Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending Its Fees for Non-Display Use of NYSE OpenBook, NYSE Trades, and NYSE BBO, and To Establish Fees for Non-Display Use of NYSE Order Imbalances, 52079-52086 [2014-20703]
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Federal Register / Vol. 79, No. 169 / Tuesday, September 2, 2014 / Notices
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2014–87 on the subject line.
SECURITIES AND EXCHANGE
COMMISSION
Paper Comments
[Release No. 34–72923; File No. SR–NYSE–
2014–43]
• 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–NYSEArca–2014–87. 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 (https://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 NYSE’s
principal office and on its Internet Web
site at www.nyse.com. 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–
NYSEArca–2014–87 and should be
submitted on or before September 23,
2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Kevin M. O’Neill,
Deputy Secretary.
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[FR Doc. 2014–20697 Filed 8–29–14; 8:45 am]
BILLING CODE 8011–01–P
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Amending Its
Fees for Non-Display Use of NYSE
OpenBook, NYSE Trades, and NYSE
BBO, and To Establish Fees for NonDisplay Use of NYSE Order Imbalances
August 26, 2014.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on August
13, 2014, New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend its
fees for non-display use of NYSE
OpenBook, NYSE Trades, and NYSE
BBO, and to establish fees for nondisplay use of NYSE Order Imbalances,
operative on September 1, 2014. The
text of the proposed rule change is
available on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, on the Commission’s Web
site at www.sec.gov, 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
self-regulatory organization 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 those 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 parts of such
statements.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
10 17
CFR 200.30–3(a)(12).
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52079
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend its
non-display fees for NYSE OpenBook,
NYSE Trades, and NYSE BBO, to
establish such fees for NYSE Order
Imbalances, and to establish managed
non-display services fees for NYSE
BBO, operative on September 1, 2014.
The Exchange established the current
non-display and managed non-display
services fees for NYSE OpenBook, NYSE
Trades, and NYSE BBO in April 2013.4
The Exchange now proposes to change
those fees and to establish similar fees
for NYSE Order Imbalances.
Under the proposal, non-display use
would continue to mean accessing,
processing, or consuming an NYSE data
product delivered via direct and/or
Redistributor 5 data feeds for a purpose
other than in support of a data
recipient’s display or further internal or
external redistribution (‘‘Non-Display
Use’’). As is the case today, non-display
and managed non-display services fees
would apply to the Non-Display Use of
the data product as part of automated
calculations or algorithms to support
trading decision-making processes or
the operation of trading platforms.
The Exchange is proposing to expand
the types of uses considered NonDisplay Use to also include non-trading
uses. In addition, the proposal would
specify that Non-Display Use would
include any trading use, rather than
only certain types of trading, such as
high frequency or algorithmic trading,
as under the current fee structure.
Under the proposal, examples of NonDisplay Use would include any trading
in any asset class, automated order or
quote generation and/or order pegging,
price referencing for algorithmic trading
or smart order routing, operations
control programs, investment analysis,
order verification, surveillance
programs, risk management,
compliance, and portfolio management.
The Exchange believes that non-trading
uses benefit data recipients by allowing
users to automate functions, achieving
greater speed and accuracy, and in turn,
for example, reducing costs of labor to
perform the functions manually. This
approach would address the difficulties
4 See Securities Exchange Act Release No. 69278
(April 2, 2013), 78 FR 20973 (April 8, 2013) (SR–
NYSE–2013–25) (‘‘2013 Release’’).
5 ‘‘Redistributor’’ means a vendor or any person
that provides a real-time NYSE data product to a
data recipient or to any system that a data recipient
uses, irrespective of the means of transmission or
access.
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of monitoring and auditing different
types of trading versus non-trading uses
of the data and the burden of counting
devices used for non-trading purposes
under the current fees.
Proposed Changes to Non-Display Fees
The Exchange proposes to amend the
fee structure applicable to Non-Display
Use of NYSE OpenBook, NYSE BBO,
and NYSE Trades and to establish such
fees for NYSE Order Imbalance.
Specifically, the Exchange proposes
certain changes to the three categories
of, and fees applicable to, data
recipients.
Under the proposal, Category 1 Fees
would apply when a data recipient’s
Non-Display Use of real-time market
data is on its own behalf as opposed to
use on behalf of its clients. This
proposal represents an expansion of the
application of Category 1 Fees, which
currently apply solely to the NonDisplay Use of real time market data for
the purpose of principal trading, to
usage of such data for non-trading
purposes.
