Notice2024-21870
Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Codify the Definition of Nasdaq Options Trade Outline
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 25, 2024
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 89 Issue 186 (Wednesday, September 25, 2024)</title>
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[Federal Register Volume 89, Number 186 (Wednesday, September 25, 2024)]
[Notices]
[Pages 78351-78357]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-21870]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-101098; File No. SR-NASDAQ-2024-055]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Codify the Definition of Nasdaq Options Trade Outline
September 19, 2024.
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 September 6, 2024, 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 and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to codify the definition of Nasdaq Options
Trade Outline in the Nasdaq rulebook. This filing also incorporates
previously proposed fee changes that: (i) adjusted fees for Nasdaq
Options Trade Outline for both the End of Day and Intra-Day product;
(ii) reduced fees for 36 months of historical data for current
customers; and (iii) allowed unlimited external distribution of Nasdaq
Options Trade Outline for a fixed monthly fee.
The text of the proposed rule change is available on the Exchange's
website at <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules</a>, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
[[Page 78352]]
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to codify the definition
of Nasdaq Options Trade Outline in the Nasdaq rulebook. This filing
also incorporates previously proposed fee changes that: (i) adjusted
fees for Nasdaq Options Trade Outline for both the End of Day and
Intra-Day product; (ii) reduced fees for 36 months of historical data
for current customers; and (iii) allowed unlimited external
distribution of Nasdaq Options Trade Outline for a fixed monthly
fee.\3\
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\3\ The previously introduced fee proposal was initially filed
on July 1, 2024, as SR-Nasdaq-2024-034. On July 15, 2024, that
filing was withdrawn and refiled as SR-Nasdaq-2024-040. On July 29,
2024, that filing was withdrawn and refiled as SR-Nasdaq-2024-043.
On August 12, 2024, that proposal was withdrawn and replaced with
SR-Nasdaq-2024-046 to incorporate those fees into a filing that
codifies the definition of Nasdaq Options Trade Outline. On August
23, 2024, SR-Nasdaq-2024-046 was withdrawn and replaced with SR-
Nasdaq-2024-051 to provide additional information and to clarify
language associated with fees for historical data. On September 6,
2024, SR-Nasdaq-2024-051 was withdrawn and replaced with the instant
filing to provide further information.
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Nasdaq Options Trade Outline
Nasdaq Options Trade Outline (``NOTO'' or ``Trade Outline'')
provides aggregate quantity and volume information for trades on the
Exchange for all series \4\ during a trading session.\5\ Information is
provided in the following categories: (i) total exchange volume for
Intra-Day information and total exchange and industry volume for End of
Day information for each reported series; (ii) open interest for the
series; (iii) aggregate quantity of trades and aggregate trade volume
effected to open a position,\6\ characterized by origin type
(Customer,\7\ Broker-Dealer,\8\ Market Maker,\9\ Firm,\10\ and
Professional \11\), and for Customers and Professionals, further
subdivided by trade size buckets; and (iv) aggregate quantity of trades
and aggregate trade volume effected to close a position,\12\
characterized by origin type, (Customer, Broker-Dealer, Market Maker,
Firm and Professional), and for Customers and Professionals, further
subdivided by trade size buckets.
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\4\ Every options series trades as a distinct symbol; the terms
``series'' and ``symbol'' are therefore synonyms.
\5\ See Securities Exchange Act Release No. 65587 (October 18,
2011), 76 FR 65765 (October 24, 2011) (SR-Nasdaq-2011-144)
(establishing Nasdaq Options Trade Outline as a product); Securities
Exchange Act Release No. 65836 (November 28, 2011), 76 FR 75593
(December 2, 2011) (SR-Nasdaq-2011-153) (establishing fees for
Nasdaq Options Trade Outline).
\6\ An opening purchase transaction is an Exchange options
transaction in which the purchaser's intention is to create or
increase a long position in the series of options involved in such
transaction. Nasdaq Options Trade Outline will also provide
subscribers with the aggregate number of ``opening writing
transactions.'' An opening writing transaction is an Exchange
options transaction in which the seller's (writer's) intention is to
create or increase a short position in the series of options
involved in such transaction.
\7\ The term ``Customer'' applies to any transaction that is
identified by a Participant for clearing in the Customer range at
The Options Clearing Corporation (``OCC'') which is not for the
account of broker or dealer or for the account of a ``Professional''
(as that term is defined in Options 1, Section 1(a)(47)). See
Options 7, Section 1(a).
