above, the market for
last sale data is already competitive, with both real-time and delayed
consolidated data as well as the ability for innumerable entities begin
rapidly and inexpensively to offer competitive last sale data products.
Moreover, the New York Stock Exchange distributes competing last sale
data products at a price comparable to the price of NLS. Under the
regime of Regulation NMS, there is no limit to the number of competing
products that can be developed quickly and at low cost. The Commission
should not stand in the way of enhanced competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Three comment letters were filed regarding the proposed rule change
as originally published for comment NASDAQ responded to these comments
in a letter dated December 13, 2007. Both the comment letters and
NASDAQ's response are available on the SEC Web site at http://www.sec.gov/comments/sr-nasdaq-2006-060/nasdaq2006060.shtml.
III. 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-NASDAQ-2010-081 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-NASDAQ-2010-081. 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-NASDAQ-2010-081 and should be submitted on or before
July 29, 2010.
IV. Commission's Findings and Order Granting Accelerated Approval of a
Proposed Rule Change
The Commission finds that the proposed rule change, to extend the
pilot program for three months, is consistent with the requirements of
the Act and the rules and regulations thereunder applicable to a
national securities exchange.\9\ In particular, it is consistent with
Section 6(b)(4) of the Act,\10\ 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,\11\ 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.
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\9\ 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).
\10\ 15 U.S.C. 78f(b)(4).
\11\ 15 U.S.C. 78f(b)(5).
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The Commission also finds that the proposed rule change is
consistent with the provisions of Section 6(b)(8) of the
[[Page 39319]]
Act,\12\ 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,\13\ 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.\14\
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\12\ 15 U.S.C. 78f(b)(8).
\13\ 17 CFR 242.603(a).
\14\ NASDAQ is an exclusive processor of its last sale 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.
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The Commission approved the fee for the NASDAQ Last Sale Data Feeds
for a pilot period which ran until July 1, 2009.\15\ The Commission
notes that the Exchange proposes to extend the pilot program for three
months. The Commission did not receive any comments on the previous
extensions of the pilot program.\16\
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\15\ See Securities Exchange Act Release Nos. 61872 (April 8,
2010), 74 FR 19444 (April 14, 2010); 60990 (November 12, 2009), 74
FR 60002 (November 19, 2009); 57965 (June 16, 2008), 73 FR 35178
(June 20, 2008) (SR-NASDAQ-2006-060); 58894 (October 31, 2008), 73
FR 66953 (November 12, 2008) (SR-NASDAQ-2008-086); 59186 (December
30, 2008), 74 FR 743 (January 7, 2009) (SR-NASDAQ-2008-103); 59652
(March 31, 2009) 74 FR 15533 (April 6, 2009) (SR-NASDAQ-2009-027);
60201 (June 30, 2009), 74 FR 32670 (July 8, 2009) (SR-NASDAQ-2009-
062).
\16\ Id.
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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 NASDAQ Last Sale Data
Feeds.\17\ The Commission believes that Nasdaq's proposal to
temporarily extend the pilot program to June 30, 2010 is consistent
with the Act for the reasons noted in the Order.\18\ The Commission
believes that approving NASDAQ's proposal to temporarily extend the
pilot program that imposes a fee for the NASDAQ Last Sale Data Feeds
for an additional three months will be beneficial to investors and in
the public interest, in that it is intended to allow continued broad
public dissemination of increased real-time pricing information.
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\17\ 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).
\18\ See supra note 15.
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The Commission finds good cause for approving the proposed rule
change before the thirtieth day after the date of publication of notice
of filing thereof in the Federal Register. Accelerating approval of
this proposal is expected to benefit investors by continuing to
facilitate their access to widespread, free, real-time pricing
information contained in the NASDAQ Last Sale Data Feeds. Therefore,
the Commission finds good cause, consistent with Section 19(b)(2) of
the Act,\19\ to approve the proposed rule change on an accelerated
basis.
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\19\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-NASDAQ-2010-045) is hereby approved
on an accelerated basis.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16567 Filed 7-7-10; 8:45 am]
BILLING CODE 8010-01-P