Under the proposal, Category 2 Fees
would apply to data recipients’ NonDisplay Use of real-time market data is
[sic] on behalf of its clients as opposed
to use on its own behalf. This proposal
also represents an expansion of the
application of Category 2 Fees, which
currently apply solely to trading
activities to facilitate a customer
business, to usage of such data for nontrading purposes. As under the current
fee, if a data recipient’s use of NYSE
market data is covered by Category 1
and Category 2, then the data recipient
must pay both categories of fees.6
The Exchange believes its proposal to
apply Category 1 Fees and Category 2
Fees to Non-Display Use of market data
for non-trading purposes would address
the difficulties of monitoring and
auditing trading versus non-trading uses
of the data and the burden of counting
devices used for purposes of applying
the per-device fees. As discussed in
more detail in the 2013 Release,7 the
ability to accurately count devices and
audit such counts creates administrative
challenges for vendors, data recipients,
and the Exchange.
Under the proposal, Category 3 Fees
would apply to data recipients’ NonDisplay Use of real-time market data for
the purpose of internally matching buy
and sell orders within an organization,
including matching customer orders for
data recipient’s own behalf and/or on
behalf of its clients. This category would
apply to Non-Display Use in trading
6 See
7 See
2013 Release, supra note 4, at 20976.
2013 Release, supra note 4, at 20975.
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platform(s), such as, but not restricted
to, alternative trading systems (‘‘ATSs’’),
broker crossing networks, broker
crossing systems not filed as ATSs, dark
pools, multilateral trading facilities,
exchanges and systematic
internalization systems. Currently,
Category 3 Fees apply where a data
recipient’s non-display use of market
data is, in whole or in part, for the
purpose of providing reference prices in
the operation of one or more trading
platforms. The Exchange believes its
proposed revision to its description of
the data recipients to whom Category 3
Fees apply is more precise because it
focuses on the functions of internally
matching orders.
In addition, the Exchange is
proposing to change the application of
Category 3 Fees to data recipients that
also use data for purposes that give rise
to Category 1 and/or Category 2 Fees.
Currently, a data recipient is not liable
for Category 3 Fees for those market data
products for which it is also paying
Category 1 and/or Category 2 Fees.8
Under the proposal, a data recipient’s
Non-Display Use of real-time market
data for Category 3 purposes would
require such data recipient to pay
Category 3 Fees in addition to any
Category 1 Fees or Category 2 Fees it is
required to pay for Non-Display Use of
market data.
There will continue to be no monthly
or other reporting requirements for data
recipients’ Non-Display Use. However,
the Exchange continues to reserve the
right to audit data recipients’ NonDisplay Use of NYSE market data
products in accordance with NYSE’s
vendor and subscriber agreements.
Data recipient that receive real-time
NYSE market data for Non-Display Use
would be required to complete and
submit a Non-Display Use Declaration
before September 1, 2014. The NonDisplay Use Declaration would replace
the current declaration on NYSE
Euronext Non-Display Usage
Declaration.9 A firm subject to Category
3 Fees would be required to identify
each platform that uses data on a NonDisplay Use basis, such as ATSs and
broker crossing systems not registered as
ATSs, as part of the Non-Display Use
Declaration. Beginning in 2016, data
recipients would be required to submit,
8 See
2013 Release, supra note 4, at 20976.
described in more detail in the Statutory
Basis section, in order to modulate the overall fee
increase that could apply, if a firm subject to
Category 3 Fees has more than three platforms, it
would only be required to declare three platforms.
If a data recipient only subscribes to products for
which there are no non-display usage fees, e.g.,
NYSE Realtime Reference Prices, then no
declaration is required.
9 As
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by January 31 of each year, a NonDisplay Use Declaration. In addition, if
a data recipient’s use of real-time NYSE
market data changes at any time after
the data recipient submits a NonDisplay Use Declaration, the data
recipient would be required to update it
at the time of the change to reflect the
change of use.
Proposed Changes to Fees for Managed
Non-Display Services
The Exchange also proposes to change
the fees for managed non-display
services for NYSE OpenBook and NYSE
Trades and establish managed nondisplay service fees for NYSE BBO and
NYSE Order Imbalances. Managed nondisplay services fees would apply, as
they do currently, where data recipients’
non-display applications are hosted by
an approved third party.10 To be an
approved third party, the third party
must manage and control the access to
real-time NYSE market data for the data
recipients’ non-display applications and
not allow for further internal
distribution or external redistribution of
the information.