\8\ The term ``Broker-Dealer'' applies to any transaction which
is not subject to any of the other transaction fees applicable
within a particular category. See Options 7, Section 1(a).
\9\ The term ``NOM Market Maker'' is a Participant that has
registered as a Market Maker on NOM pursuant to Options 2, Section
1, and must also remain in good standing pursuant to Options 2,
Section 9. In order to receive NOM Market Maker pricing in all
securities, the Participant must be registered as a NOM Market Maker
in at least one security. See Options 7, Section 1(a).
\10\ The term ``Firm'' applies to any transaction that is
identified by a Participant for clearing in the Firm range at OCC.
See Options 7, Section 1(a).
\11\ The term ``Professional'' means any person or entity that
(i) is not a broker or dealer in securities, and (ii) places more
than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s) pursuant to Options
1, Section 1(a)(47). See Options 7, Section 1(a).
\12\ A closing purchase transaction is an Exchange options
transaction in which the purchaser's intention is to reduce or
eliminate a short position in the series of options involved in such
transaction. Nasdaq Options Trade Outline will also provide
subscribers with the aggregate number of ``closing sale
transactions.'' A closing sale transaction is an Exchange options
transaction in which the seller's intention is to reduce or
eliminate a long position in the series of options involved in such
transaction.
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NOTO will also provide opening buy, closing buy, opening sell and
closing sell information, which shall include option first trade price,
option high trade price, option low trade price, and option last trade
price.
End of Day information is available the next business day. Intra-
Day information is updated at 10-minute intervals over the course of
the trading day. Historical information is available upon request.
Trade Outline provides proprietary Exchange trade data and does not
include any intraday trade data from any other exchange.\13\ The
information provided, both in End of Day and Intraday formats, is not a
real-time data feed.
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\13\ The End of Day report includes a field that presents Total
Industry Volume for the Series.
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Trade Outline is a completely voluntary product in that the
Exchange is not required by any rule or regulation to make this data
available and potential subscribers may purchase it only if they
voluntarily choose to do so.
Trade Outline is available to all market participants, including
both members and non-members, for all series and symbols in End of Day,
Intra-Day, and historical files (upon request).
Trade Outline is designed to enhance the ability of customers to
understand market sentiment on the Exchange and to create and test
trading models and analytical strategies useful in both options and
equities markets. It is not necessary to execute a trade, but it
supplies the customer with information about underlying market trends
designed to improve the quality of that customer's investment
decisions. Customers can, and often do, elect to forego this type of
information.
The End of Day product includes aggregate data representing the
entire trading session. It is calculated during an overnight process
with the additional fields described above after each trading session
and is available to subscribers for download the following morning at
approximately 7 a.m., ET. The monthly subscriber fee for the End of Day
product subscribers is currently $500. This fee was established in 2011
and has not been changed since.\14\
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\14\ See Securities Exchange Act Release No. 65836 (November 28,
2011), 76 FR 75593 (December 2, 2011) (SR-Nasdaq-2011-153)
(establishing fees for Nasdaq Options Trade Outline).
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The Intra-Day product provides periodic, cumulative data for a
particular trading session. The Intra-Day product is produced and
updated every ten minutes during the trading day. Data is captured in
``snapshots'' taken every 10 minutes throughout the trading day and is
available to subscribers within 2 minutes of the conclusion of each 10
minute period. Each update will represent the aggregate data captured
from the current ``snapshot'' and all previous ``snapshots.'' The
monthly subscriber fee for the Intra-Day product is $750. This fee was
established in 2011 and has not been changed since then.\15\
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\15\ See id.
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Historic data is also available on a calendar month basis. This
data is intended to enhance a purchaser's ability to analyze option
trade and
[[Page 78353]]
volume data, evaluate historical trends in the trading activity of a
particular option series, and create and test trading models and
analytical strategies. Historical files provide the same fields of
information as the End of Day and Intraday files, respectively.
Historical data is available starting in November 2011.
Products similar to Trade Outline have been available on multiple
exchanges for many years and are well-established in the market. Such
products are available from the Nasdaq Phlx LLC (``Phlx''),\16\ Nasdaq
ISE LLC (``ISE''),\17\ Nasdaq GEMX LLC (``GEMX''),\18\ Cboe Options
Exchange (``Cboe''),\19\ NYSE American Options (``NYSE American''),\20\
NYSE Arca Options (``NYSE Arca''),\21\ BOX Options Market LLC
(``BOX''),\22\ MIAX Pearl Options Exchange (``Pearl''),\23\ and others.
