[Federal Register Volume 80, Number 161 (Thursday, August 20, 2015)]
[Notices]
[Pages 50671-50677]
[FR Doc No: 2015-20549]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75709; File No. SR-BX-2015-047]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Regarding
NASDAQ Last Sale Plus

August 14, 2015.
    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, August 5, 2015, NASDAQ OMX BX, Inc. (``BX'' 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 BX Rule 7039 (BX Last Sale Data
Feeds) with language regarding NASDAQ Last Sale Plus (``NLS Plus''), a
comprehensive data feed offered by NASDAQ OMX Information LLC.\3\
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    \3\ NASDAQ OMX Information LLC is a subsidiary of The NASDAQ OMX
Group, Inc. (``NASDAQ OMX'').
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    The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxbx.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.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposal is to amend BX Rule 7039 by adding new
section (b) regarding NLS Plus.
    This proposal is based on the recent approval order regarding the
codification of NLS Plus in NASDAQ Rule 7039,\4\ in a manner similar to
products of other markets.\5\
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    \4\ See Securities Exchange Act Release No. 75257 (June 22,
2015), 80 FR 36862 (June 26, 2015) (SR-NASDAQ-2015-055) (order
approving proposed rule change regarding NASDAQ Last Sale Plus in
NASDAQ Rule 7039(d)) (the ``NLS Plus Approval Order''). See also
Securities Exchange Act Release No. 74972 (May 15, 2015), 80 FR
29370 (May 21, 2015) (SR-NASDAQ-2015-055) (notice of filing of
proposed rule change regarding NASDAQ Last Sale Plus) (the ``NLS
Plus notice'').
    \5\ See Securities Exchange Act Release No. 73918 (December 23,
2014), 79 FR 78920 (December 31, 2014) (SR-BATS-2014-055; SR-BYX-
2014-030; SR-EDGA-2014-25; SR-EDGX-2014-25) (order approving market
data product called BATS One Feed being offered by four affiliated
exchanges). See also Securities Exchange Act Release No. 73553
(November 6, 2014), 79 FR 67491 (November 13, 2014) (SR-NYSE-2014-
40) (order granting approval to establish the NYSE Best Quote &
Trades (``BQT'') Data Feed). These exchanges have likewise
instituted fees for their products.
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    NLS Plus allows data distributors to access the three last sale
products offered by each of NASDAQ OMX's three U.S. equity markets.\6\
NLS Plus also reflects cumulative consolidated volume (``consolidated
volume'') of real-time trading activity across all U.S. exchanges for
Tape C securities and 15-minute delayed information for Tape A and Tape
B securities.\7\ In offering NLS Plus, NASDAQ OMX Information LLC is,
as discussed below, acting as a redistributor of last sale products
already offered by NASDAQ, BX, and PSX and volume information provided
by the securities information processors (``SIPs'') for Tape A, B, and
C.
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    \6\ The NASDAQ OMX U.S. equity markets include The NASDAQ Stock
Market (``NASDAQ''), ``BX, and NASDAQ OMX PSX (``PSX'') (together
known as the ``NASDAQ OMX equity markets''). PSX will shortly file a
similar companion proposal regarding NLS Plus. NASDAQ's last sale
product, NASDAQ Last Sale, includes last sale information from the
FINRA/NASDAQ Trade Reporting Facility (``FINRA/NASDAQ TRF''), which
is jointly operated by NASDAQ and the Financial Industry Regulatory
Authority (``FINRA''). For proposed rule changes submitted with
respect to NASDAQ Last Sale, BX Last Sale, and PSX Last Sale, see,
e.g., Securities Exchange Act Release Nos. 57965 (June 16, 2008), 73
FR 35178, (June 20, 2008) (SR-NASDAQ-2006-060) (order approving
NASDAQ Last Sale data feeds pilot); 61112 (December 4, 2009), 74 FR
65569, (December 10, 2009) (SR-BX-2009-077) (notice of filing and
immediate effectiveness regarding BX Last Sale data feeds); and
62876 (September 9, 2010), 75 FR 56624, (September 16, 2010) (SR-
Phlx-2010-120) (notice of filing and immediate effectiveness
regarding PSX Last Sale data feeds).
    \7\ Tape A and Tape B securities are disseminated pursuant to
the Security Industry Automation Corporation's (``SIAC'')
Consolidated Tape Association Plan/Consolidated Quotation System, or
CTA/CQS (``CTA''). Tape C securities are disseminated pursuant to
the NASDAQ Unlisted Trading Privileges (``UTP'') Plan.
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    NLS Plus, which is proposed to be codified in BX Rule 7039(b) in
the same form as in NASDAQ Rule 7039(d), allows data distributors to
access last sale products offered by each of NASDAQ OMX's three equity
exchanges. Thus, NLS Plus includes all transactions from all of NASDAQ
OMX's equity markets, as well as FINRA/NASDAQ TRF data that is included
in the current NLS product. In addition, NLS Plus features total cross-
market volume information at the issue level, thereby providing
redistribution of consolidated volume information from SIPs for Tape A,
B, and C securities. Thus, NLS Plus covers all securities listed on
NASDAQ and New York Stock Exchange (``NYSE'') (now under the
Intercontinental Exchange (``ICE'') umbrella), as well as U.S.
``regional'' exchanges such as NYSE MKT, NYSE Arca, and BATS (also

