[Federal Register Volume 76, Number 23 (Thursday, February 3, 2011)]
[Notices]
[Pages 6165-6167]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2376]
[[Page 6165]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63796; File No. SR-NASDAQ-2011-010]
Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Suspension of and Order Instituting Proceedings To Determine Whether To
Approve or Disapprove a Proposed Rule Change To Link Market Data Fees
and Transaction Execution Fees
January 28, 2011.
I. Introduction
On January 10, 2011, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to discount certain market data
fees and increase certain liquidity provider rebates for members that
both (1) execute specified levels of transaction volume on NASDAQ as a
liquidity provider, and (2) purchase specified levels of market data
from NASDAQ. The proposed rule change was immediately effective upon
filing with the Commission pursuant to Section 19(b)(3)(A) of the
Act.\3\ Notice of filing of the proposed rule change was published in
the Federal Register on January 27, 2011.\4\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ See Securities Exchange Act Release No. 63745 (January 20,
2011) 76 FR 4970 (``Notice''). The Commission has received one
comment letter on the proposed rule change to date. See Letter dated
January 13, 2011 from William O'Brien, Chief Executive Officer,
Direct Edge to Florence E. Harmon, Deputy Secretary, Commission (the
``Direct Edge Letter''). The commenter suggested that the proposed
rule change should be suspended and that the Commission should
institute proceedings to determine whether to approve or disapprove
the proposal.
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Under Section 19(b)(C)(3) of the Act, the Commission is (1) hereby
temporarily suspending File No. SR-NASDAQ-2011-010, and (2) instituting
proceedings to determine whether to approve or disapprove File No. SR-
NASDAQ-2011-010.
II. Summary of the Proposed Rule Change
NASDAQ proposes to provide a discount on non-professional market
data fees for NASDAQ Depth Data \5\ (``NASDAQ Depth Data Product
Fees'') charged to a member that provides displayed liquidity through
the NASDAQ Market Center and incurs NASDAQ Depth Data Product Fees at
certain specified levels.\6\ Specifically, a member would qualify as a:
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\5\ NASDAQ Depth Data includes National Quotation Data Service
(individual market maker quotation data), TotalView (depth-of-book
data for NASDAQ-listed securities), and OpenView (depth-of-book data
for non-NASDAQ-listed securities) data products.
\6\ For a more detailed description of the proposed rule change,
see Notice, supra note 4.
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``Tier 1 Firm'' for purposes of pricing during a
particular month if it (i) has an average daily volume of 12 million
shares or more of liquidity provided through the NASDAQ Market Center
in all securities during the month; and (ii) incurs NASDAQ Depth Data
Product Fees during the month of $150,000 or more.
``Tier 2 Firm'' for purposes of pricing during a
particular month if it (i) has an average daily volume of 35 million or
more shares of liquidity provided through the NASDAQ Market Center in
all securities during the month; and (ii) incurs NASDAQ Depth Data
Product Fees during the month of $300,000 or more.
``Tier 3 Firm'' for purposes of pricing during a
particular month if it (i) has an average daily volume of 65 million or
more shares of liquidity provided through the NASDAQ Market Center in
all securities during the month; and (ii) incurs NASDAQ Depth Data
Product Fees during the month of $500,000 or more.
Tier 1 Firms would receive a 15% discount on NASDAQ Depth Data
Product Fees charged to them, Tier 2 Firms would receive a 35% discount
on NASDAQ Depth Data Product Fees charged to them, and Tier 3 Firms
would receive a 50% discount on NASDAQ Depth Data Product Fees charged
to them.\7\ In addition, Tier 1 Firms would receive an increased
liquidity provider rebate for transactions executed on NASDAQ.
Specifically, Tier 1 Firms would receive a rebate of $0.0028 per share
for displayed liquidity and $0.0015 per share for undisplayed
liquidity, compared to the current liquidity provider credit of $0.0020
per share of displayed liquidity and $0.0010 per share of non-displayed
liquidity applicable to these firms. There is no enhancement to the
liquidity provider credits at this time for Tier 2 and Tier 3 firms.
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\7\ A NASDAQ member incurs non-professional fees when it offers
NASDAQ Depth Data to natural persons that are not acting in a
capacity that subjects them to financial industry regulation (e.g.,
retail customers).
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III. Summary of Comment Letters
To date, the Commission has received one comment letter on NASDAQ's
proposed rule change.\8\ In its comment letter, Direct Edge argues,
among other things, that the proposed rule change should be suspended
because, in its view, offering discounts on NASDAQ's market data fees
only to customers who meet specified minimum order flow thresholds and
provide such data to non-professional users does not meet the ``fair
and reasonable'' standard for market data fees under the Exchange Act.
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\8\ See Direct Edge Letter supra, note 4.
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IV. Suspension of SR-NASDAQ-2011-010
Pursuant to Section 19(b)(3)(C) of the Act,\9\ at any time within
60 days of the date of filing a proposed rule change pursuant to
Section 19(b)(1) of the Act,\10\ the Commission summarily may
temporarily suspend the change in the rules of a self-regulatory
organization if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act.
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\9\ 15 U.S.C. 78s(b)(3)(C).
\10\ 15 U.S.C. 78s(b)(1).
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Under the proposal, the level of fees that a market participant
would be charged for obtaining NASDAQ market data would be tied to the
extent of that market participant's trading in the NASDAQ market. In
addition, the level of transaction rebates that a market participant
receives for trading on NASDAQ would be tied to the level of NASDAQ
market data that it purchases. The Commission is concerned that such a
tying arrangement may not be consistent with the statutory requirements
applicable to a national securities exchange under the Act, as
described below. For instance, the Commission is concerned that the
proposal may fail to satisfy the standards under the Exchange Act and
the rules thereunder that require market data fees to be equitable,
fair, and not unreasonably discriminatory.\11\
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\11\ See infra, notes 17-24.
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Therefore, the Commission finds that it is appropriate in the
public interest, for the protection of investors, and otherwise in
furtherance of the purposes of the Act, to temporarily suspend the
proposed rule change.
V. Proceedings To Determine Whether To Approve or Disapprove SR-NASDAQ-
2011-010
The Commission is instituting proceedings pursuant to Sections
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19(b)(3)(C) \12\ and 19(b)(2) of the Act \13\ to determine whether
NASDAQ's proposed rule change should be approved or disapproved.
Pursuant to Section 19(b)(2)(B) of the Act,\14\ the Commission is
providing notice of the grounds for disapproval under consideration.
Under the proposal, the level of fees that a market participant would
be charged for obtaining NASDAQ market data would be tied to the extent
of that market participant's trading in the NASDAQ market. The Exchange
Act and the rules thereunder require that market data fees must be
equitable, fair, reasonable, and not unreasonably discriminatory.\15\
In this regard, the Commission has stated previously that the Exchange
Act precludes exchanges from adopting terms for market data
distribution that unfairly discriminate by favoring participants in an
exchange's market or penalizing participants in other markets.\16\ The
Commission is concerned that NASDAQ's proposal may be inconsistent with
this standard. The Commission believes that the NASDAQ proposal raises
significant legal and policy issues. Specifically, the Commission has
serious concerns as to whether NASDAQ's proposal to tie market data
fees and execution fees is consistent with the Exchange Act. The
Commission has similar concerns with respect to NASDAQ's proposal to
tie the level of transaction rebates paid to market participants to the
amount of market data they purchase.
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\12\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily
suspends a proposed rule change, Section 19(b)(3)(C) of the Act
requires that the Commission institute proceedings under Section
19(b)(2)(B) to determine whether a proposed rule change should be
approved or disapproved.
\13\ 15 U.S.C. 78s(b)(2).
\14\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
Id. The time for conclusion of the proceedings may be extended for
up to 60 days if the Commission finds good cause for such extension
and publishes its reasons for so finding. Id.
\15\ See infra, notes 17-24.
\16\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 at 74791 (December 9, 2008) (SR-NYSEArca-2006-21)
(Order Setting Aside Action by Delegated Authority and Approving
Proposed Rule Change FRelating to NYSE Arca Data) (``NYSE Arca
Order''), vacated and remanded by NetCoalition v. SEC No. 09-1042
(DC Cir. 2010).
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The Commission believes it is appropriate in the public interest to
institute disapproval proceedings at this time in view of the
significant legal and policy issues raised by the proposal. Institution
of disapproval proceedings does not indicate, however, that the
Commission has reached any conclusions with respect to the issues
involved. The sections of the Act and the rules thereunder that are
applicable to the proposed rule change include:
Section 6(b)(4) of the Act, 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 persons using its facilities''; \17\
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\17\ 15 U.S.C. 78f(b)(4).
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Section 6(b)(5) of the Act, which requires that the rules
of a national securities exchange be designed to, among other things,
``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''; \18\
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\18\ 15 U.S.C. 78f(b)(5).
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Section 6(b)(8) of the Act,\19\ which requires that the
rules of a national securities exchange ``not impose any burden on
competition not necessary or appropriate'' in furtherance of the Act;
\20\
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\19\ 15 U.S.C. 78f(b)(8).
\20\ 15 U.S.C. 78f(b)(8).
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Section 11A(a) of the Act, in which Congress found that it
is in the public interest and appropriate for the protection of
investors and the maintenance of fair and orderly markets to assure
``economically efficient execution of securities transactions,'' ``fair
competition among brokers and dealers and among exchange markets,''
``the availability to brokers, dealers, and investors of information
with respect to quotations for and transactions in securities,'' and
``the practicability of brokers executing investors' orders in the best
market''; \21\
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\21\ 15 U.S.C. 78k-1(a)(1)(C)(i)-(iv).
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Rule 603(a)(1) of Regulation NMS, which requires any
exclusive processor that distributes information with respect to
quotations for or transactions in an NMS stock, as that term is defined
in Rule 600(b) of Regulation NMS,\22\ to a securities information
processor to ``do so on terms that are fair and reasonable''; \23\ and
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\22\ See 17 CFR 242.600(b)(46) and (47), defining ``NMS stock''
as any NMS security other than an option and defining ``NMS
security'' as any security or class of securities for which
transaction reports are collected, processed, and made available
pursuant to an effective transaction reporting plan, or an effective
national market system plan for reporting transactions in listed
options.
\23\ 17 CFR 242.603(a)(1).
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Rule 603(a)(2) of Regulation NMS, which requires a
national securities exchange that distributes information with respect
to quotations for or transactions in an NMS stock to a securities
information processor to ``do so on terms that are not unreasonably
discriminatory''.\24\
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\24\ 17 CFR 242.603(a)(2).
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VI. Commission's Solicitation of Comments
The Commission requests written views, data, and arguments with
respect to the concerns identified above as well as any other relevant
concerns. Such comments should be submitted by March 21, 2011. Rebuttal
comments should be submitted by April 4, 2011. Although there do not
appear to be any issues relevant to approval or disapproval which would
be facilitated by an oral presentation of views, data, and arguments,
the Commission will consider, pursuant to Rule 19b-4, any request for
an opportunity to make an oral presentation.\25\
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\25\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Acts Amendments of 1975, Report of the
Senate Committee on Banking, Housing and Urban Affairs to Accompany
S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).
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The Commission asks that commenters address the merit of NASDAQ's
statements in support of the proposal, in addition to any other
comments they may wish to submit about the proposed rule change.
Interested persons are invited to submit written data, views, and
arguments concerning the proposed rule change, 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/other.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NASDAQ-2011-010 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-2011-010. The
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
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post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/other.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, 100 F Street, NE., Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of such
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 publicly available. All submissions should refer to
File Number SR-NASDAQ-2011-010 and should be submitted on or before
March 21, 2011. Rebuttal comments should be submitted by April 4, 2011.
VII. Conclusion
It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\26\ that File No. SR-NASDAQ-2011-010, be and hereby is,
temporarily suspended. In addition, the Commission is instituting
proceedings to determine whether the proposed rule change should be
approved or disapproved.
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\26\ 15 U.S.C. 78s(b)(3)(C).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(57) and (58).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-2376 Filed 2-2-11; 8:45 am]
BILLING CODE 8011-01-P