In general, the relative value of these products depends on the volume
of transactions included; the greater the volume of transactions, the
greater the value of the data. The current purchasers of Trade Outline
are investment banks, market makers, asset managers and other buy-side
investors.
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\16\ See Securities Exchange Act Release No. 62887 (September
10, 2010), 75 FR 57092 (September 17, 2010) (SR-Phlx-2010-121)
(introducing PHOTO on September 1, 2010).
\17\ See Nasdaq ISE Rules, Options 7, Section 10(A) and (B)
(Nasdaq ISE Open/Close Trade Profile End of Day; Nasdaq ISE Open/
Close Trade Profile Intra-Day).
\18\ See Nasdaq GEMX Rules, Options 7, Sections 7(D) (Nasdaq
GEMX Open/Close End of Day Trade Profile) and 7(E) (Nasdaq GEMX
Open/Close Intra-Day Trade Profile).
\19\ See, e.g., Securities Exchange Act Release No. 94913 (May
13, 2022), 87 FR 30534 (May 19, 2022) (SR-Cboe-2022-023) (describing
End of Day and Intra-Day Open-Close Data as a summary of trading
activity on the exchange at the option level by origin, side of the
market, price and transaction type).
\20\ See, e.g., Securities Exchange Act Release No. 93803
(December 16, 2021, 86 FR 72647 (December 22, 2021) (SR-NYSEAMER-
2021-46) (describing the NYSE Options Open-Close Volume Summary as a
volume summary of trading activity on the exchange at the option
level by origin, side of the market, contract volume and transaction
type).
\21\ See, e.g., Securities Exchange Act Release No. 93132
(September 27, 2021), 86 FR 54499 (October 1, 2021) (SR-NYSEArca-
2021-82) (describing the NYSE Options Open-Close Volume Summary as a
volume summary of trading activity on the exchange at the option
level by origin, side of the market, contract volume and transaction
type).
\22\ See, e.g., Securities Exchange Act Release No. 97174 (March
21, 2023), 88 FR 18201 (March 27, 2023) (SR-BOX-2023-09) (describing
the BOX exchange Open-Close Data report as providing volume by
origin, buying/selling, and opening/closing criteria).
\23\ See, e.g., Securities Exchange Act Release No. 91964 (May
21, 2021), 86 FR 28667 (May 27, 2021) (SR-PEARL-2021-24)
(introducing the Open-Close Report).
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Proposed Changes
Definition of Nasdaq Options Trade Outline
The Exchange proposes to codify the definition of NOTO. Nothing in
this codification is intended to change the product in any way, but
rather is intended to describe the product exactly as it exists.
Specifically, the Exchange proposes the following definition:
Nasdaq Options Trade Outline provides aggregate quantity and
volume information for trades on the Exchange for all series during
a trading session. Information is provided in the following
categories: (i) total exchange volume for Intra-Day information and
total exchange and industry volume for End of Day information for
each reported series; (ii) open interest for the series; (iii)
aggregate quantity of trades and aggregate trade volume effected to
open a position, characterized by origin type (Customer, Broker-
Dealer, Market Maker, Firm, and Professional), and for Customers and
Professionals, further subdivided by trade size buckets; and (iv)
aggregate quantity of trades and aggregate trade volume effected to
close a position, characterized by origin type (Customer, Broker-
Dealer, Market Maker, Firm, and Professional), and for Customers and
Professionals, further subdivided by trade size buckets.
Nasdaq Options Trade Outline End of Day will also provide
opening buy, closing buy, opening sell and closing sell information,
which shall include option first trade price, option high trade
price, option low trade price, and option last trade price.
End of Day information will be available the next business day.
Intra-Day information is updated at 10-minute intervals over the
course of the trading day. Historical information will be available
upon request.
Previously Introduced Fee Changes
Fee Changes for End of Day and Intra-Day Products
The Exchange proposes to increase the fee for the End of Day
product from $500 to $575, and the Intra-Day Product from $750 to
$2,000.
In addition, the Exchange proposes to insert a comma after the
phrase ``or the Intra-Day Product for the current month'' into the
definition of Current Distributor. The revised sentence will read as
follows:
A ``Current Distributor'' is any firm that purchases either the
End of Day Product for the current month, or the Intra-Day Product
for the current month, in the same month that the 36 months of
historical End of Day or Intra-Day data is ordered.
The change is designed to clarify that the phrase ``the same month
that the 36 months of historical End of Day or Intra-Day data is
ordered'' applies to both firms that purchase End of Day data in the
current month and firms that purchase Intra-Day data for the current
month. The clarification will not change how the fee is charged.
Discount for Historical Data
The Exchange proposes to offer a discount for historical data for
Current Distributors.\24\ Specifically, the Exchange proposes to offer
the most recent 36 months of historical data for current end of day
product distributors for $3,000, and the most recent 36 months of
historical data for current intra-day product distributors for $6,000.
Ad-hoc requests for historical data will be at the proposed current
rates of $575 per month for End of Day data and $2,000 per month for
Intra-Day data. Historical data is currently available from the
Exchange; the proposal will simply initiate a discount for the most
recent 36 months of that data for Current Distributors.
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\24\ A ``Current Distributor'' is any firm that purchases either
the End of Day Product for the current month, or the Intra-Day
Product for the current month in the same month that the 36 months
of historical End of Day or Intra-Day data is ordered.
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Historical data, including the discounted historical data, will
continue to provide the same categories of information available for
current subscribers.
Eligibility for the discount will depend on the type of current
subscription. A Current Distributor of End of Day data would be
eligible for the historical End of Day product at the reduced rate. A
Current Distributor of the Intra-Day product would be able to purchase
the historical Intra-Day product at the reduced rate. A Current
Distributor of both the current End of Day and Intra-Day products would
be entitled to purchase both types of history at the reduced rate.
The 36-month period will be based on the date of purchase of the 36
months of data by a Current Distributor. For example, a Current
Distributor that buys the End of Day product for the first time in July
2024 would also be able to purchase historical End of Day data for the
period July 2021 through July 2024 (inclusive) at the discounted rate.
Similarly, a Current Distributor with an existing End of Day
subscription that is current in July 2024 would be able to purchase the
historical End of Day data from September 2021 through September 2024
at the discounted rate. The same reasoning would apply to Intra-Day
Current Distributors.\25\ As
[[Page 78354]]
noted, ad-hoc requests for historical data will be at the proposed
current rates of $575 per month for End of Day data and $2,000 per
month for Intra-Day data. The fees for historical data are linked to
the current product because effective historical testing requires a
comparison of similar products. Effective testing of the End of Day
product, for example, requires End of Day historical data. The same
would hold true for Intra-Day data.
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\25\ A customer may use the proposed historical data discount
more than once. For example, a Current Distributor that purchases 36
months of historical data at a discount, but later terminates that
subscription, would be eligible to purchase another 36 months of
historical data (based on the date of purchase) upon renewing that
subscription. (Current Distributors that never terminate would have
no need for a second purchase, as they would already possess the
most recent months of historical data.).
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Historical data is useful in analyzing option trade and volume
data, evaluating historical trends in the trading activity of a
particular option series, and creating and testing trading models and
analytical strategies, and is often purchased concurrently with a new
subscription to the Trade Outline service. Many customers use
historical data to test their strategies and models, and our
discussions with current and past customers and experience indicate
that 36 months of data is sufficient for most customer needs, and is an
effective baseline for review.
External Distribution of Derived Data
The Exchange proposes to offer a license for the unlimited external
distribution of Derived Data from NOTO for $4,000 per month. Derived
Data is ``any information \26\ generated in whole or in part from
Exchange Information such that the information generated cannot be
reverse engineered to recreate Exchange Information, or be used to
create other data that is recognizable as a reasonable substitute for
such Exchange Information.''
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\26\ ``Exchange Information'' is any data or information that
has been collected, validated, processed and/or recorded by the
Exchange and made available for transmission relating to: (i)
Eligible securities or other financial instruments, markets,
products, vehicles, indicators, or devices; (ii) activities of the
Exchange; or (iii) other information or data from the Exchange.
Information includes, but is not limited to, any element of
information used or processed in such a way that Exchange
Information or a substitute for such Information can be identified,
recalculated or re-engineered from the processed information.
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Fees for external distribution of Derived Data from NOTO are in
addition to fees for the End of Day product or the Intra-Day product,
or both, as applicable.
This is a new license to be offered by the Exchange; external
distribution of Derived Data is not currently permitted. The proposal,
based on a similar license offered by the Phlx exchange,\27\ will allow
the external distribution of analytic products derived from NOTO to the
general investing public. A similar product is also being proposed for
the Nasdaq Options Market and the ISE Exchange.
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\27\ See Securities Exchange Act Release No. 93293 (October 12,
2021), 86 FR 57716 (October 18, 2021) (SR-Phlx-2021-58).
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Experience with the Phlx Exchange indicates that this license
provides an effective mechanism for market data vendors to identify,
develop, and sell derived market data products, such as sentiment
indicators, harnessing the power of the competitive marketplace to
promote innovation. The Exchange expects that this product will have
the greatest utility for the general investing public through broader
dissemination of products with this information.
2. Statutory Basis
The Exchange believes that its proposal to codify the definition of
Nasdaq Options Trade Outline is consistent with Section 6(b) of the
Act,\28\ in general, and furthers the objectives of Section 6(b)(5) of
the Act,\29\ in particular, in that it is designed to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general to protect investors and the public interest.
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\28\ 15 U.S.C. 78f(b).
\29\ 15 U.S.C. 78f(b)(5).
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Adding the definition of Nasdaq Options Trade Outline will provide
additional clarity and specificity to the Nasdaq rulebook. Nothing in
this codification is intended to change the product or the way it
functions, but rather is intended to describe the product exactly as it
exists today. Providing additional clarity about an exchange product
will help investors make better informed decisions about NOTO, and
therefore will help protect investors and promote the public interest.
Similarly, clarifying the definition of Current Distributor will
also add clarity and specificity to the rulebook without changing the
underlying fees. This additional clarity will help investors make
better informed decisions about NOTO, and thereby help protect
investors and promote the public interest.
The Exchange also believes that its proposal to change fees is
consistent with Section 6(b) of the Act,\30\ in general, and furthers
the objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\31\ in
particular, in that it provides for the equitable allocation of
reasonable dues, fees and other charges among members and issuers and
other persons using any facility, and is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers.
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\30\ 15 U.S.C. 78f(b).
\31\ 15 U.S.C. 78f(b)(4) and (5).
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Equitable Allocation of Reasonable Dues, Fees and Other Charges
The proposed changes are an equitable allocation of reasonable
dues, fees and other charges because: (i) the trade outline products
offered by multiple exchanges are substitutes, and customers are free
to choose which product they purchase; and (ii) the proposed fees are
comparable to the fees charged by other exchanges, and customers are
free to purchase other products if the Exchange has mistaken the value
of its product.
Substitution
As noted above, products similar to Trade Outline have been
available on multiple exchanges for many years and are well-established
in the market. They are available from the Phlx,\32\ ISE,\33\ GEMX,\34\
Cboe,\35\ NYSE American,\36\ NYSE Arca,\37\ BOX,\38\ MIAX Pearl,\39\
and others.
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\32\ See Securities Exchange Act Release No. 62887 (September
10, 2010), 75 FR 57092 (September 17, 2010) (SR-Phlx-2010-121)
(introducing PHOTO on September 1, 2010),
\33\ See Nasdaq ISE Rules, Options 7, Section 10(A) and (B)
(Nasdaq ISE Open/Close Trade Profile End of Day; Nasdaq ISE Open/
Close Trade Profile Intra-Day).
\34\ See Nasdaq GEMX Rules, Options 7, Sections 7(D) (Nasdaq
GEMX Open/Close End of Day Trade Profile) and 7(E) (Nasdaq GEMX
Open/Close Intra-Day Trade Profile)
\35\ See, e.g., Securities Exchange Act Release No. 94913 (May
13, 2022), 87 FR 30534 (May 19, 2022) (SR-Cboe-2022-023) (describing
End of Day and Intra-Day Open-Close Data as a summary of trading
activity on the exchange at the option level by origin, side of the
market, price and transaction type).
\36\ See, e.g., Securities Exchange Act Release No. 93803
(December 16, 2021, 86 FR 72647 (December 22, 2021) (SR-NYSEAMER-
2021-46) (describing the NYSE Options Open-Close Volume Summary as a
volume summary of trading activity on the exchange at the option
level by origin, side of the market, contract volume and transaction
type).
\37\ See, e.g., Securities Exchange Act Release No. 93132
(September 27, 2021), 86 FR 54499 (October 1, 2021) (SR-NYSEArca-
2021-82) (describing the NYSE Options Open-Close Volume Summary as a
volume summary of trading activity on the exchange at the option
level by origin, side of the market, contract volume and transaction
type).
\38\ See, e.g., Securities Exchange Act Release No. 97174 (March
21, 2023), 88 FR 18201 (March 27, 2023) (SR-BOX-2023-09) (describing
the BOX exchange Open-Close Data report as providing volume by
origin, buying/selling, and opening/closing criteria).
\39\ See, e.g., Securities Exchange Act Release No. 91964 (May
21, 2021), 86 FR 28667 (May 27, 2021) (SR-PEARL-2021-24)
(introducing the Open-Close Report).
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Trade outline products offer the same categories of data through
end of day or intra-day reports. The information provided by one
exchange is generally
[[Page 78355]]
similar to that provided by other exchanges because order flow can move
from one exchange to another, and market sentiment trends that appear
on one exchange are likely to be similar to the sentiment trends on
other exchanges. The key differentiator in the quality of the data
depends on the volume of transactions on a given exchange; the greater
the volume of transactions, the greater the value of the data.
Customers can choose not to purchase the trade outline product of one
exchange and substitute it for that of another exchange.
Customers can also choose not to purchase a trade outline product
at all. Trade outline products are designed to help investors
understand underlying market trends to improve the quality of
investment decisions, but is not necessary to execute a trade.
Customers can, and do, choose to forego the information from Trade
Outline or any of its competitor products when making a trade.
Nasdaq and its affiliates have observed that customers purchase
sufficient data to provide a view of the market, but not more, as the
value of data from each additional exchange yields diminishing returns.
As a result, all exchanges are limited in what they will be able to
charge for trade outline.
As the Commission and courts \40\ have recognized, ``[i]f
competitive forces are operative, the self-interest of the exchanges
themselves will work powerfully to constrain unreasonable or unfair
behavior.'' \41\ Accordingly, ``the existence of significant
competition provides a substantial basis for finding that the terms of
an exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.'' \42\ The Commission and the
courts have repeatedly expressed their preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, while adopting a series
of steps to improve the current market model, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues, and also recognized that current regulation of the market
system ``has been remarkably successful in promoting market competition
in its broader forms that are most important to investors and listed
companies.'' \43\ Trade Outline is in direct competition with multiple
exchanges that offer similar products in end of day and intra-day
formats.\44\
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\40\ 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) 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) (internal quotation
marks omitted). 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.'' Id. (quoting Securities
Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770,
74771 (December 9, 2008) (SR-NYSEArca-2006-21)).
\41\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\42\ See id.
\43\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
\44\ These substitute products include NOTO, ISE Trade Profile,
GEMX Trade Profile data; open-close data from Cboe C1, C2, BZX, and
EDGX; and Open Close Reports from MIAX Options, Pearl, and Emerald.
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The license to allow the external distribution of Derived Data,
like the purchase of the end of day and intra-day licenses, is also
subject to competition. Any exchange that wishes to allow distribution
of a Derived Data product based on options trading information would be
able to do so with an immediately effective fee filing similar to this
proposal.
Moreover, as explained above, the proposal is designed to promote
the dissemination of a variety of analytical insights--generally used
only by investment banks, market makers, asset managers and other buy-
side investors--to the general investing public by creating an
incentive for market data vendors to identify, develop, and sell such
indicators. As such, the proposal will spur competition among not only
exchanges, but vendors as well.
The discounted fees for historical data, like the purchase of the
end of day, intra-day and Derived Data licenses, is also subject to
competition. Any exchange that wishes to provide discounts for
historical data would be able to do so with an immediately effective
fee filing in response. Limiting the discount to the most recent 36
months of information for Current Distributors is reasonable because
our discussions with current and past customers and experience indicate
that 36 months of data is sufficient for most customer needs and is an
effective baseline for review. Other market participants will continue
to have access to the data through ad-hoc requests. Because the sale of
historical data is subject to competition, other trading venues are
free to formulate different discounts.
Comparability of Proposed Fees
The proposed fees are comparable to the fees charged by similarly
situated exchanges.
As explained above, the value of Trade Outline is determined in
part by the number of underlying transactions reflected in the data.
The Nasdaq Options Market has a market share comparable to MIAX Pearl,
BOX Exchange and Cboe BZX, at approximately 5% to 6% during the second
quarter of 2024.\45\ For intra-day products, fees range from $1,500 to
$2,000 for these exchanges. MIAX Pearl charges $2,000,\46\ BOX Exchange
charges $1,500,\47\ and Cboe BZX charges $1,500.\48\ The proposed fee
of $2,000 per month for NOTO Intra-Day data is comparable to that of
its competitors.
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\45\ See <a href="http://NasdaqTrader.com">NasdaqTrader.com</a>, ``Options Market Statistics,''
available at <a href="https://www.nasdaqtrader.com/Trader.aspx?id=OptionsVolumeSummary">https://www.nasdaqtrader.com/Trader.aspx?id=OptionsVolumeSummary</a>.