known as BATS/Direct Edge).\8\ The Exchange will, as discussed below,
file a separate proposal regarding the NLS Plus fee structure.
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    \8\ Registered U.S. exchanges are listed at http://www.sec.gov/divisions/marketreg/mrexchanges.shtml.
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    NLS Plus has been offered since 2010 via NASDAQ OMX Information
LLC.\9\ NASDAQ OMX Information LLC is a subsidiary of NASDAQ OMX Group,
Inc., separate and apart from The NASDAQ Stock Market LLC and the
Exchange. As such, NASDAQ OMX Information LLC redistributes last sale
data that has been the subject of a proposed rule change filed with the
Commission at prices that also have been the subject of a proposed rule
change filed with the Commission. As discussed below, NASDAQ OMX
Information LLC distributes no data that is not equally available to
all market data vendors.
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    \9\ While NLS Plus is described in the NLS Plus notice and NLS
Plus Approval Order, NLS Plus is also described online at http://nasdaqtrader.com/content/technicalsupport/specifications/dataproducts/NLSPlusSpecification.pdf. In addition, the annual
administrative and other fees for NLS Plus are currently described
in NASDAQ Rule 7039(d) and noted at http://nasdaqtrader.com/Trader.aspx?id=DPUSdata#ls.
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The Proposal
    The Exchange proposes to add NLS Plus to BX Rule 7039, which
currently describes the BX Last Sale data feed offering, to fully
reflect NLS Plus. NLS Plus as proposed to be codified in BX Rule
7039(b) is exactly the same as NLS Plus in NASDAQ Rule 7039(d).
    Similar to NLS, NLS Plus offers data for all U.S. equities via two
separate data channels: the first data channel reflects NASDAQ, BX, and
PSX trades with real-time consolidated volume for NASDAQ-listed
securities; and the second data channel reflects trades with delayed
consolidated volume for NYSE, NYSE MKT, NYSE Arca and BATS-listed
securities.\10\ NLS Plus, like NLS, is used by industry professionals
and retail investors looking for a cost effective, easy-to-administer,
high quality market data product with the characteristics of NLS Plus.
The provision of multiple options for investors to receive market data
was a primary goal of the market data amendments adopted by Regulation
NMS.\11\ Finally, NLS Plus provides investors with options for
receiving market data that parallel products currently offered by BATS
and BATS Y, EDGA, and EDGX and NYSE equity exchanges.\12\
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    \10\ These NLS Plus channels are each made up of a series of
sequenced messages so that each message is variable in length based
on the message type and is typically delivered using a higher level
protocol.
    \11\ However, the Exchange notes that under Rule 603 of
Regulation NMS, see 17 CFR 242.603(c), NLS Plus cannot be
substituted for consolidated data in all instances in which
consolidated data is used and certain subscribers are still required
to purchase consolidated data for trading and order-routing
purposes. See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, at 37503 (June 29, 2005) (Regulation NMS
Adopting Release).
    \12\ See supra note 5.
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    In addition to last sale information, NLS Plus also disseminates
the following data elements: Trade Price, Trade Size, Sale Condition
Modifiers, Cumulative Consolidated Market Volume, End of Day Trade
Summary, Adjusted Closing Price, IPO Information, and Bloomberg ID
(together the ``data elements''). NLS Plus also features and
disseminates the following messages: Market Wide Circuit Breaker, Reg
SHO Short Sale Price Test Restricted Indicator, Trading Action, Symbol
Directory, Adjusted Closing Price, and End of Day Trade Summary
(together the ``messages'').\13\ The overwhelming majority of these
data elements and messages are exactly the same as, and in fact are
sourced from, NLS, BX Last Sale, and PSX Last Sale. Only two data
elements (consolidated volume and Bloomberg ID) are, as discussed
below, sourced from other publicly accessible or obtainable resources.
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    \13\ The Reg SHO Short Sale Price Test Restricted Indicator
message is disseminated intra-day when a security has a price drop
of 10% or more from the adjusted prior day's NASDAQ Official Closing
Price. Trading Action indicates the current trading status of a
security to the trading community, and indicates when a security is
halted, paused, released for quotation, and released for trading.
Symbol Directory is disseminated at the start of each trading day
for all active NASDAQ and non-NASDAQ-listed security symbols.
Adjusted Closing Price is disseminated at the start of each trading
day for all active symbols in the NASDAQ system, and reflects the
previous trading day's official closing price adjusted for any
applicable corporate actions; if there were no corporate actions,
however, the previous day's official closing price is used. End of
Day Trade Summary is disseminated at the close of each trading day,
as a summary for all active NASDAQ- and non-NASDAQ-listed
securities. IPO Information reflects IPO general administrative
messages from the UTP and CTA Level 1 feeds for Initial Public
Offerings for all NASDAQ- and non-NASDAQ-listed securities.
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    Consolidated volume reflects the consolidated volume at the time
that the NLS Plus trade message is generated, and includes the volume
for the issue symbol as reported on the consolidated market data feed.
The consolidated volume is based on the real-time trades reported via
the UTP Trade Data Feed (``UTDF'') and delayed trades reported via CTA.
NASDAQ OMX calculates the real-time trading volume for its trading
venues, and then adds the real-time trading volume for the other (non-
NASDAQ OMX) trading venues as reported via the UTDF data feed. For non-
NASDAQ-listed issues, the consolidated volume is based on trades
reported via SIAC's Consolidated Tape System (``CTS'') for the issue
symbol. The Exchange calculates the real-time trading volume for its
trading venues, and then adds the 15-minute delayed trading volume for
the other (non-NASDAQ OMX) trading venues as reported via the CTS data
feed.\14\ The second data point that is not sourced from NLS, BX Last
Sale, and PSX Last Sale is Bloomberg ID. This composite ID is a
component of Bloomberg's Open Symbology and acts as a global security
identifier that Bloomberg assigns to securities, and is available free
of charge.\15\
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    \14\ In order to distribute data derived from UTDF and CTA,
NASDAQ OMX must pay monthly redistributor fees. However, because
these fees are paid on an enterprise-wide basis and NASDAQ OMX
includes such derived data in other data products, the use of the
data in NLS Plus does not result in an additional incremental cost.
    \15\ See http://bsym.bloomberg.com/sym/pages/bbgid-fact-sheet.pdf; http://bsym.bloomberg.com/sym/pages/NASDAQ_Adopts_BSYM.pdf.
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    NLS Plus may be received by itself or in combination with NASDAQ
Basic.\16\ In the latter case, the subscriber receives all of the
elements contained in NLS Plus as well as the best bid and best offer
information provided by NASDAQ Basic.
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    \16\ As provided in NASDAQ Rule 7047, NASDAQ Basic provides the
information contained in NLS, together with NASDAQ's best bid and
best offer.
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    The Exchange believes that market data distributors may use the NLS
Plus data feed to feed stock tickers, portfolio trackers, trade alert
programs, time and sale graphs, and other display systems.
    The Exchange proposes one housekeeping change. The Exchange adds
the phrase ``BX Last Sale'' in BX Rule 7039(a) to make it clear that
section (a) refers to BX Last Sale (whereas proposed section (b) refers
to NLS Plus). This change is non-substantive.
    With respect to latency, the path for distribution of NLS Plus is
not faster than the path for distribution that would be used by a
market data vendor to distribute an independently created NLS Plus-like
product. As such, the NLS Plus data feed is a data product that a
competing market data vendor could create and sell without being in a
disadvantaged position relative to the Exchange. In recognition that
the Exchange is the source of its own market data and with NASDAQ and
PSX being equity markets owned by NASDAQ OMX, the Exchange represents
that the source of the market data it would use to create proposed NLS
Plus is available to other vendors. In fact, the overwhelming majority
of

the data elements and messages \17\ in NLS Plus are exactly the same
as, and in fact are sourced from, NLS, BX Last Sale, and PSX Last Sale,
each of which is available to other market data vendors.\18\ The
Exchange, NASDAQ, and PSX will continue to make available these
individual underlying data elements, and thus, the source of the market
data that would be used to create the proposed NLS Plus is the same as
what is available to other market data vendors.
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    \17\ See text related to notes 14 and 15 supra.
    \18\ Only two data elements are, as discussed above, sourced
from other publicly accessible or obtainable resources.
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    In order to create NLS Plus, the system creating and supporting NLS
Plus receives the individual data feeds from each of the NASDAQ OMX
equity markets and, in turn, aggregates and summarizes that data to
create NLS Plus and then distribute it to end users. This is the same
process that a competing market data vendor would undergo should it
want to create a market data product similar to NLS Plus to distribute
to its end users. A competing market data vendor could receive the
individual data feeds from each of the NASDAQ OMX equity markets at the
same time the system creating and supporting NLS Plus would for it to
create NLS Plus. Therefore, a competing market data vendor could, as
discussed, obtain the underlying data elements from the NASDAQ OMX
equity markets on the same latency basis as the system that would be
performing the aggregation and consolidation of proposed NLS Plus, and
provide a similar product to its customers with the same latency they
could achieve by purchasing NLS Plus from the Exchange. As such, the
Exchange would not have any unfair advantage over competing market data
vendors with respect to NLS Plus. Moreover, in terms of NLS itself, the
Exchange would access the underlying feed from the same point as would
a market data vendor; as discussed, the Exchange would not have a speed
advantage. Likewise, NLS Plus would not have any speed advantage vis-
[agrave]-vis competing market data vendors with respect to access to
end user customers.
    With regard to cost, the Exchange will file a separate proposal
with the Commission regarding fees that will be similar in nature to
NASDAQ Rule 7039(d). The proposal would be designed to ensure that
vendors could compete with the Exchange by creating a similar product
as NLS Plus. The Exchange expects that the pricing will reflect the
incremental cost of the aggregation and consolidation function for NLS
Plus, and would not be lower than the cost to a vendor creating a
competing product, including the cost of receiving the underlying data
feeds. The pricing the Exchange would charge clients for NLS Plus would
enable a vendor to receive the underlying data feeds and offer a
similar product on a competitive basis and with no greater cost than
the Exchange. For these reasons, the Exchange believes that vendors
could readily offer a product similar to NLS Plus on a competitive
basis at a similar cost.
    As described in more detail below, the Exchange believes that the
NLS Plus data offering benefits the public and investors and that the
proposal is consistent with the Act.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\19\ in general, and with
Section 6(b)(5) of the Act,\20\ in particular, in that the proposal is
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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.
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    \19\ 15 U.S.C. 78f.
    \20\ 15 U.S.C. 78f(b)(5).
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    The proposal is to add section (b) to BX Rule 7039 regarding the
NLS Plus data offering. The Exchange believes that the proposal
facilitates transactions in securities, removes impediments to and
perfects the mechanism of a free and open market and a national market
system, and, in general, protects investors and the public interest by
making permanent the availability of an additional means by which
investors may access information about securities transactions, thereby
providing investors with additional options for accessing information
that may help to inform their trading decisions. Given that Section 11A
the Act \21\ requires the dissemination of last sale reports in core
data, the Exchange believes that the inclusion of the same data in NLS
Plus is also consistent with the Act.
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    \21\ 15 U.S.C. 78k-1.
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    The Exchange notes that the Commission has determined that the
inclusion of NLS Plus in NASDAQ Rule 7039(d), upon which proposed BX
Rule 7039(b) is modelled, was consistent with the Act.\22\ The
Commission has also recently approved data products on several
exchanges that are similar to NLS Plus, and specifically determined
that the approved data products were consistent with the Act.\23\ NLS
Plus provides market participants with an additional option for
receiving market data that has already been the subject of a proposed
rule change and that is available from many market data vendors.
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    \22\ See Securities Exchange Act Release No. 75257 (June 22,
2015), 80 FR 36862 (June 26, 2015) (SR-NASDAQ-2015-055).
    \23\ See supra note 5.
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    In adopting Regulation NMS, the Commission granted SROs and broker-
dealers (``BDs'') 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
Exchange believes that the NLS Plus market data product is precisely
the sort of market data product that the Commission envisioned when it
adopted Regulation NMS. 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.\24\
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    \24\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).

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 BDs at
all, it follows that the price at which such data is sold should be set
by the market as well.
    The Exchange will file a separate proposal regarding NLS Plus
fees.\25\ The decision of the United States Court of Appeals for the
District of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C.
Cir. 2010) (``NetCoalition I''),

upheld the Commission's reliance upon competitive markets to set
reasonable and equitably allocated fees for market data. ``In fact, the
legislative history indicates that the Congress intended that the
market system `evolve through the interplay of competitive forces as
unnecessary regulatory restrictions are removed' and that the SEC wield
its regulatory power `in those situations where competition may not be
sufficient,' such as in the creation of a `consolidated transactional
reporting system.' NetCoalition I, at 535 (quoting H.R. Rep. No. 94-
229, at 92 (1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323). The
court agreed with the Commission's conclusion that ``Congress intended
that `competitive forces should dictate the services and practices that
constitute the U.S. national market system for trading equity
securities.' '' \26\
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    \25\ The Exchange expects that the fee structure for NLS Plus
will reflect an amount that is no less than the cost to a market
data vendor to obtain all the underlying feeds, plus an amount to be
determined that would reflect the value of the aggregation and
consolidation function.
    \26\ NetCoalition I, at 535.
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    The Court in NetCoalition I, while upholding the Commission's
conclusion that competitive forces may be relied upon to establish the
fairness of prices, nevertheless concluded that the record in that case
did not adequately support the Commission's conclusions as to the
competitive nature of the market for NYSE Arca's data product at issue
in that case. As explained below in the Exchange's Statement on Burden
on Competition, however, the Exchange believes that there is
substantial evidence of competition in the marketplace for data that
was not in the record in the NetCoalition I case, and that the
Commission is entitled to rely upon such evidence in concluding fees
are the product of competition, and therefore in accordance with the
relevant statutory standards.\27\ Moreover, the Exchange further notes
that the product at issue in this filing--a last sale data product that
replicates a subset of the information available through ``core'' data
products whose fees have been reviewed and approved by the SEC--is
quite different from the NYSE Arca depth-of-book data product at issue
in NetCoalition I. Accordingly, any findings of the court with respect
to that product may not be relevant to the product at issue in this
filing.
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    \27\ It should also be noted that Section 916 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank
Act'') has amended paragraph (A) of Section 19(b)(3) of the Act, 15
U.S.C. 78s(b)(3), to make it clear that all exchange fees, including
fees for market data, may be filed by exchanges on an immediately
effective basis. See also NetCoalition v. SEC, 715 F.3d 342 (D.C.
Cir. 2013) (``NetCoalition II'') (finding no jurisdiction to review
Commission's non-suspension of immediately effective fee changes).
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    Moreover, data products such as NLS Plus are a means by which
exchanges compete to attract order flow. To the extent that exchanges
are successful in such competition, they earn trading revenues and also
enhance the value of their data products by increasing the amount of
data they are able to provide. Conversely, to the extent that exchanges
are unsuccessful, the inputs needed to add value to data products are
diminished. Accordingly, the need to compete for order flow places
substantial pressure upon exchanges to keep their fees for both
executions and data reasonable.

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 that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended. As
is true of all NASDAQ's non-core data products, NASDAQ's ability to
offer and price NLS Plus 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 market-specific data and free delayed
consolidated data; and (3) the inherent contestability of the market
for proprietary last sale data.
    In addition, as described in detail above, NLS Plus competes
directly with a myriad of similar products and potential products of
market data vendors. NASDAQ OMX Information LLC was constructed
specifically to establish a level playing field with market data
vendors and to preserve fair competition between them. Therefore,
NASDAQ OMX Information LLC receives NLS, BX Last Sale, and PSX Last
Sale from each NASDAQ-operated exchange in the same manner, at the same
speed, and reflecting the same fees as for all market data vendors.
Therefore, NASDAQ Information LLC has no competitive advantage with
respect to these last sale products and NASDAQ commits to maintaining
this level playing field in the future. In other words, NASDAQ will
continue to disseminate separately the underlying last sale products to
avoid creating a latency differential between NASDAQ OMX Information
LLC and other market data vendors, and to avoid creating a pricing
advantage for NASDAQ OMX Information LLC.
    NLS Plus joins the existing market for proprietary last sale data
products that 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. Similarly, with respect to the FINRA/NASDAQ TRF
data that is a component of NLS and NLS Plus, allowing exchanges to
operate TRFs has permitted them to earn revenues by providing
technology and data in support of the non-exchange segment of the
market. This revenue opportunity has also resulted in fierce
competition between the two current TRF operators, with both TRFs
charging extremely low trade reporting fees and rebating the majority
of the revenues they receive from core market data to the parties
reporting trades.
    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 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).\28\ In the Exchange'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 are each subject to
significant scale economies. In such cases, marginal cost pricing is
not feasible because if all sales were priced at the margin, the
Exchange 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,\29\ and
maintaining a trade reporting system, costs that must be covered
through the fees charged for use of the facility and sales of
associated data.
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    \28\ 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).
    \29\ 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 BD customers view the costs of transaction executions
and of data as a unified cost of doing business with the exchange. A BD
will direct orders to a particular exchange only if the expected
revenues from executing trades on the exchange exceed net transaction
execution costs and the cost of data that the BD 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 BD will choose not to buy it. Moreover, as a BD
chooses to direct fewer orders to a particular exchange, the value of
the product to that BD decreases, for two reasons. First, the product
will contain less information, because executions of the BD's trading
activity will not be reflected in it. Second, and perhaps more
important, the product will be less valuable to that BD because it does
not provide information about the venue to which it is directing its
orders. Data from the competing venue to which the BD is directing
orders will become correspondingly more valuable.
    Similarly, in the case of products such as NLS Plus that are
distributed through market data vendors, the 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 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 BDs,
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.
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, the Exchange believes that products such as NLS Plus can
enhance order flow to the Exchange 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. The Exchange pays rebates for orders that access
liquidity, charges relatively low prices for market information and
charges relatively low prices for orders providing liquidity. Other
platforms may choose a strategy of paying rebates to attract liquidity,
and setting relatively higher 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.
    The level of competition and contestability in the market is
evident in the numerous alternative venues that compete for order flow,
including eleven SRO markets, as well as internalizing 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 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 MKT, NYSE Arca, and BATS/Direct Edge.
    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 BDs'
production of proprietary data products. The potential sources of
proprietary products are virtually limitless. Notably, the potential
sources of data include the BDs that submit trade reports to TRFs and
that have the ability to consolidate and distribute their data without
the involvement of FINRA or an exchange-operated TRF.

    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 NYSE 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 a core data product,
an SRO proprietary product, and/or a non-SRO proprietary product, the
data available in proprietary products is exponentially greater than
the actual number of orders and transaction reports that exist in the
marketplace. Indeed, in the case of NLS Plus, the data provided through
that product appears both in (i) real-time core data products offered
by the SIPs for a fee, (ii) free SIP data products with a 15-minute
time delay, and (iii) individual exchange data products, and finds a
close substitute in last-sale products of competing venues.
    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 BATS/Direct Edge. A
proliferation of dark pools and other ATSs operate profitably with
fragmentary shares of consolidated market volume.
    Regulation NMS, by deregulating the market for proprietary data,
has increased the contestability of that market. While BDs have
previously published their proprietary data individually, Regulation
NMS encourages market data vendors and BDs 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 and Thomson
Reuters. In Europe, Cinnober aggregates and disseminates data from over
40 brokers and multilateral trading facilities.\30\
---------------------------------------------------------------------------

    \30\ See http://www.cinnober.com/boat-trade-reporting.
---------------------------------------------------------------------------

    In the case of TRFs, the rapid entry of several exchanges into this
space in 2006-2007 following the development and Commission approval of
the TRF structure demonstrates the contestability of this aspect of the
market.\31\ Given the demand for trade reporting services that is
itself a by-product of the fierce competition for transaction
executions--characterized notably by a proliferation of ATSs and BDs
offering internalization--any supra-competitive increase in the fees
associated with trade reporting or TRF data would shift trade report
volumes from one of the existing TRFs to the other \32\ and create
incentives for other TRF operators to enter the space. Alternatively,
because BDs reporting to TRFs are themselves free to consolidate the
market data that they report, the market for over-the-counter data
itself, separate and apart from the markets for execution and trade
reporting services--is fully contestable.
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    \31\ The low cost exit of two TRFs from the market is also
evidence of a contestable market, because new entrants are reluctant
to enter a market where exit may involve substantial shut-down
costs.
    \32\ It should be noted that the FINRA/NYSE TRF has, in recent
weeks, received reports for almost 10% of all over-the-counter
volume in NMS stocks.
---------------------------------------------------------------------------

    Moreover, 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.
    In this environment, a super-competitive increase in the fees
charged for either transactions or data has the potential to impair
revenues from both products. ``No one disputes that competition for
order flow is `fierce'.'' NetCoalition I at 539. The existence of
fierce competition for order flow implies a high degree of price
sensitivity on the part of BDs with order flow, since they may readily
reduce costs by directing orders toward the lowest-cost trading venues.
A BD that shifted its order flow from one platform to another in
response to order execution price differentials would both reduce the
value of that platform's market data and reduce its own need to consume
data from the disfavored platform. If a platform increases its market
data fees, the change will affect the overall cost of doing business
with the platform, and affected BDs will assess whether they can lower
their trading costs by directing orders elsewhere and thereby lessening
the need for the more expensive data. Similarly, increases in the cost
of NLS Plus would impair the willingness of distributors to take a
product for which there are numerous alternatives, impacting NLS Plus
data revenues, the value of NLS Plus as a tool for attracting order
flow, and ultimately, the volume of orders routed to the Exchange and
the value of its other data products.

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

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) \33\ of the Act and
subparagraph (f)(6) of Rule 19b-4 thereunder.\34\
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78s(b)(3)(A).
    \34\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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 change 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_ADDRESS>Please include
File Number SR-BX-2015-047 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.

All submissions should refer to File Number SR-BX-2015-047. 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 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, 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; 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-2015-047 and
should be submitted on or before September 10, 2015.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-20549 Filed 8-19-15; 8:45 am]
BILLING CODE 8011-01-P