[Federal Register Volume 79, Number 16 (Friday, January 24, 2014)]
[Notices]
[Pages 4191-4197]
[FR Doc No: 2014-01405]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71352; File No. SR-NASDAQ-2014-005]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
With Respect to the Composition of NASDAQ Basic

January 17, 2014.
    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 January 9, 2014, The NASDAQ Stock Market LLC (``NASDAQ'' 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 is filing a proposal to modify the language of NASDAQ
Rule 7047 to establish that the NASDAQ Basic market data product
currently includes and has, since its inception, included last sale
transaction reports from the FINRA/NASDAQ Trade Reporting Facility
(``TRF''). The text of the proposed rule change is below. Proposed new
language is italicized; proposed deletions are in brackets.
* * * * *

7047. NASDAQ Basic

    (a) NASDAQ shall offer proprietary data feeds containing real-time
market information from the NASDAQ Market Center and the FINRA/NASDAQ
Trade Reporting Facility (``TRF'').
    (1) ``NASDAQ Basic for NASDAQ'' shall contain NASDAQ's best bid and
offer and last sale for NASDAQ-listed stocks from NASDAQ and the FINRA/
NASDAQ TRF; and
    (2) ``NASDAQ Basic for NYSE'' shall contain NASDAQ's best bid and
offer and last sale for NYSE-listed stocks from NASDAQ and the FINRA/
NASDAQ TRF.
    (3) ``NASDAQ Basic for [Alternext] NYSE MKT'' shall contain
NASDAQ's best bid and offer and last sale for [Alternext] NYSE MKT-
listed stocks from NASDAQ and the FINRA/NASDAQ TRF.
    (b) User Fees
    (1) Except as provided in (b)(2) and (b)(3), for the NASDAQ Basic
product there shall be a per subscriber monthly charge of $10 for
NASDAQ-listed stocks, $5 for NYSE-listed stocks, and $5 for [Alternext]
NYSE MKT-listed stocks; or
    (2) For each non-professional subscriber, as defined in Rule
7011(b), there shall be a per subscriber monthly charge of $0.50 for
NASDAQ-listed stocks, $0.25 for NYSE-listed stocks, and $0.25 for
[Alternext] NYSE MKT-listed stocks; or
    (3) There shall be a per query fee for NASDAQ Basic of $0.0025 for
NASDAQ-listed stocks, $0.0015 for NYSE-listed stocks, and $0.0015 for
[Alternext] NYSE MKT-listed stocks.
    (4) No change.
    (c) No change.
* * * * *

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

    In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.