The managed non-display services fee
would only apply if a data recipient is
receiving real-time NYSE market data
for Non-Display Use from a third party
Redistributor 11 that is approved by the
Exchange. As for the current managed
non-display services fees, this
Redistributor must manage and control
the access to NYSE OpenBook, NYSE
Trades, NYSE BBO, and NYSE Order
Imbalances for these applications and
may not allow for further internal
distribution or external redistribution of
these market data products. The
Redistributor of the managed nondisplay services and the data recipient
must be approved under the NYSE
Global Data Products Unit-of-Count
Policy.12 If a data recipient receives
NYSE OpenBook, NYSE Trades, NYSE
BBO, and NYSE Order Imbalances from
a Redistributor that is not approved by
the Exchange, then the non-display fees
would apply, and data recipients would
not be liable for managed non-display
fees for those market data products for
which they pay non-display fees.
A data recipient of real-time NYSE
market data through an approved
Redistributor would continue to have no
reporting requirements. However, a
Redistributor would be required to
report to NYSE on a monthly basis the
data recipients that are receiving real10 See
2013 Release, supra note 4, at 20976.
supra note 5.
12 The Unit-of-Count Policy is described in the
2013 Release, supra note 4, at note 10 and
accompanying text.
11 See
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time NYSE market data through the
Redistributor’s managed non-display
service and the real-time NYSE market
data that such data recipients are
receiving through such service. This
monthly reporting requirement would
be new, though the Exchange currently
has the right to audit data recipients’
non-display use of NYSE market data
products in accordance with NYSE’s
vendor and subscriber agreements.
Data feed
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NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
14 15
OpenBook Non-Display Category 1 .................
OpenBook Non-Display Category 2 .................
OpenBook Non-Display Category 3 .................
OpenBook Managed Non-Display ...................
BBO Non-Display Category 3 ..........................
BBO Managed Non-Display .............................
Trades Non-Display Category 1 ......................
Trades Non-Display Category 2 ......................
Trades Non-Display Category 3 ......................
Trades Managed Non-Display .........................
Order Imbalances Category 1 ..........................
Order Imbalances Category 2 ..........................
Order Imbalances Category 3 ..........................
Order Imbalances Managed Non-Display ........
U.S.C. 78f(b).
U.S.C. 78f(b)(4), (5).
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The chart below compares the
proposed changes to current monthly
fees:
Current fee
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,13
in general, and Sections 6(b)(4) and
6(b)(5) of the Act,14 in particular, in that
it provides an equitable allocation of
reasonable fees among users and
recipients of the data and is not
designed to permit unfair
discrimination among customers,
issuers, and brokers.
The Exchange believes that charging
for non-trading uses is reasonable
because data recipients can derive
substantial value from such uses, for
example, by automating tasks so that
they can be performed more quickly and
accurately and less expensively than if
they were performed manually. The
Exchange also notes that The NASDAQ
Stock Market (‘‘NASDAQ’’) and
NASDAQ OMX PHLX (‘‘Phlx’’) do not
make any distinction in their nondisplay use fees between trading or nontrading uses, and as such, the proposed
change will harmonize the Exchange’s
approach with those exchanges. Finally,
the Exchange notes that eliminating the
trading versus non-trading distinction
would substantially simplify fee
calculations and ease administrative
burdens for the Exchange.
After further experience, the
Exchange also believes that it is more
equitable and not unfairly
discriminatory to eliminate the
distinction for non-trading versus
trading uses in light of the significant
value of both types of uses. The
Exchange notes that because nondisplay fees are flat fees, the expansion
13 15
Comparison of Current Fees to Proposed
Fees
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$5,000 ........................................................................
$5,000 ........................................................................
$5,000, or $0 if Category 1 or 2 fees paid ................
$2,000 ........................................................................
$1,500, or $0 if Category 1 or 2 fees paid ................
n/a ..............................................................................
$2,000 ........................................................................
$2,000 ........................................................................
$2,000, or $0 if Category 1 or 2 fees paid ................
$700 ...........................................................................
n/a ..............................................................................
n/a ..............................................................................
n/a ..............................................................................
n/a ..............................................................................
to cover non-trading uses could only
result in a fee increase for a data
recipient that is using the data solely for
non-trading purposes and is only
subject to per-device fees; at this time,
the Exchange has not identified such a
data recipient. Based on data available
to the Exchange, all data recipients use
the data for at least one trading purpose,
and therefore the changes to the fees
that they will pay under the proposal
would not be due to the elimination of
the distinction between trading and
non-trading uses. The Exchange further
notes that based on Proposed
Declarations submitted to date, some
users have declared no non-display use,
and as such the proposed changes
would have no impact on them.