\46\ See MIAX Options Exchange, ``Fee Schedule as of April 23,
2024,'' available at <a href="https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_04232024.pdf">https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_04232024.pdf</a>.
\47\ See BOX Exchange, ``Fee Schedule as of June 18, 2024,''
available at <a href="https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-June-18-2024.pdf">https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-June-18-2024.pdf</a>.
\48\ See Cboe DataShop, ``Cboe Open-Close Volume Summary,''
available at <a href="https://datashop.cboe.com/cboe-options-open-close-volume-summary">https://datashop.cboe.com/cboe-options-open-close-volume-summary</a>.
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For End of day products, fees range from $500 to $600 for
comparable exchanges. MIAX Pearl charges $600,\49\ BOX Exchange charges
$500,\50\ and Cboe BZX charges $500.\51\ The proposed fee of $575 for
NOTO Intra-Day data is comparable to that of its competitors.
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\49\ See MIAX Pearl Options Exchange, ``Fee Schedule as of April
15, 2024,'' available at <a href="https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_04152024.pdf">https://www.miaxglobal.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_04152024.pdf</a>.
\50\ BOX Exchange, ``Fee Schedule as of June 18, 2024,''
available at <a href="https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-June-18-2024.pdf">https://boxexchange.com/assets/BOX-Fee-Schedule-as-of-June-18-2024.pdf</a>.
\51\ See Cboe DataShop, ``Cboe Open-Close Volume Summary,''
available at <a href="https://datashop.cboe.com/cboe-options-open-close-volume-summary">https://datashop.cboe.com/cboe-options-open-close-volume-summary</a>.
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These fees also reflect the increasing value of the Trade Outline
product over time. The number of transactions executed on options
exchanges has increased significantly over that time, while fees for
Trade Outline have remained unchanged in nominal terms.\52\
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\52\ See Securities Exchange Act Release No. 65836 (November 28,
2011), 76 FR 75593 (December 2, 2011) (SR-Nasdaq-2011-153)
(establishing fees for Nasdaq Options Trade Outline).
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Nasdaq is not aware of another exchange that provides a similar
[[Page 78356]]
discount for historical data other than its own affiliates. The Phlx
exchange, which is affiliated with Nasdaq, offers the most recent 36
months of historical End of Day data to Current Distributors for
$6,000, and the most recent 36 months of Intraday data for $12,000. The
proposed Nasdaq Options Market fees of $3,000 for 36 months of
historical End of Day data and $6,000 for 36 months of Intraday data
are reasonable in comparison to Phlx because Nasdaq Options Market has
a much lower market share (approximately 9% for Phlx and about 6% for
Nasdaq Options Market).
If the Exchange is incorrect in its assessment of the marketplace,
current and prospective customers will elect not to purchase Trade
Outline.
As noted above, clarifying the definition of Current Distributor
will not change fees, and therefore will not impact the equitable
allocation of reasonable dues, fees and other charges.
The Proposal Does Not Permit Unfair Discrimination
Nothing in the proposal treats any category of market participant
any differently from any other category of market participant. On the
contrary, the proposal expands distribution of Trade Outline
information beyond investment banks, market makers, asset managers and
other buy-side investors to market data vendors and the general
investing public. Allowing the distribution of Derived Data to the
general investing public will broaden the availability of such
information while not treating any current recipients of the product
differently in any way. The new fee structure, which modifies fees to
reflect current market value and offers historical data at a discount,
applies equally to all current and potential distributors.
Trade Outline is available to all market participants, including
members and non-members, and all market participants receive the same
information in the Trade Outline data feed.
With respect to the specific fee changes, it is reasonable and not
unfair discrimination to charge an external distributor of Derived Data
a $4,000 licensing fee. Vendors will ordinarily charge a fee to their
downstream customers for this service, and, even if the vendor is not
charging a specific fee for this service, Derived Data products from
the Exchange will be part of a suite of offerings that generally
promote sales. External distribution is fundamentally different than
internal use, in that the former generates revenue from external sales
while the latter does not. It is not unfair discrimination to charge a
licensing fee for a product that generates downstream revenue.
Nor is it unfair discrimination to allow the redistribution of
Derived Data, but not the underlying information, to the general
investing public. As explained above, neither exchanges nor vendors
ordinarily allow redistribution of analytic products--such products are
typically designed solely for the use of direct customers, not for
redistribution in the manner of a data feed. Allowing the
redistribution of Derived Data provides an incentive for vendors to
innovate with new compelling and varied analytic products for the
general investing public that will provide access to market sentiment
insights currently available only to sophisticated investors. This
proposal is therefore not unfair discrimination, but rather allows for
greater access to market sentiment information for the general
investing public.
It is also not unfair discrimination to provide a discount for 36
months of historical data to Current Distributors, but not former
distributors or firms that have never purchased the product. Any firm
would be able to become a Current Distributor at any time by
subscribing to Trade Outline, and would be able to cancel the
subscription at any time after receiving the 36 months of historical
data for the proposed discounted fee. More specifically, a firm that is
not a Current Distributor may obtain access to the 36 months of
historical data at a discount by becoming a Current Distributor for a
limited time and then terminating the subscription.
It is not unfair discrimination to limit the historical data
discount to Current Distributors. Historical information is generally
used by Current Distributors to test their strategies and trading
models, and Current Distributors are therefore in the best position to
benefit from the historical data. Outside of the 36 month period, all
firms will have the opportunity to purchase historical data on an ad
hoc basis. As noted, ad-hoc requests for historical data will be at the
proposed current rates of $575 per month for End of Day data and $2,000
per month for Intra-Day data.
For all of these reasons, the proposal does not permit unfair
discrimination.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. In terms of inter-market
competition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive, or rebate opportunities available at other venues to be more
favorable. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges and with
alternative trading systems that have been exempted from compliance
with the statutory standards applicable to exchanges. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
Adding the definition of Nasdaq Options Trade Outline will promote
competition by helping investors make better informed decisions about
NOTO. Nothing about the addition of a definition will impact inter-
market competition or intra-market competition negatively.
Intermarket Competition
Nothing in the proposal burdens inter-market competition (the
competition among self-regulatory organizations).
As discussed above, Trade Outline is subject to direct competition
from other options exchanges that offer substitutes. Any of these
exchanges can replicate this proposal in full or in part, and nothing
in the proposal would interfere with the ability of any exchange to do
so.
Intra-Market Competition
Nothing in the proposal burdens intra-market competition (the
competition among consumers of exchange data). Trade Outline is
available to any customer under the same fee schedule as any other
customer, and any market participant that wishes to purchase these
products can do so on a non-discriminatory basis. Indeed, the proposal
will foster competition by expanding dissemination of data to vendors
and the general investing public, and by encouraging more market
participants to use Trade Outline data to help inform their investments
strategies and analytic models.
Offering the 36 months of historical data to Current Distributors,
but not former distributors or firms that have never purchased the
product, will not burden competition because non-subscribers are free
to purchase a current subscription. Moreover, a firm
[[Page 78357]]
that is not a Current Distributor may become a Current Distributor and
then cancel the product after receiving the historical discount. As
such, firms that are not Current Distributors will have an opportunity
to pay the same fees for the most recent 36 months of historical data
as Current Distributors. Outside of the 36 month period, all firms will
have the opportunity to purchase historical data on an ad hoc basis.
Adding language to clarify the definition of Current Distributor
will not change fees, and will promote competition by better informing
investors.
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 after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \53\ and Rule 19b-
4(f)(6) \54\ thereunder.
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\53\ 15 U.S.C. 78s(b)(3)(A).
\54\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \55\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\56\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative upon filing. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may become operative upon filing. The Exchange states that
adding the definition of Nasdaq Options Trade Profile will provide
additional clarity and specificity to the Nasdaq rulebook, and nothing
in the clarification changes the product or the way it functions, but
rather describes the product exactly as it exists today. The Exchange
also states that the fees included in this filing have been in effect
since July 1, 2024, and waiver of the operative delay will allow
application of those fees to continue uninterrupted. For these reasons,
the Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest.
Therefore, the Commission hereby waives the operative delay and
designates the proposal operative upon filing.\57\
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\55\ 17 CFR 240.19b-4(f)(6).
\56\ 17 CFR 240.19b-4(f)(6)(iii).
\57\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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 necessary or
appropriate in the public interest, for the protection of investors, or
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.
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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#0775726b622a64686a6a626973744774626429606871"><span class="__cf_email__" data-cfemail="ef9d9a838ac28c8082828a819b9caf9c8a8cc1888099">[email protected]</span></a>. Please include
file number SR-NASDAQ-2024-055 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NASDAQ-2024-055. 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 website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). 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 website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NASDAQ-2024-055 and should
be submitted on or before October 16, 2024.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(12).
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Vanessa A. Countryman,
Secretary.
[FR Doc. 2024-21870 Filed 9-24-24; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.