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

1. Purpose
    In June of 2008, NASDAQ received Commission approval to offer the
NASDAQ Last Sale (``NLS'') market data product on a pilot basis. NLS is
a non-core market data product designed for distribution through
internet portals and broadcast television, as well as distribution to
individuals that access the data via a username/password-identified
account and/or quote-counting mechanisms.\3\ NLS includes two data
elements: (1) Last sale transaction reports from the NASDAQ Market
Center, and (2) last sale transaction reports from the FINRA/NASDAQ
TRF.\4\ Based upon information from NLS distributors, NASDAQ believes
that since its launch in 2008, the NLS data has been viewed by millions
of investors, and that the NLS product has greatly increased the
availability of market data to investors.
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    \3\ See Securities Exchange Act Release No. 57964 (June 16,
2008), 73 FR 35178 (June 20, 2008) (SR-NASDAQ-2006-060). NASDAQ has
renewed the Last Sale Pilot continuously since 2008, most recently
in December 2013. Securities Exchange Act Release No. 71217
(December 31, 2013), 79 FR 875 (January 7, 2014) (SR-NASDAQ-2013-
162).
    \4\ See NASDAQ Rule 7039.
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    In March of 2009, NASDAQ received Commission approval for a pilot
to offer NASDAQ Basic, another non-core market data product.\5\ As
originally proposed, the NASDAQ Basic product was to provide two data
feeds: (1) A feed carrying the best bid and offer on the NASDAQ Market
Center, and (2) a feed containing NLS which, as noted above, carries
last sale transaction reports from NASDAQ and from the FINRA/NASDAQ
TRF. Subsequently, NASDAQ amended the NASDAQ Basic filing to remove
from the product the last sale transaction reports from the FINRA/
NASDAQ TRF. On October 11, 2010, NASDAQ submitted an immediately
effective proposed rule change to offer NASDAQ Basic on a permanent
basis,\6\ and to offer a NASDAQ Basic Enterprise License, which limits
the expense of firms that offer NASDAQ Basic to large numbers of
users.\7\
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    \5\ Securities Exchange Act Release No. 59582 (March 16, 2009),
74 FR 12423 (March 24, 2009) (SR-NASDAQ-2008-102) (finding pilot to
be consistent with Sections 6(b)(4), (5) and (8) of the Act and Rule
603(a) under Regulation NMS). See also Securities Exchange Act
Release No. 59933 (May 15, 2009), 74 FR 24889 (May 26, 2009) (SR-
NASDAQ-2009-208) (finding reduction in fees for NASDAQ Basic to be
consistent with Sections 6(b)(4), (5) and (8) of the Act and Rule
603(a) under Regulation NMS).
    \6\ See Securities Exchange Act Release No. 65527 (October 11,
2011), 76 FR 64147 (October 17, 2011) (SR-NASDAQ-2011-129).
    \7\ See Securities Exchange Act Release No. 65526 (October 11,
2011), 76 FR 64137 (October 17, 2011) (SR-NASDAQ-2011-130).
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    NASDAQ has determined through an internal review that the NASDAQ
Basic market data product currently includes and has included since its
inception last sale transaction reports for the NASDAQ/FINRA TRF.\8\
While NASDAQ Rule 7039 reflects the inclusion of last sale transaction
reports for the FINRA/NASDAQ TRF in the NLS product, NASDAQ Rule 7047
does not reflect the inclusion of the same data element via the NASDAQ
Basic product.
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    \8\ The inclusion of the data appears to have stemmed from a
misunderstanding on the part of personnel who understood NASDAQ
Basic to be a combination of the NLS product with NASDAQ best bid
and offer data, rather than a product containing only Exchange data,
without data from the FINRA/NASDAQ TRF.
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    Through this proposed rule change, NASDAQ seeks to establish that
it may disseminate last sale transaction reports for the FINRA/NASDAQ
TRF through NASDAQ Basic, and to modify the language of Rule 7047 to
reflect their inclusion in that product. NASDAQ is also proposing a
clerical change to reflect the correct name for the NYSE MKT,
previously known as the NYSE Alternext market. NASDAQ is proposing no
change to the fees for NASDAQ Basic through this filing.\9\
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    \9\ NASDAQ has announced its intention to modify fees for NASDAQ
Basic. See http://www.nasdaqtrader.com/TraderNews.aspx?id=dn2013-09.
However, any such fee change would be effected through a separate
proposed rule change that would fully explain the statutory basis
for the change.
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2. Statutory Basis
    NASDAQ believes that the proposed rule change is consistent with
the provisions of Section 6 of the Act \10\ in general, and with
Section 6(b)(5) of the Act \11\ 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.
The purpose of the proposed rule change is to recognize inclusion of
FINRA/NASDAQ TRF last sale data from the NLS product in the NASDAQ
Basic product. The NASDAQ Basic product, in turn, provides a subset of
the data that is also provided by the Level 1 data feed available under
the NASDAQ UTP Plan. NASDAQ 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 confirming
the availability of an additional means by which investors may access
information about transactions reported to the FINRA/NASDAQ TRF,
thereby providing investors with additional options for accessing
information that may help to inform their trading decisions. Given that
Section 11A the Act \12\ requires the dissemination of FINRA/NASDAQ TRF
last sale reports under the NASDAQ UTP Plan, and the dissemination of
the same data is currently permitted through the NLS product, NASDAQ
believes that the inclusion of the same data in NASDAQ Basic is also
consistent with the Act.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78k-1.
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    NASDAQ further notes that the current fees for NASDAQ Basic have
been previously established, and that the Commission has either
specifically determined them to be consistent with the Act or has
permitted them to become effective on an immediately effective
basis.\13\ Thus, this proposed rule change does not establish or change
a fee of the Exchange. However, to the extent that the proposed rule
change confirms that NASDAQ Basic may contain FINRA/NASDAQ TRF data,
NASDAQ believes that the change also provides further justification
that the fees for NASDAQ Basic provide for the equitable allocation of
reasonable dues, fees and other charges among members and issuers and
other persons using any facility or system which NASDAQ operates or
controls, and are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers,\14\ in that the change
reflects the full value of the product without any increase in its
cost.\15\
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    \13\ Securities Exchange Act Release No. 59582 (March 16, 2009),
74 FR 12423 (March 24, 2009) (SR-NASDAQ-2008-102) (finding current
per user and per subscriber fees to be consistent with the Act);
Securities Exchange Act Release No. 59933 (May 15, 2009), 74 FR
24889 (May 26, 2009) (SR-NASDAQ-2009-208) (finding current
distributor fees for NASDAQ Basic to be consistent with the Act);
Securities Exchange Act Release No. 64994 (July 29, 2011), 76 FR
47621 (August 5, 2011) (SR-NASDAQ-2011-091) (immediate effectiveness
of optional derived data fee); Securities Exchange Act Release No.
65526 (October 11, 2011), 76 FR 64137 (October 17, 2011) (SR-NASDAQ-
2011-130) (immediate effectiveness of enterprise license fee).
    \14\ 15 U.S.C. 78f(b)(4), (5).
    \15\ But see supra n. 9.
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    In adopting Regulation NMS, the Commission granted self-regulatory
organizations (``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. NASDAQ believes that its NASDAQ Basic
market data product, as amended, 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.\16\
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    \16\ 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 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.'' \17\
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    \17\ 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 NASDAQ's Statement on Burden on
Competition, however, NASDAQ 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.\18\ Moreover, NASDAQ further notes that the product at issue
in this filing--a NASDAQ quotation and 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. As the Commission noted in approving the initial pilot for
NASDAQ Basic, all of the information available in NASDAQ

Basic is included in the core data feeds made available pursuant to the
joint-SRO plans, the fees for which have been approved by the
Commission.\19\ The inclusion of FINRA/NASDAQ TRF data in NASDAQ Basic
does not alter this fact, since such data is also included in the core
data distributed under the NASDAQ UTP Plan. As the Commission further
determined, ``the availability of alternatives to NASDAQ Basic
significantly affect the terms on which NASDAQ can distribute this
market data. In setting the fees for its NASDAQ Basic service, NASDAQ
must consider the extent to which market participants would choose one
or more alternatives instead of purchasing the exchange's data.'' \20\
Thus, to the extent that the fees for core data have been determined to
be reasonable under the Act, it follows that the fees for NASDAQ Basic
are also reasonable, since charging unreasonably high fees would cause
market participants to rely solely on core data rather than purchasing
NASDAQ Basic.
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    \18\ 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).
    \19\ Securities Exchange Act Release No. 12425 (March 16, 2009),
74 FR 12423, 12425 (March 24, 2009) (SR-NASDAQ-2008-102).
    \20\ Id. at 12425.
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    Moreover, as discussed in the order approving the initial pilot,
and as further discussed below in NASDAQ's Statement on Burden on
Competition, data products such as NASDAQ Basic 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. The inclusion of FINRA/NASDAQ TRF data
in NASDAQ Basic increases the value of the product, the fees for which
have previously been established as reasonable.
    The fees for NASDAQ Basic also continue to reflect an equitable
allocation and continue not be unfairly discriminatory, because NASDAQ
Basic is a voluntary product for which market participants can readily
substitute core data feeds that provide additional quotation and last
sale information not available through NASDAQ Basic. Accordingly,
NASDAQ is constrained from pricing the product in a manner that would
be inequitable or unfairly discriminatory. Moreover, the fee schedule
for NASDAQ Basic is designed to ensure that the fees charged are
tailored to the specific usage patterns of a range of potential
customers. Thus, low per-query fees are designed for customers that use
the product only sporadically. Fees for non-professional subscribers,
as well as the derived data fee and enterprise license fee that provide
for unlimited distribution to non-professional users, are intended to
provide a means to provide for low-cost availability of the product to
retail investors through brokerage firms and market data vendors.
Finally, professional subscriber fees provide a means for brokerage
customers to use the information internally. The distinction between
fees for professional and non-professional users is consistent with the
distinction made under Commission-approved fees for core data, and the
applicable fees are lower than applicable fees for core data to reflect
the lesser quantum of data made available. The range of fee options
further ensures that customers are not charged a fee that is
inequitably disproportionate to the use that they make of the product.

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. NASDAQ's ability to
price NASDAQ Basic is constrained by (1) competition among exchanges,
other trading platforms, and TRFs 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 data.
    The market for proprietary data products is currently competitive
and inherently contestable because there is fierce competition for the
inputs necessary to the creation of proprietary data and strict pricing
discipline for the proprietary products themselves. Numerous exchanges
compete with each other for listings, trades, and market data itself,
providing virtually limitless opportunities for entrepreneurs who wish
to produce and distribute their own market data. This proprietary data
is produced by each individual exchange, as well as other entities, in
a vigorously competitive market. Similarly, with respect to the TRF
data, 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 executions 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.\21\ 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.
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    \21\ A complete explanation of the pricing dynamics associated
with joint products is presented in a study that NASDAQ originally
submitted to the Commission in SR-NASDAQ-2011-010, and which is also
submitted as Exhibit 3 to this filing. See Statement of Janusz
Ordover and Gustavo Bamberger at 2-17 (December 29, 2010).
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    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).\22\ In NASDAQ'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, NASDAQ
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,\23\ 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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    \22\ 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).
    \23\ 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 NASDAQ Basic 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, NASDAQ believes that products such as NASDAQ Basic can
enhance order flow to NASDAQ 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 data
through their brokerage firm or other distribution sources. Conversely,
the value of such products to distributors and investors decreases if
order flow falls, because the products contain less content.
    Analyzing the cost of market data distribution in isolation from
the cost of all of the inputs supporting the creation of market data
will inevitably underestimate the cost of the data. Thus, because it is
impossible to create exchange data without a fast, technologically
robust, and well-regulated execution system, system costs and
regulatory costs affect the price of market data. It would be equally
misleading, however, to attribute all of the exchange's costs to the
market data portion of an exchange's joint product. Rather, all of the
exchange's costs are incurred for the unified purposes of attracting
order flow, executing and/or routing orders, and generating and selling
data about market activity. The total return that an exchange earns
reflects the revenues it receives from the joint products and the total
costs of the joint products. Similarly, the inclusion of trade
reporting data in a product such as NASDAQ Basic may assist in
attracting customers to the product, thereby assisting in covering the
additional costs associated with operating and regulating a TRF.
    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. NASDAQ pays rebates to attract orders, charges relatively
low prices for market information and charges relatively high prices
for accessing posted liquidity. Other platforms may choose a strategy
of paying lower liquidity rebates to attract orders, setting relatively
low prices for accessing posted liquidity, and setting relatively high
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 thirteen 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, BATS, and
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 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 NASDAQ Basic, the data provided
through that product appears both in (i) real-time core data products
offered by the SIPs for a fee, and (ii) free SIP data products with a
15-minute time delay, and finds a close substitute in similar 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 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, Markit aggregates and disseminates data from over
50 brokers and multilateral trading facilities.\24\
---------------------------------------------------------------------------

    \24\ http://www.markit.com/en/products/data/boat/boat-boat-data.page.
---------------------------------------------------------------------------

    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.\25\ 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 \26\ 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 contestible.
---------------------------------------------------------------------------

    \25\ The low cost exit of two TRFs from the market is also
evidence of a contestible market, because new entrants are reluctant
to enter a market where exit may involve substantial shut-down
costs.
    \26\ It should be noted that the FINRA/NYSE TRF has, in recent
weeks, received reports for over 10% of all over-the-counter volume
in NMS stocks. In addition, FINRA has announced plans to update its
Alternative Display Facility, which is also able to receive over-
the-counter trade reports. See Securities Exchange Act Release No.
70048 (July 26, 2013), 78 FR 46652 (August 1, 2013) (SR-FINRA-2013-
031).
---------------------------------------------------------------------------

    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 quotation and 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.
    The competitive nature of the market for non-core ``sub-set''
products such as NASDAQ Basic is borne out by the performance of the
market. In May 2008, the Internet portal Yahoo! began offering its Web
site viewers real-time last sale data (as well as best quote data)
provided by BATS. In response, in June 2008, NASDAQ launched NLS, which
was initially subject to an ``enterprise cap'' of $100,000 for
customers receiving only one of the NLS products, and $150,000 for
customers receiving both products. The majority of NASDAQ's sales were
at the capped level. In early 2009, BATS expanded its offering of free
data to include depth-of-book data. Also in early 2009, NYSE Arca
announced the launch of a competitive last sale product with an
enterprise price of $30,000 per month. In response, NASDAQ combined the
enterprise cap for the NLS products and reduced the cap to $50,000
(i.e., a reduction of $100,000 per month). Although each of these
products offers only a specific subset of data available from the SIPs,
NASDAQ believes that the products are viewed as substitutes for each
other and for core last-sale data, rather than as products that must be
obtained in tandem. For example, while Yahoo! and Google now both
disseminate NASDAQ's last sale product, several other major content
providers, including MSN and Morningstar, use the BATS last sale
product.
    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 NASDAQ Basic would impair the willingness of distributors
to take a product for which there are numerous alternatives, impacting
NASDAQ Basic data revenues, the value of NASDAQ Basic as a tool for
attracting order flow, and ultimately, the volume of orders routed to
NASDAQ and reported to the FINRA/NASDAQ TRF and the value of its other
data products.
    In establishing the price for NASDAQ Basic, NASDAQ considered the
competitiveness of the market for quotation and 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 fair, reasonable, and not unreasonably
discriminatory fees and an equitable allocation of fees among all
users. The existence of numerous alternatives to NASDAQ Basic,
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 NASDAQ Basic product in the
marketplace demonstrates the consistency of these fees with applicable
statutory standards.

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)(ii) of the Act \27\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\28\ 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 should be approved or disapproved.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \28\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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-NASDAQ-2014-005 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-2014-005. 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-NASDAQ-2014-005 and should
be submitted on or before February 14, 2014.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-01405 Filed 1-23-14; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 76, Number 89 (Monday, May 9, 2011)]
[Notices]
[Page 26718]
[FR Doc No: 2011-11231]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Project No. 12611-005]

Verdant Power, LLC; Notice of Availability of Environmental
Assessment

    In accordance with the National Environmental Policy Act of 1969
and the Federal Energy Regulatory Commission's (Commission or FERC's)
regulations, 18 CFR part 380 (Order No. 486, 52 FR 47897), the Office
of Energy Projects has reviewed Verdant Power, LLC's application for a
10-year pilot project license for the Roosevelt Island Tidal Energy
Project (FERC Project No. 12611-005), which would be located on the
East River in New York County, New York.
    Staff have prepared an environmental assessment (EA), which
analyzes the potential environmental effects of licensing the project
and concludes that licensing the project, with appropriate
environmental protective measures, would not constitute a major Federal
action that would significantly affect the quality of the human
environment.
    A copy of the EA is available for review at the Commission in the
Public Reference Room or may be viewed on the Commission's Web site at
http://www.ferc.gov using the ``eLibrary'' link. Enter the docket
number excluding the last three digits in the docket number field to
access the document. For assistance, contact FERC Online Support at
<EMAIL_ADDRESS>or toll-free at 1-866-208-3676, or for TTY,
202-502-8659.
    You may also register online at  http://www.ferc.gov/docs-filing/esubscription.asp to be notified via e-mail of new filings and
issuances related to this or other pending projects. For assistance,
contact FERC Online Support.
    Any comments should be filed within 30 days from the date of this
notice. Comments may be filed electronically via the Internet. See 18
CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web
site (http://www.ferc.gov/docs-filing/ferconline.asp) under the
``eFiling'' link. Commenters can submit brief comments up to 6,000
characters, without prior registration, using the eComment system at
http://www.ferc.gov/docs-filing/ecomment.asp. You must include your
name and contact information at the end of your comments. For
assistance, please contact FERC Online Support. Although the Commission
strongly encourages electronic filings, documents may also be paper-
filed. To paper-file, mail an original and seven copies to: Kimberly D.
Bose, Secretary, Federal Energy Regulatory Commission, 888 First
Street, NE., Washington, DC 20426. Please affix Project No. 12611-005
to all comments.
    For further information, contact Timothy Konnert by telephone at
202-502-6359 or by e-mail at<EMAIL_ADDRESS>
    Dated: May 3, 2011.
Kimberly D. Bose,
Secretary.
[FR Doc. 2011-11231 Filed 5-6-11; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register Volume 80, Number 195 (Thursday, October 8, 2015)]
[Notices]
[Page 60953]
[FR Doc No: 2015-25609]

-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

[Docket Number FRA-2015-0068]

Petition for Waiver of Compliance

    In accordance with part 211 of Title 49 Code of Federal Regulations
(CFR), this document provides the public notice that by a document
dated June 18, 2015, the Southeastern Pennsylvania Transportation
Authority (SEPTA) has petitioned the Federal Railroad Administration
(FRA) for a waiver of compliance from certain provisions of the Federal
railroad safety regulations contained at 49 CFR 238.309(b)(2). FRA
assigned the petition Docket Number FRA-2015-0068.
    Title 49 CFR 238.309(b)(2) requires that brake equipment and brake
cylinders of each multiple unit (MU) locomotive be cleaned, repaired,
and tested at intervals of every 1,104 days if the MU locomotive is
part of a fleet that is 100 percent equipped with air dryers, and has a
brake system using RT-5A-style valves (among others). The RT-5A+ brake
system in use on the Silverliner V MU fleet employs a microprocessor-
based control system, and uses active and passive diagnostics to
monitor brake performance. Currently, other air brake systems that
incorporate microprocessor controls are subject to overhaul intervals
of 1,840 days (see 49 CFR 238.309(b)(3) and 238.309(e)(l)). SEPTA
therefore submitted an alternate proposal to increase the periodic
brake equipment maintenance interval for the Silverliner V air brake
system to a minimum of 1,840 days.
    A copy of the petition, as well as any written communications
concerning the petition, is available for review online at
www.regulations.gov and in person at the U.S. Department of
Transportation's (DOT) Docket Operations Facility, 1200 New Jersey
Avenue SE., W12-140, Washington, DC 20590. The Docket Operations
Facility is open from 9 a.m. to 5 p.m., Monday through Friday, except
Federal Holidays.
    Interested parties are invited to participate in these proceedings
by submitting written views, data, or comments. FRA does not anticipate
scheduling a public hearing in connection with these proceedings since
the facts do not appear to warrant a hearing. If any interested party
desires an opportunity for oral comment, they should notify FRA, in
writing, before the end of the comment period and specify the basis for
their request.
    All communications concerning these proceedings should identify the
appropriate docket number and may be submitted by any of the following
methods:
     Web site: http://www.regulations.gov. Follow the online
instructions for submitting comments.
     Fax:<PHONE_NUMBER>.
     Mail: Docket Operations Facility, U.S. Department of
Transportation, 1200 New Jersey Avenue SE., W12-140, Washington, DC
20590.
     Hand Delivery: 1200 New Jersey Avenue SE., Room W12-140,
Washington, DC 20590, between 9 a.m. and 5 p.m., Monday through Friday,
except Federal Holidays.
    Communications received by November 23, 2015 will be considered by
FRA before final action is taken. Comments received after that date
will be considered as far as practicable.
    Anyone is able to search the electronic form of any written
communications and comments received into any of our dockets by the
name of the individual submitting the comment (or signing the document,
if submitted on behalf of an association, business, labor union, etc.).
In accordance with 5 U.S.C. 553(c), DOT solicits comments from the
public to better inform its processes. DOT posts these comments,
without edit, including any personal information the commenter
provides, to www.regulations.gov, as described in the system of records
notice (DOT/ALL-14 FDMS), which can be reviewed at www.dot.gov/privacy.
See also http://www.regulations.gov/#!privacyNotice for the privacy
notice of regulations.gov.

    Issued in Washington, DC, on October 2, 2015.
Ron Hynes,
Director, Office of Technical Oversight.
[FR Doc. 2015-25609 Filed 10-7-15; 8:45 am]
 BILLING CODE 4910-06-P


[Federal Register Volume 80, Number 221 (Tuesday, November 17, 2015)]
[Notices]
[Pages 71858-71862]
[FR Doc No: 2015-29226]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76420; File No. SR-MSRB-2015-03]

Self-Regulatory Organizations; Municipal Securities Rulemaking
Board; Notice of Filing of Amendment No. 2 to Proposed Rule Change
Consisting of Proposed New Rule G-42, on Duties of Non-Solicitor
Municipal Advisors, and Proposed Amendments to Rule G-8, on Books and
Records To Be Made by Brokers, Dealers, Municipal Securities Dealers,
and Municipal Advisors

    November 10, 2015.

I. Introduction

    On April 24, 2015, the Municipal Securities Rulemaking Board
(``MSRB'') filed with the Securities and Exchange Commission (``SEC''
or ``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 consisting of proposed new Rule
G-42, on duties of non-solicitor municipal advisors, and proposed
amendments to Rule G-8, on books and records to be made by brokers,
dealers, municipal securities dealers, and municipal advisors. The
proposed rule change was published for comment in the Federal Register
on May 8, 2015.\3\ The Commission received fifteen comment letters on
the proposal.\4\ On June 16, 2015, the MSRB granted an extension of
time for the Commission to act on the filing until August 6, 2015. On
August 6, 2015, the Commission issued an order instituting proceedings
(``OIP'') under Section 19(b)(2)(B) of the Act \5\ to determine whether
to approve or disapprove the proposed rule change.\6\ On August 12,
2015, the MSRB

responded to the comments \7\ and filed Amendment No. 1 to the proposed
rule change. \8\ In response to the OIP or Amendment No. 1, the
Commission received 13 comment letters.\9\ On October 28, 2015, the
MSRB granted an extension of time for the Commission to act on the
filing until January 3, 2016. On November 9, 2015, the MSRB filed
Amendment No. 2 to the proposed rule change.\10\ The text of Amendment
No. 2 is available on the MSRB's Web site. The Commission is publishing
this notice to solicit comments on Amendment No. 2 to the proposed rule
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Act Release No. 74860 (May 4, 2015), 80 FR 26752
(``Notice''). The comment period closed on May 29, 2015.
    \4\ Comment letters are available at www.sec.gov/comments/sr-msrb-2015-03/msrb201503.shtml.
    \5\ 15 U.S.C. 78s(b)(2)(B).
    \6\ See Securities Exchange Act Release No. 75628 (August 6,
2015), 80 FR 48355 (August 12, 2015). The comment period closed on
September 11, 2015.
    \7\ See Letter from Michael L. Post, MSRB, to Secretary, SEC,
dated August 12, 2015, available at http://www.sec.gov/comments/sr-msrb-2015-03/msrb201503-19.pdf.
    \8\ See Letter from Michael L. Post, MSRB, to Secretary, SEC,
dated August 12, 2015, available at http://www.sec.gov/comments/sr-msrb-2015-03/msrb201503-20.pdf.
    \9\ Letters from Michael Nicholas, Chief Executive Officer, Bond
Dealers of America (``BDA''), dated September 11, 2015 and November
4, 2015; John C. Melton, Sr., Executive Vice President, Coastal
Securities (``Coastal Securities''), dated September 11, 2015; Jeff
White, Principal, Columbia Capital Management, LLC (``Columbia
Capital''), dated September 10, 2015; Joshua Cooperman, Cooperman
Associates (``Cooperman''), dated September 9, 2015; David T.
Bellaire, Executive Vice President & General Counsel, Financial
Services Institute (``FSI''), dated September 11, 2015; Dustin
McDonald, Director, Federal Liaison Center, Government Finance
Officers Association (``GFOA''), dated September 14, 2015; Tamara K.
Salmon, Associate General Counsel, Investment Company Institute
(``ICI''), dated September 11, 2015; Lindsey K. Bell, Millar Jiles,
LLP (``Millar Jiles''), dated September 11, 2015; Terri Heaton,
President, National Association of Municipal Advisors (``NAMA''),
dated September 11, 2015; Leslie M. Norwood, Managing Director and
Associate General Counsel, Securities Industry and Financial Markets
Association (``SIFMA''), dated September 11, 2015; Joy A. Howard, WM
Financial Strategies (``WM Financial''), dated September 11, 2015;
W. David Hemingway, Executive Vice President, Zions First National
Bank (``Zions''), dated September 10, 2015.
    \10\ See Letter from Michael L. Post, MSRB, to Secretary, SEC,
dated November 9, 2015, available at http://www.sec.gov/comments/sr-msrb-2015-03/msrb201503-36.pdf.
---------------------------------------------------------------------------

II. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Amendment

    The MSRB is proposing to add paragraphs .14 and .15 of the
Supplementary Material to Proposed Rule G-42. Proposed paragraph .14
would provide a narrow exception (``Exception'') to the proposed
prohibition on certain principal transactions in Proposed Rule G-
42(e)(ii) for transactions in specified types of fixed income
securities. Proposed paragraph .15 would define those types of fixed
income securities. Amendment No. 2 also makes five minor technical
changes to clarify or renumber proposed rule text.\11\
---------------------------------------------------------------------------

    \11\ The MSRB will address issues raised in the comment letters
received in response to the OIP or Amendment No. 1 that are not
addressed through this Amendment No. 2 concurrently with its
response to comment letters received, if any, in response to this
Amendment No. 2.
---------------------------------------------------------------------------

    Proposed Rule G-42 would establish core standards of conduct and
duties of non-solicitor municipal advisors when engaging in municipal
advisory activities. Proposed Rule G-42(a)(ii), consistent with the
Exchange Act,\12\ provides that a municipal advisor, in the conduct of
all municipal advisory activities for a municipal entity client, is
subject to a fiduciary duty that includes a duty of loyalty and a duty
of care. Under proposed paragraph .02 of the Supplementary Material to
Proposed Rule G-42, the duty of loyalty requires, among other things, a
municipal advisor to act in the municipal entity client's best interest
without regard to the financial or other interests of the municipal
advisor. In light of this fiduciary duty, and to prevent acts,
practices or courses of business inconsistent with this duty, Proposed
Rule G-42(e)(ii) would prohibit a municipal advisor, and any affiliate
of such municipal advisor, from engaging with its municipal entity
client in a principal transaction that is the same, or directly related
to the, municipal securities transaction or municipal financial product
as to which the municipal advisor is providing or has provided advice
to the municipal entity client (``principal transaction ban'' or
``ban'').
---------------------------------------------------------------------------

    \12\ See Section 15B(c)(1) of the Exchange Act (15 U.S.C. 78o-
4(c)(1)).
---------------------------------------------------------------------------

    The comment letters in response to the OIP or Amendment No. 1 that
addressed the principal transaction ban generally expressed concerns
about the breadth of the ban and the lack of any exception. They noted
that fiduciaries governed by other regulatory regimes, such as
investment advisers under the Investment Advisers Act of 1940
(``Advisers Act''),\13\ are not flatly prohibited from engaging in
principal transactions with their clients if proper disclosures are
made and consent is obtained. Several commenters, including GFOA, FSI,
SIFMA and BDA, generally urged the inclusion of an exception in cases,
at a minimum, where the advice provided is in connection with the
execution of a securities transaction by the municipal advisor on
behalf of the municipal entity, the principal transaction is in a fixed
income security, and the municipal entity client is involved in the
process for the management of the relevant conflicts of interest. GFOA
expressed concerns that the ban ``could force small governments to open
a more expensive fee-based arrangement with an outside advisor in order
to receive this very limited type of advice on investments that are not
considered to be risky.'' \14\ Several other commenters, including BDA,
FSI, Millar Jiles, SIFMA and Zions, commented on the importance of
preserving a municipal entity's choices and access to services and
products at favorable prices, preserving choices regarding financial
advisors with whom they had relationships of trust, and avoiding
increased costs to municipal entities.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 80b-1 et seq.
    \14\ GFOA, however, acknowledged that the ban would be
appropriate in the context of a traditional financial advisor.
---------------------------------------------------------------------------

    Prior to the most recent set of comments, the MSRB consistently
concluded that the principal transaction ban should be retained with
the breadth as proposed. After carefully considering the additional
comments, including those of GFOA, generally representative of a key
class of entities that Proposed Rule G-42 is intended to protect, the
MSRB has determined to incorporate the Exception into Proposed Rule G-
42. The MSRB believes that the Exception will address the primary
concerns expressed by commenters that, without an exception for
transactions in certain fixed income securities when advice is given by
the municipal advisor in connection with executing such transactions,
the proposed ban would restrict the access of municipal entities to
trusted financial advisors, limit their ability to obtain certain
financial services and products, create undue burdens on competition,
and impose unjustified costs for issuers.
    Significantly, the MSRB has developed Proposed Rule G-42 as a
cornerstone of a regulatory framework that recognizes and is tailored
to the unique characteristics of the municipal securities market, the
special responsibilities of municipal entities in their financial
matters and in their relationship to their constituents, and the
particular role that municipal advisors play in the municipal
securities market. The design of the proposed rule, as amended by
Amendment No. 2, is in recognition that municipal advisors serve a
diverse array of clients, and, in particular, municipal entity clients,
which range from large state issuers to small school districts, special
districts and other instrumentalities, public pension plans, and
collective vehicles, such as local government investment pools
(``LGIPs'')

and college savings plans that comply with Section 529 of the Internal
Revenue Code.\15\ The design of the proposed rule is also in
recognition that municipal entity clients may have special needs of
access to a range of services and particular types financial products
from municipal advisors and affiliated financial intermediaries. At the
same time, the MSRB believes that the proposed rule change, as amended,
will further the protection of municipal entities, investors and the
public interest.
---------------------------------------------------------------------------

    \15\ See 26 U.S.C. 529.
---------------------------------------------------------------------------

    Description. The Exception, to be incorporated as new proposed
paragraph .14 of the Supplementary Material to Proposed Rule G-42,
would provide a municipal advisor two options by which it might engage
in certain principal transactions with a municipal entity client,
provided the municipal advisor also complies with the first three
requirements set forth in paragraph .14 (organized as sections (a)
through (c)). A municipal advisor would have the option to act, on a
transaction-by-transaction basis, in accordance with a short set of
procedural requirements, some of which are drawn from and similar to
the requirements set forth in Advisers Act Section 206(3).\16\
Alternatively, a municipal advisor that wishes to satisfy procedural
requirements on other than a transaction-by-transaction basis would be
subject to more and different procedural requirements, including
obtaining from the municipal entity client a prospective blanket,
written consent. These procedural requirements are drawn from and
similar to those set forth in Advisers Act Rule 206(3)-3T.\17\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 80b-6(3).
    \17\ 17 CFR 275.206(3)-3T.
---------------------------------------------------------------------------

    Importantly, the Exception would operate only to take certain
conduct out of the specified prohibition on certain principal
transactions in proposed Rule G-42(e)(ii). It would not provide a safe
harbor from complying with any other applicable law or rules. Thus, a
municipal advisor engaging in a principal transaction in compliance
with the Exception would need to continue to be mindful of, and comply
with, its broader and foundational obligations owed to the client as a
fiduciary under the Exchange Act and Proposed Rule G-42, as well as all
other applicable provisions of the federal securities laws and state
law.\18\
---------------------------------------------------------------------------

    \18\ The MSRB's approach in this regard is consistent with that
of the Commission with respect to principal transactions executed by
investment advisers under Advisers Act Section 206(3) (15 U.S.C.
80b-6(3)) or Advisers Act Rule 206(3)-3T (17 CFR 275.206(3)-3T).
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    All of the requirements for the Exception take the form of various
conditions and limitations. As provided in proposed section (a) of
paragraph .14 of the Supplementary Material, a principal transaction
could be excepted from the specified prohibition only if the municipal
advisor also is a broker-dealer registered under Section 15 of the
Exchange Act,\19\ and each account for which the municipal advisor
would be relying on the Exception is a brokerage account subject to the
Exchange Act,\20\ the rules thereunder, and the rules of the self-
regulatory organization(s) of which the broker-dealer is a member. In
addition, the municipal advisor could not exercise investment
discretion (as defined in Section 3(a)(35) of the Exchange Act) \21\
with respect to the account, unless granted by the municipal entity
client on a temporary or limited basis.\22\
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    \19\ 15 U.S.C. 78o.
    \20\ 15 U.S.C. 78a et seq.
    \21\ 15 U.S.C. 78(c)(a)(35).
    \22\ The proposed requirements are similar to those found in
Advisers Act Rule 206(3)-T(a)(7) and (1), respectively. 17 CFR
275.206(3)-3T(a)(7) and (1).
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    Under proposed section (b) of paragraph .14 of the Supplementary
Material, neither the municipal advisor nor any affiliate of the
municipal advisor may be providing, or have provided, advice to the
municipal entity client as to an issue of municipal securities or a
municipal financial product that is directly related to the principal
transaction, except advice as to another principal transaction that
also meets all the other requirements of proposed paragraph .14. For
example, a municipal advisor could not use the Exception to reinvest
proceeds from an issue of municipal securities where it was a municipal
advisor as to such issue. A municipal advisor could use the Exception,
however, for two principal transactions with the same municipal entity
client where the transactions are directly related to one another, so
long as all of the conditions and limitations of the Exception are met
as to each transaction.
    Proposed section (c) of paragraph .14 of the Supplementary Material
would limit a municipal advisor's principal transactions under the
Exception to sales to or purchases from a municipal entity client of
any U.S. Treasury security, agency debt security or corporate debt
security. In addition, the proposed Exception would not be available
for transactions involving municipal escrow investments as defined in
Exchange Act Rule 15Ba1-1(h) \23\ because the MSRB believes that this
is an area of heightened risk where, historically, significant abuses
have occurred. The inclusion in the Exception of transactions in this
class of fixed income securities is intended to address the concerns of
commenters that an absolute ban on principal transactions in fixed
income securities, which are frequently sold by broker-dealers as
principal or riskless principal, would be particularly problematic, and
also addresses comments that an exception limited to these generally
relatively liquid securities trading in relatively transparent markets
would raise significantly less risk for municipal entity clients.\24\
The proposed class of securities may be broader than what would be
permitted by relevant bond documents or a particular municipal entity's
investment policies, but, in such cases, the restrictions in the bond
documents or the municipal entity's investment policies would
appropriately control. The terms ``U.S. Treasury security,'' ``agency
debt security'' and ``corporate debt security,'' and related terms,
``agency,'' ``government-sponsored enterprise,'' ``money market
instrument'' and ``securitized product'' would be defined for purposes
of proposed paragraphs .14 and .15 of the Supplementary Material in new
proposed paragraph .15 of the Supplementary Material.
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    \23\ 17 CFR 240.15Ba1-1(h).
    \24\ For example, SIFMA noted the need for an exception to the
ban was particularly acute with respect to transactions between a
municipal advisor/broker-dealer and its municipal entity client in
fixed income securities since ``nearly all transactions in fixed-
income securities are effected on a principal basis.'' GFOA noted
that municipal entities might be subject to additional costs
regarding advice on ``investments that are not considered to be
risky,'' and FSI specifically suggested that an exception to the ban
for broker-dealers providing advice incidental to securities
execution services be limited to transactions in a similar group of
fixed income securities.
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    To comply with proposed section (d) of paragraph .14 of the
Supplementary Material, a municipal advisor would have two options.
These two options draw, as generally urged by commenters, upon the
procedural requirements in Advisers Act Section 206(3) \25\ and
Advisers Act Rule 206(3)-3T(a),\26\ respectively. Under the first
option, which is set forth in proposed subsection (d)(1) of paragraph
.14, a municipal advisor would be required, on a transaction-by-
transaction basis, to disclose to the municipal entity client in
writing before the completion of the principal transaction the capacity
in which the municipal advisor is acting and obtain the consent of the
client to such transaction. Consent would mean informed consent, and in
order to make

informed consent, the municipal advisor, consistent with its fiduciary
duty, would be required to disclose specified information, including
the price and other terms of the transaction, as well as the capacity
in which the municipal advisor would be acting. ``Before completion''
would mean either prior to execution of the transaction, or after
execution but prior to the settlement of the transaction.\27\
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    \25\ 15 U.S.C. 80b-6(3).
    \26\ See 17 CFR 275.206(3)-3T(a).
    \27\ These parameters are substantially similar to long-standing
interpretive guidance regarding Advisers Act Section 206(3). See SEC
Interpretation of Section 206(3) of the Investment Advisers Act of
1940, Rel. No. IA-1732 (July 17, 1998) (``The protection provided to
advisory clients by the consent requirement of Section 206(3) would
be weakened, however, without sufficient disclosure of the potential
conflicts of interest and the terms of a transaction. In our view,
to ensure that a client's consent to a Section 206(3) transaction is
informed, Section 206(3) should be read together with Sections
206(1) and 206(2) to require the adviser to disclose facts necessary
to alert the client to the adviser's potential conflicts of interest
in a principal . . . transaction.'').
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    Alternatively, a municipal advisor could comply with proposed
subsection (d)(2) of paragraph .14 by meeting six requirements, as set
forth in proposed paragraphs (d)(2)(A) through (F) of paragraph .14 and
summarized below. First, under proposed paragraph (d)(2)(A), neither
the municipal advisor nor any of its affiliates could be the issuer, or
the underwriter (as defined in Exchange Act Rule 15c2-12(f)(8)),\28\ of
a security that is the subject of the principal transaction.
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    \28\ 17 CFR 240.15c2-12(f)(8).
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    Second, under proposed paragraph (d)(2)(B), the municipal advisor
would be required to obtain from the municipal entity client an
executed written, revocable consent that would prospectively authorize
the municipal advisor directly or indirectly to act as principal for
its own account in selling a security to or purchasing a security from
the municipal entity client, so long as such written consent were
obtained after written disclosure to the municipal entity client
explaining: (i) The circumstances under which the municipal advisor
directly or indirectly may engage in principal transactions; (ii) the
nature and significance of conflicts with the municipal entity client's
interests as a result of the transactions; and (iii) how the municipal
advisor addresses those conflicts.
    Third, under proposed paragraph (d)(2)(C), the municipal advisor,
prior to the execution of each principal transaction, would be required
to: (i) Inform the municipal entity client, orally or in writing, of
the capacity in which it may act with respect to such transaction and
(ii) obtain consent from the municipal entity client, orally or in
writing, to act as principal for its own account with respect to such
transaction.
    Fourth, under proposed paragraph (d)(2)(D), a municipal advisor
would be required to send a written confirmation at or before
completion of each principal transaction that includes the information
required by 17 CFR 240.10b-10 or MSRB Rule G-15, and a conspicuous,
plain English statement informing the municipal entity client that the
municipal advisor: (i) Disclosed to the client prior to the execution
of the transaction that the municipal advisor may be acting in a
principal capacity in connection with the transaction and the client
authorized the transaction and (ii) sold the security to, or bought the
security from, the client for its own account.
    Fifth, under proposed paragraph (d)(2)(E), a municipal advisor
would be required to send its municipal entity client, no less
frequently than annually, written disclosure containing a list of all
transactions that were executed in the client's account in reliance
upon this Exception, and the date and price of the transactions.
    Sixth, under proposed paragraph (d)(2)(F), each written disclosure
would be required to include a conspicuous, plain English statement
regarding the ability of the municipal entity client to revoke the
prospective written consent to principal transactions without penalty
at any time by written notice.
    A municipal advisor's use and compliance with the requirements of
the Exception would not be construed as relieving it in any way from
acting in the best interests of its municipal entity client nor from
any obligation that may be imposed by the Exchange Act, other
provisions of Proposed Rule G-42 (other than subsection (e)(ii) of the
proposed rule), or other applicable provisions of the federal
securities laws and state law.

Other Amendments

    In Amendment No. 2, the MSRB makes five minor, technical
amendments, which would clarify, correct cross-references in, or
renumber certain provisions of Proposed Rule G-42. First, the MSRB is
making minor, technical changes to Proposed Rule G-42(d) regarding
recommendations. These amendments set forth the initial text that
precedes proposed subsection (d)(i) in two sentences rather than one.
The purpose of this change is to clarify the requirements that would
apply when a municipal advisor makes a recommendation of a municipal
securities transaction or municipal financial product and when a
municipal advisor reviews such a recommendation of another party. These
amendments also clarify in the initial text that precedes proposed
subsection (d)(i), consistent with Proposed Rule G-42(d)(ii), that a
municipal advisor reviewing a recommendation of another party could
determine that the recommended municipal securities transaction or
municipal financial product is not suitable for the client.
    Second, Amendment No. 2 revises proposed Rule G-42(e)(ii) to begin
with the new clause, ``Except as provided in paragraph .14 of the
Supplementary Material of this rule,'' and then continue as previously
proposed, except that the phrase ``municipal securities transaction''
is changed to ``issue of municipal securities'' in order to more
closely track the relevant statutory language.\29\ Third, to
alphabetize the definitions set forth in proposed section (f), the
proposed definition of the term ``Principal transaction'' is renumbered
from subsection (f)(i) to subsection (f)(ix). The other eight
definitions, set forth as subsections (f)(ii) through (f)(ix), are
renumbered, accordingly, as subsections (f)(i) through (f)(viii).
Fourth, in proposed paragraphs of the Supplementary Material,
references to ``this paragraph'' are amended to include the appropriate
paragraph number (e.g., in proposed paragraph .01 of the Supplementary
Material, ``this paragraph'' is amended to read ``this paragraph
.01''). Fifth, the order of proposed paragraphs .12 and .13 of the
Supplementary Material is reversed, which organizes the two paragraphs
addressing principal transactions to appear consecutively and improves
the readability of the rule. In addition, in proposed paragraph .13 (as
renumbered), the cross-reference to the definition of the term
``principal transaction'' is corrected.
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    \29\ See, e.g., 15 U.S.C. 78o-4(b)(2).
---------------------------------------------------------------------------

    The MSRB proposes to make the proposed rule change effective six
months after Commission approval of all changes.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments regarding the foregoing, including whether the filing as
amended by Amendment No. 2 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-MSRB-2015-03 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549.

All submissions should refer to File Number SR-MSRB-2015-03. 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 MSRB. 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-MSRB-2015-03 and should be
submitted on or before December 1, 2015.\30\
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    \30\ The Commission believes that a 14-day comment period is
reasonable, given the urgency of the matter. It will provide
adequate time for comment.

    For the Commission, pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-29226 Filed 11-16-15; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 87, Number 100 (Tuesday, May 24, 2022)]
[Notices]
[Page 31547]
[FR Doc No: 2022-11164]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. ER22-1885-000]

South Portland ESS, LLC; Supplemental Notice That Initial Market-
Based Rate Filing Includes Request for Blanket Section 204
Authorization

    This is a supplemental notice in the above-referenced proceeding of
South Portland ESS, LLC's application for market-based rate authority,
with an accompanying rate tariff, noting that such application includes
a request for blanket authorization, under 18 CFR part 34, of future
issuances of securities and assumptions of liability.
    Any person desiring to intervene or to protest should file with the
Federal Energy Regulatory Commission, 888 First Street NE, Washington,
DC 20426, in accordance with Rules 211 and 214 of the Commission's
Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone
filing a motion to intervene or protest must serve a copy of that
document on the Applicant.
    Notice is hereby given that the deadline for filing protests with
regard to the applicant's request for blanket authorization, under 18
CFR part 34, of future issuances of securities and assumptions of
liability, is June 7, 2022.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper, using the FERC Online links at http://www.ferc.gov. To facilitate electronic service, persons with internet
access who will eFile a document and/or be listed as a contact for an
intervenor must create and validate an eRegistration account using the
eRegistration link. Select the eFiling link to log on and submit the
intervention or protests.
    Persons unable to file electronically may mail similar pleadings to
the Federal Energy Regulatory Commission, 888 First Street NE,
Washington, DC 20426. Hand delivered submissions in docketed
proceedings should be delivered to Health and Human Services, 12225
Wilkins Avenue, Rockville, Maryland 20852.
    In addition to publishing the full text of this document in the
Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
internet through the Commission's Home Page (http://www.ferc.gov) using
the ``eLibrary'' link. Enter the docket number excluding the last three
digits in the docket number field to access the document. At this time,
the Commission has suspended access to the Commission's Public
Reference Room, due to the proclamation declaring a National Emergency
concerning the Novel Coronavirus Disease (COVID-19), issued by the
President on March 13, 2020. For assistance, contact the Federal Energy
Regulatory Commission at [email protected] or call toll-free,
(886) 208-3676 or TYY,<PHONE_NUMBER>.

    Dated: May 18, 2022.
Debbie-Anne A. Reese,
Deputy Secretary.
[FR Doc. 2022-11164 Filed 5-23-22; 8:45 am]
BILLING CODE 6717-01-P