The Exchange believes that it is
reasonable to require annual
submissions of the Proposed Declaration
so that the Exchange will have current
and accurate information about the use
of its market data products and can
correctly assess fees for the uses of those
products. The annual submission
requirement is equitable and not
unfairly discriminatory because it will
apply to all users.
The Exchange believes that requiring
Redistributors to provide monthly
reports of data recipients that are
receiving the Managed Non-Display
service is reasonable because as a matter
of practice, the Exchange already has
been requiring such reporting pursuant
to the Exchange’s right under the vendor
and subscriber agreements to request
such information, and there is no
indication that this has been
burdensome for Redistributors. The
reporting requirement is equitable and
not unfairly discriminatory because it
will apply to all Redistributors and help
PO 00000
Proposed fee
Frm 00139
Fmt 4703
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$6,000.
$6,000.
$6,000,
$2,400.
$1,500,
$300.
$3,000.
$3,000.
$3,000,
$1,000.
$2,000.
$2,000.
$2,000,
$200.
capped at $18,000.
capped at $4,500.
capped at $9,000.
capped at $6,000.
to ensure that ultimate data recipients
are receiving data in accordance with
the Exchange’s rules.
The Exchange believes that the
proposed fee increases of $1,000 per
month for each of Categories 1, 2, and
3 for NYSE OpenBook and NYSE Trades
are reasonable. In establishing the nondisplay fees in April 2013, the Exchange
set its fees substantially below
comparable fees charged by certain of its
competitors.15 After gaining further
experience with its new display/nondisplay fee structure, the Exchange
believes that the proposed fees better
reflect the significant value of the nondisplay data to data recipients, which
purchase such data on an entirely
voluntary basis. Non-display data can be
used by data recipients for a wide
variety of profit-generating purposes,
including proprietary and agency
trading and smart order routing, as well
as by data recipients that operate order
matching and execution platforms that
compete directly with the Exchange for
order flow. The data also can be used for
a variety of non-trading purposes that
indirectly support trading, such as risk
management and compliance. While
some of these non-trading uses do not
directly generate revenues, they can
nonetheless substantially reduce the
recipient’s costs by automating such
functions so that they can be carried out
in a more efficient and accurate manner
and reduce errors and labor costs,
thereby benefiting end users. The
Exchange believes that the proposed
fees directly and appropriately reflect
the significant value of using nondisplay data in a wide range of
computer-automated functions relating
15 See
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2013 Release, supra note 4, at 20977.
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to both trading and non-trading
activities and that the number and range
of these functions continue to grow
through innovation and technology
developments.16
The fee increases are also reasonable
in that they support the Exchange’s
efforts to regularly upgrade systems to
support more modern data distribution
formats and protocols as technology
evolves. For example, the Exchange will
begin to make its proprietary data
products available over both its existing
distribution channel as well as the XDP
protocol later this year.
Charging a separate fee for Category 3
data recipients that already pay a fee
under Category 1 or 2 is reasonable
because it eliminates what is effectively
a discount for such data recipients
under the current Fee Schedule and
results in a more equitable allocation of
fees to users that derive a benefit from
a Category 3 use, and as such is not
unfairly discriminatory. The current fee
can be viewed as having an effective
non-display fee cap of $10,000 for NYSE
OpenBook, $4,000 for NYSE Trades, and
$3,000 for NYSE BBO while the
proposed fee would have an effective
non-display fee cap of $30,000 for NYSE
OpenBook, $15,000 for NYSE Trades,
and $7,500 for NYSE BBO. The
Exchange believes that the proposed
fees (and their associated caps) more
closely correspond to the value that
Category 3 recipients derive from the
various uses of the data, some of which
are operating various types of
alternative trading venues that directly
compete for order flow with the
Exchange. Limiting the fees in Category
3 to no more than three trading
platforms is reasonable because it
modulates the size of the fee increase for
certain recipients as compared to what
they pay under the current fee structure,
in much the same manner as the current
fee does by limiting the non-display fees
to a maximum of two categories. The
Exchange does not believe that it will be
burdensome for Category 3 recipients to
determine, or the Exchange to audit,
whether a recipient has one, two, or
three or more separate platforms.
The proposed non-display fees for
NYSE Order Imbalance are reasonable
16 See also Exchange Act Release No. 69157,
March 18, 2013, 78 FR 17946, 17949 (March 25,
2013) (SR–CTA/CQ–2013–01) (‘‘[D]ata feeds have
become more valuable, as recipients now use them
to perform a far larger array of non-display
functions. Some firms even base their business
models on the incorporation of data feeds into black
boxes and application programming interfaces that
apply trading algorithms to the data, but that do not
require widespread data access by the firm’s
employees. As a result, these firms pay little for
data usage beyond access fees, yet their data access
and usage is critical to their businesses.’’).
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because they reflect the valuable nondisplay uses of this data feed for
recipients and will be easier for the
Exchange to administer than counting
devices, as is required under the current
Fee Schedule. The fees are equitable
and not unfairly discriminatory because
they will apply to all data recipients
that choose to subscribe to the NYSE
Order Imbalances feed.
The proposed monthly fees of $300
for NYSE BBO Managed Non-Display
data and $200 for NYSE Order
Imbalances Managed Non-Display data
are reasonable because they are less
than other managed non-display fees
charged by the Exchange for other
managed non-display products as well
as by other exchanges for comparable
products.17 The fees are also equitable
and not unfairly discriminatory because
they will apply to all data recipients
that choose to subscribe to the feeds.
The proposed increase in the NYSE
Trades Managed Non-Display fee from
$700 to $1,000 per month is reasonable
because it remains less than the
comparable fee for other exchanges’
similar products.18 The fee also is
equitable and not unfairly
discriminatory because it will apply to
all data recipients that choose to
subscribe to the feed.
The fees are also competitive with
offerings by other exchanges, which
structure and set their fees in a variety
of ways. For example, NASDAQ
professional subscribers pay monthly
fees for non-display usage based upon
direct access to NASDAQ Level 2,
NASDAQ TotalView,19 or NASDAQ
OpenView, which range from $300 per
month for customers with one to 10
subscribers to $75,000 for customers
with 250 or more subscribers.20
NASDAQ also offers an enterprise
license for its last sale data at $50,000
per month.21 In addition, Phlx offers an
alternative $10,000 per month ‘‘NonDisplay Enterprise License’’ fee that
17 NASDAQ offers a Managed Data Solution that
assesses a monthly Managed Data Solution
Administration fee of $1,500 and monthly
Subscriber fees of $60 for non-professionals to $300
for professionals. See NASDAQ Rule 7026(b). Phlx
charges a monthly Managed Data Solution
Administration fee of $2,000 and a monthly
Subscriber fee of $500. The monthly License fee is
in addition to the monthly Distributor fee of $3,500
(for external usage), and the $500 monthly
Subscriber fee is assessed for each Subscriber of a
Managed Data Solution. See Securities Exchange
Act Release No. 70748 (October 23, 2013), 78 FR
64569 (October 29, 2013) (SR–Phlx–2013–105).
18 See id.
19 NASDAQ disseminates its Net Order Imbalance
Indicator for the NASDAQ Opening and Closing
Crosses and NASDAQ IPO/Halt Cross as part of the
TotalView product.
20 See NASDAQ Rule 7023(b)(4).
21 See NASDAQ Rule 7039(b).
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Sfmt 4703
permits distribution to an unlimited
number of internal non-display
subscribers without incurring additional
fees for each internal subscriber.22 The
Non-Display Enterprise License covers
non-display subscriber fees for all Phlx
proprietary direct data feed products
and is in addition to any other
associated distributor fees for Phlx
proprietary direct data feed products.
NASDAQ OMX BX, Inc. (‘‘BX’’) also
offers an alternative non-display usage
fee of $16,000 per month for its BX
TotalView data feed.23 NASDAQ and
Phlx also both offer managed nondisplay data solutions at higher overall
fees than the Exchange proposes to
charge.24
The Exchange also notes that all of the
products described herein are entirely
optional. The Exchange is not required
to make these proprietary data products
available or to offer any specific pricing
alternatives to any customers, nor is any
firm required to purchase any of the
products. Firms that do purchase nondisplay products do so for the primary
goals of using them to increase
revenues, reduce expenses, and in some
instances compete directly with the
Exchange for order flow; those firms are
able to determine for themselves
whether any specific product such as
these are attractively priced or not.
Firms that do not wish to purchase
the data at the new prices have a wide
variety of alternative market data
products from which to choose,25 or if
the non-display data products do not
provide sufficient value to firms as
offered based on the uses those firms
have or planned to make of them, such
firms may simply choose to conduct
their business operations in ways that
do not require those data products. The
Exchange notes that broker-dealers are
not required to purchase proprietary
market data to comply with their best
execution obligations.26 Similarly, there
is no requirement in Regulation NMS or
any other rule that proprietary data be
utilized for order routing decisions, and
22 Alternatively, Phlx charges each professional
subscriber $40 per month. See Section IX of the
Phlx Pricing Schedule.
23 See NASDAQ OMX BX Rule 7023(a)(2).
Alternatively, BX charges each professional
subscriber $40 per month.
24 See supra note 18.
25 See supra notes 18–24. Because NYSE BBO and
NYSE Trades are subsets of the consolidated core
data offered by the CTA and CQS, customers may
choose to purchase those consolidated data
products or free delayed data instead.
26 See In the Matter of the Application of
Securities Industry And Financial Markets
Association For Review of Actions Taken by SelfRegulatory Organizations, Release Nos. 34–72182;
AP–3–15350; AP–3–15351 (May 16, 2014).
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some broker-dealers and ATSs have
chosen not to do so.27
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 reliance by the Securities and
Exchange Commission (‘‘Commission’’)
upon the existence of competitive
market mechanisms to set reasonable
and equitably allocated fees for
proprietary 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.’
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Id. at 535 (quoting H.R. Rep. No. 94–
229 at 92 (1975), as reprinted in 1975
U.S.C.C.A.N. 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.’ ’’ 28
As explained below in the Exchange’s
Statement on Burden on Competition,
the Exchange believes that there is
substantial evidence of competition in
the marketplace for proprietary market
data and that the Commission can rely
upon such evidence in concluding that
the fees established in this filing are the
product of competition and therefore
satisfy the relevant statutory standards.
In addition, the existence of alternatives
to these data products, such as
consolidated data and proprietary data
from other sources, as described below,
further ensures that the Exchange
cannot set unreasonable fees, or fees
that are unreasonably discriminatory,
when vendors and subscribers can
select such alternatives.
As the NetCoalition decision noted,
the Commission is not required to
undertake a cost-of-service or
ratemaking approach. The Exchange
believes that, even if it were possible as
a matter of economic theory, cost-based
pricing for non-core market data would
be so complicated that it could not be
27 For example, Goldman Sachs Execution and
Clearing, L.P. has disclosed that it does not use
proprietary market data in connection with Sigma
X, its ATS. See response to Question E3, available
at https://www.goldmansachs.com/media-relations/
in-the-news/current/pdf-media/gsec-orderhandling-practices-ats-specific.pdf. By way of
comparison, IEX has disclosed that it uses
proprietary market data feeds from all registered
stock exchanges and LavaFlow ECN. See https://
www.iextrading.com/about/.
28 NetCoalition, 615 F.3d at 535.
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done practically or offer any significant
benefits.29
For these reasons, the Exchange
believes that the proposed fees are
reasonable, equitable, and not unfairly
discriminatory.
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 that is not
necessary or appropriate in furtherance
of the purposes of the Act. An
exchange’s ability to price its
proprietary market data feed products is
constrained by actual competition for
the sale of proprietary market data
products, the joint product nature of
exchange platforms, and the existence of
alternatives to the Exchange’s
proprietary data.
The Existence of Actual Competition.
The market for proprietary data
products is currently competitive and
inherently contestable because there is
fierce competition for the inputs
necessary for the creation of proprietary
data and strict pricing discipline for the
proprietary products themselves.
Numerous exchanges compete with one
another for listings and order flow and
sales of market data itself, providing
ample opportunities for entrepreneurs
who wish to compete in any or all of
those areas, including producing and
distributing their own market data.
Proprietary data products are produced
and distributed by each individual
exchange, as well as other entities, in a
vigorously competitive market. Indeed,
29 The Exchange believes that cost-based pricing
would be impractical because it would create
enormous administrative burdens for all parties,
including the Commission, to cost-regulate a large
number of participants and standardize and analyze
extraordinary amounts of information, accounts,
and reports. In addition, and as described below, it
is impossible to regulate market data prices in
isolation from prices charged by markets for other
services that are joint products. Cost-based rate
regulation would also lead to litigation and may
distort incentives, including those to minimize
costs and to innovate, leading to further waste.
Under cost-based pricing, the Commission would
be burdened with determining a fair rate of return,
and the industry could experience frequent rate
increases based on escalating expense levels. Even
in industries historically subject to utility
regulation, cost-based ratemaking has been
discredited. As such, the Exchange believes that
cost-based ratemaking would be inappropriate for
proprietary market data and inconsistent with
Congress’s direction that the Commission use its
authority to foster the development of the national
market system, and that market forces will continue
to provide appropriate pricing discipline. See
Appendix C to NYSE’s comments to the
Commission’s 2000 Concept Release on the
Regulation of Market Information Fees and
Revenues, which can be found on the Commission’s
Web site at https://www.sec.gov/rules/concept/
s72899/buck1.htm.
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52083
the U.S. Department of Justice (‘‘DOJ’’)
(the primary antitrust regulator) has
expressly acknowledged the aggressive
actual competition among exchanges,
including for the sale of proprietary
market data. In 2011, the DOJ stated that
exchanges ‘‘compete head to head to
offer real-time equity data products.
These data products include the best bid
and offer of every exchange and
information on each equity trade,
including the last sale.’’ 30
Moreover, competitive markets for
listings, order flow, executions, and
transaction reports provide pricing
discipline for the inputs of proprietary
data products and therefore constrain
markets from overpricing proprietary
market data. Broker-dealers send their
order flow and transaction reports to
multiple venues, rather than providing
them all to a single venue, which in turn
reinforces this competitive constraint.
As a 2010 Commission Concept Release
noted, the ‘‘current market structure can
be described as dispersed and complex’’
with ‘‘trading volume . . . dispersed
among many highly automated trading
centers that compete for order flow in
the same stocks’’ and ‘‘trading centers
offer[ing] a wide range of services that
are designed to attract different types of
market participants with varying trading
needs.’’ 31 More recently, SEC Chair
Mary Jo White has noted that
competition for order flow in exchangelisted equities is ‘‘intense’’ and divided
among many trading venues, including
exchanges, more than 40 alternative
trading systems, and more than 250
broker-dealers.32
If an exchange succeeds in its
competition for quotations, order flow,
and trade executions, then it earns
30 Press Release, U.S. Department of Justice,
Assistant Attorney General Christine Varney Holds
Conference Call Regarding NASDAQ OMX Group
Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011),
available at https://www.justice.gov/iso/opa/atr/
speeches/2011/at-speech-110516.html.
31 Concept Release on Equity Market Structure,
Securities Exchange Act Release No. 61358 (Jan. 14,
2010), 75 FR 3594 (Jan. 21, 2010) (File No. S7–02–
10). This Concept Release included data from the
third quarter of 2009 showing that no market center
traded more than 20% of the volume of listed
stocks, further evidencing the dispersal of and
competition for trading activity. Id. at 3598. Data
available on ArcaVision show that from June 30,
2013 to June 30, 2014, no exchange traded more
than 12% of the volume of listed stocks by either
trade or dollar volume, further evidencing the
continued dispersal of and fierce competition for
trading activity. See https://www.arcavision.com/
Arcavision/arcalogin.jsp.
32 Mary Jo White, Enhancing Our Equity Market
Structure, Sandler O’Neill & Partners, L.P. Global
Exchange and Brokerage Conference (June 5, 2014)
(available on the Commission Web site), citing
Tuttle, Laura, 2014, ‘‘OTC Trading: Description of
Non-ATS OTC Trading in National Market System
Stocks,’’ at 7–8.
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trading revenues and increases the value
of its proprietary market data products
because they will contain greater quote
and trade information. Conversely, if an
exchange is less successful in attracting
quotes, order flow, and trade
executions, then its market data
products may be less desirable to
customers using them in support of
order routing and trading decisions in
light of the diminished content; data
products offered by competing venues
may become correspondingly more
attractive. Thus, competition for
quotations, order flow, and trade
executions puts significant pressure on
an exchange to maintain both execution
and data fees at reasonable levels.
In addition, in the case of products
that are distributed through market data
vendors, such as Bloomberg and
Thompson Reuters, the vendors
themselves provide additional price
discipline for proprietary data products
because they control the primary means
of access to certain end users. These
vendors impose price discipline based
upon their business models. For
example, vendors that assess a
surcharge on data they sell are able to
refuse to offer proprietary products that
their end users do not or will not
purchase in sufficient numbers. Vendors
will not elect to make available the
NYSE products described herein unless
their customers request them, and
customers will not elect to pay the
proposed increased fees for non-display
uses unless the non-display uses of
these data products can provide value
by sufficiently increasing revenues or
reducing costs in the customer’s
business in a manner that will offset the
fees. All of these factors operate as
constraints on pricing proprietary data
products.
Joint Product Nature of Exchange
Platform.
Transaction execution and proprietary
data products are complementary in that
market data is both an input and a
byproduct of the execution service. In
fact, proprietary market data and trade
executions are a paradigmatic example
of joint products with joint costs. The
decision of whether and on which
platform to post an order will depend
on the attributes of the platforms where
the order can be posted, including the
execution fees, data availability and
quality, and price and distribution of
their data products. Without a platform
to post quotations, receive orders, and
execute trades, exchange data products
would not exist.
The costs of producing market data
include not only the costs of the data
distribution infrastructure, but also the
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costs of designing, maintaining, and
operating the exchange’s platform for
posting quotes, accepting orders, and
executing transactions 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, an exchange’s brokerdealer customers generally view the
costs of transaction executions and
market data as a unified cost of doing
business with the exchange. A brokerdealer will only choose to direct orders
to an exchange if the revenue from the
transaction exceeds its cost, including
the cost of any market data that the
broker-dealer chooses to buy in support
of its order routing and trading
decisions. If the costs of the transaction
are not offset by its value, then the
broker-dealer may choose instead not to
purchase the product and trade away
from that exchange. There is substantial
evidence of the strong correlation
between order flow and market data
purchases. For example, in May 2014
more than 80% of the transaction
volume on each of NYSE, NYSE Arca,
and NYSE MKT was executed by market
participants that purchased one or more
proprietary market data products (the 20
firms were not the same for each
market). A super-competitive increase
in the fees for either executions or
market data would create a risk of
reducing an exchange’s revenues from
both products.
Other market participants have noted
that proprietary market data and trade
executions are joint products of a joint
platform and have common costs.33 The
Exchange agrees with and adopts those
discussions and the arguments therein.
The Exchange also notes that the
economics literature confirms that there
is no way to allocate common costs
between joint products that would shed
any light on competitive or efficient
pricing.34
33 See Securities Exchange Act Release No. 72153
(May 12, 2014), 79 FR 28575, 28578 n.15 (May 16,
2014) (SR–NASDAQ–2014–045) (‘‘[A]ll 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.’’). See also Securities Exchange Act
Release No. 62907 (Sept. 14, 2010), 75 FR 57314,
57317 (Sept. 20, 2010) (SR–NASDAQ–2010–110),
and Securities Exchange Act Release No. 62908
(Sept. 14, 2010), 75 FR 57321, 57324 (Sept. 20,
2010) (SR–NASDAQ–2010–111).
34 See generally Mark Hirschey, Fundamentals of
Managerial Economics, at 600 (2009) (‘‘It is
important to note, however, that although it is
possible to determine the separate marginal costs of
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Analyzing the cost of market data
product production and distribution in
isolation from the cost of all of the
inputs supporting the creation of market
data and market data products will
inevitably underestimate the cost of the
data and data products because it is
impossible to obtain the data inputs to
create market data products without a
fast, technologically robust, and wellregulated execution system, and system
and regulatory costs affect the price of
both obtaining the market data itself and
creating and distributing market data
products. It would be equally
misleading, however, to attribute all of
an exchange’s costs to the market data
portion of an exchange’s joint products.
Rather, all of an 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.
As noted above, the level of
competition and contestability in the
market is evident in the numerous
alternative venues that compete for
order flow, including 12 equities selfregulatory organization (‘‘SRO’’)
markets, as well as various forms of
ATSs, including dark pools and
electronic communication networks
(‘‘ECNs’’), and internalizing brokerdealers. SRO markets compete to attract
order flow and produce transaction
reports via trade executions, and two
FINRA-regulated Trade Reporting
Facilities compete to attract transaction
reports from the non-SRO venues.35
Competition among trading platforms
can be expected to constrain the
aggregate return that each platform
earns from the sale of its joint products,
but different trading platforms may
choose from a range of possible, and
equally reasonable, pricing strategies as
goods produced in variable proportions, it is
impossible to determine their individual average
costs. This is because common costs are expenses
necessary for manufacture of a joint product.
Common costs of production—raw material and
equipment costs, management expenses, and other
overhead—cannot be allocated to each individual
by-product on any economically sound basis. . . .
Any allocation of common costs is wrong and
arbitrary.’’). This is not new economic theory. See,
e.g., F. W. Taussig, ‘‘A Contribution to the Theory
of Railway Rates,’’ Quarterly Journal of Economics
V(4) 438, 465 (July 1891) (‘‘Yet, surely, the division
is purely arbitrary. These items of cost, in fact, are
jointly incurred for both sorts of traffic; and I cannot
share the hope entertained by the statistician of the
Commission, Professor Henry C. Adams, that we
shall ever reach a mode of apportionment that will
lead to trustworthy results.’’).
35 FINRA’s Alternative Display Facility also
receives over-the-counter trade reports that it sends
to CTA.
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the means of recovering total costs. For
example, some platforms may choose to
pay rebates to attract orders, charge
relatively low prices for market data
products (or provide market data
products free of charge), and charge
relatively high prices for accessing
posted liquidity. