[Federal Register: June 16, 2005 (Volume 70, Number 115)]
[Notices]
[Page 35151-35153]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16jn05-91]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51814; File No. SR-NASD-2004-185]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving a Proposed Rule Change and Amendment
Nos. 1 and 2 Thereto To Establish a Unitary Fee Schedule for
Distribution of Real Time Data Feed Products Containing Nasdaq Market
Center Data
June 9, 2005.
I. Introduction
On December 14, 2004, the National Association of Securities
Dealers, Inc. (``NASD''), through its subsidiary, the Nasdaq Stock
Market, Inc. (''Nasdaq''), filed with the Securities and Exchange
Commission (''Commission''), pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to establish a unitary fee
schedule for distribution of real time data feed products containing
Nasdaq market center data. On February 17, 2005, Nasdaq filed Amendment
No. 1 to the original filing.\3\ Nasdaq filed Amendment No. 2 on April
14, 2005.\4\ The proposed rule change, as amended, was published for
comment in the Federal Register on April 28, 2005.\5\ The Commission
received one comment on the proposed rule change.\6\ This order
approves the proposed rule change, as amended.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 replaced and superseded the original
proposed rule change in its entirety.
\4\ Amendment No. 2 replaced and superseded the original
proposed rule change, as amended.
\5\ See Securities Exchange Act Release No. 51598 (Apr. 21,
2005), 70 FR 22162.
\6\ See letter from Gene L. Finn to Jonathan Katz, Secretary,
Securities and Exchange Commission dated May 17, 2005 (``Finn
Letter'').
---------------------------------------------------------------------------
II. Description of the Proposal
Nasdaq proposes to modify NASD Rule 7010 to establish a unitary fee
schedule for the distribution of Nasdaq Market Center real time data
feed products. Nasdaq offers various data products that firms may
purchase and redistribute either within their own organizations or to
outside parties. According to Nasdaq, ``distributor fees'' are designed
to encourage broad distribution of the data, and allow Nasdaq to
recover what it describes as the relatively high fixed costs associated
with supporting connectivity and contractual relationships with
distributors. Nasdaq believes that because the data products and
associated fees were established over many years, the method of
calculating such fees should be updated. Accordingly, Nasdaq proposes
to establish a revised monthly distributor pricing structure for its
real time data feed products that it believes will allocate equitably
data fees across the customer base of data distributors and consumers
of Nasdaq market data.
Specifically, the proposed rule change will establish a distributor
fee pricing structure for four real time data feed products: TotalView,
OpenView, Mutual Fund Quotation Service (``MFQS''), and Real Time
Index. The proposed fees will be assessed to distributors of these real
time data feed products, defined in the proposed rule change to include
any entity that receives a feed or data file of Nasdaq data directly
from Nasdaq or indirectly through another entity and then distributes
it either internally (within that entity) or externally (outside the
entity). The new distributor fees would not apply to Nasdaq's Web-based
historical data products, which are governed by NASD Rule 7010(p), and
they would not apply to data feeds that are produced pursuant to the
national market system plan governing Nasdaq stocks (``Nasdaq UTP
Plan''). The proposed distributor pricing is also distinct from any per
display device or
[[Page 35152]]
per user population fees for data products such as TotalView.
The proposed pricing structure is comprised of two components for
each Nasdaq real time data feed product: (1) A monthly Direct Access
Fee, and (2) either a monthly Internal Distribution Fee or a monthly
External Distribution Fee. The Direct Access Fee will apply to any
organization that receives a real time data product directly from
Nasdaq via a data feed. Distributors receiving Nasdaq real time data
indirectly (i.e., via re-transmission from another entity) will not be
liable for the Direct Access Fee. Nasdaq represents that this fee will
allow it to recover the fixed costs of establishing and maintaining
relationships with direct access distributors.
The Internal Distribution Fee will apply to any organization that
receives a real time data feed product (either directly from Nasdaq or
through a vendor) and distributes the data solely within its own
organization. The External Distribution Fee will apply to any
organization that receives a real time data feed product (either
directly from Nasdaq or through a vendor) and distributes the data
outside its own organization. Nasdaq states that the External
Distribution Fee is higher than the Internal Distribution Fee because
external distributors typically have broader distribution of the data
than internal distributors. An organization that receives real time
data directly from Nasdaq will pay the Direct Access Fee plus the
higher of either the Internal Distribution or External Distribution Fee
but not both. An organization that only receives a real time data feed
indirectly and distributes it within its organization will pay the
Internal Distribution Fee; an organization that receives data
indirectly and distributes it outside its organization will pay the
External Distribution Fee; and an organization that receives a real
time data feed indirectly and distributes it both internally and
externally will pay the External Distribution Fee.
Under the proposed pricing structure, Nasdaq real time data feed
products that are available for distribution will be divided into two
categories: ``Issuer Specific Data'' and ``Market Summary Statistics.''
Issuer Specific Data will further be divided into a ``Dynamic
Intraday'' subcategory and a ``Daily'' subcategory. Market Summary
Statistics, at present, will have one subcategory: ``Intraday.'' Each
subcategory of real time data feed product will be assigned a Direct
Access Fee, Internal Distribution Fee, and External Distribution Fee.
The change will effect distributor fees for the aforementioned
products as follows: Currently, the monthly distribution fee for Nasdaq
TotalView (set forth at Rule 7010(q)) is based on whether the data
distributor receives the TotalView data in an aggregate or detailed
form. The current monthly fee for TotalView data in aggregate form is
$1,000 per distributor and in detailed form is $7,500 per distributor.
There is no current monthly distributor fee for OpenView. Under the
proposed fee structure, TotalView and OpenView, whether in aggregate or
detailed form, will fall into the ``Issue Specific Data-Dynamic
Intraday'' subcategory, for which the proposed monthly fees are $2,500
for Direct Access, $1,000 for Internal Distribution, and $2,500 for
External Distribution.\7\ Organizations that currently purchase
detailed TotalView information, particularly internal distributors and
non-direct connection recipients, will pay less in the future;
organizations that currently purchase aggregate TotalView data,
particularly those that access the data directly, will pay higher fees.
---------------------------------------------------------------------------
\7\ Nasdaq believes that because OpenView provides the same
depth and scope of information for exchange-listed securities as
TotalView does for Nasdaq-listed securities, and entails similar
costs, it is appropriate to put into place the same distribution fee
structure for OpenView at this time. Telephone conversation between
Bill O'Brien, Senior Vice President, Market Data Distribution,
Nasdaq, and Ira Brandriss, Assistant Director, Division of Market
Regulation, Commission, April 21, 2005.
---------------------------------------------------------------------------
The current monthly fee for distribution of the MFQS is $1,000 for
each external distributor. Under the proposed fee structure, MFQS data
will fall into the ``Issue Specific Data--Daily'' subcategory, for
which the proposed monthly fees are $500 for Direct Access, $500 for
External Distribution, and no charge for Internal Distribution. The
proposed pricing will benefit external distributors that do not take
their data directly from Nasdaq. Organizations that take their data
directly from Nasdaq but only distribute it internally will pay the
Direct Access Fee.
Under the current monthly fee structure set forth in NASD Rule
7030, the fee for Real-Time Index data is $2,000 for external
distributors. Under the proposed fee structure, Real-Time Index data
will be labeled as ``Market Summary Statistics--Intraday.'' The
proposed monthly fees for Market Summary Statistics will involve a
Direct Access fee of $500, an Internal Distribution Fee of $50, and an
External Distribution fee of $1,500. The proposed pricing will decrease
the costs of non-direct connection external distributors, but increase
them for organizations that distribute the data internally.
Nasdaq is also proposing a more flexible policy for distributor
reporting of, and payment for, market data usage. NASD Rule 7060
currently provides that such reporting be based on a pro-rated
accounting of the specific installation and termination dates for
service. Because some data distributors prefer to report data usage on
a ``full-month'' basis, Nasdaq will offer its market data distributors
the option of reporting and paying based on either a pro-rated or full-
month basis. The selection of pro-rated or full-month reporting will be
the business decision of each market data distributor based on its
needs and the needs of its customers.
III. Discussion and Commission Findings
After careful review of the proposal and consideration of the
comment letter, the Commission finds that the proposed rule change, as
amended, is consistent with the Act and the rules and regulations
thereunder applicable to a national securities association.\8\ In
particular, the Commission believes that the proposed rule change, as
amended, is consistent with section 15A(b)(5) of the Act,\9\ which
requires that the rules of a national securities association 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 the association operates or controls. Specifically, the
Commission believes that the proposed pricing structure is reasonable
and notes that it would apply across-the-board to distributors of the
aforementioned Nasdaq real time data feed products. In approving the
proposed rule change, the Commission notes that, pursuant to Section
19(b)(1) of the Act \10\ and Rule 19b-4 thereunder,\11\ Nasdaq will be
required to file with the Commission proposed rule changes relating to
any additional Nasdaq real time data feed products to which it plans to
apply the new pricing structure in the future.
---------------------------------------------------------------------------
\8\ The Commission has considered the proposed rule's impact on
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78o-3(b)(5).
\10\ 15 U.S.C. 78s(b)(1).
\11\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
The Commission received one comment letter on the proposal.\12\
Referring to ``Section 7030--Special Options'' of the NASD Marketplace
Rules, the commenter stated that the proposed rule change continues to
apply a discriminatory access fee to nonprofessional online investors.
The
[[Page 35153]]
commenter also set forth a series of reasons why he believes generally
that nonprofessional access fees for online investors should be
eliminated, noting that he has enumerated these reasons in comment
letters to the Commission in the past. The Commission notes that the
continuance of fees for the data products included in NASD Rule 7030 is
not the subject of the proposed rule change, although a different
pricing structure for the fees charged to distributors for the Nasdaq
Market Index, which is being moved from NASD Rule 7030 to Rule 7010, is
being proposed. With respect to the commenter's more general concerns
about nonprofessional access fees for online investors, the Commission
notes that it has recently solicited public comment as part of a
comprehensive review it has undertaken regarding market data fees and
revenues,\13\ and the commenter's views will be taken into account in
that review.
---------------------------------------------------------------------------
\12\ See Finn Letter, supra note 6.
\13\ See Securities Exchange Act Release No. 50700 (Nov. 18,
2004), 69 FR 71256 (Dec. 8, 2004). See also Securities Exchange Act
Release No. 50699 (Nov. 18, 2004), 69 FR 71126 (Dec. 8, 2004).
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-NASD-2004-185), as amended,
is approved.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------
\15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 05-11927 Filed 6-15-05; 8:45 am]
BILLING CODE 8010-01-P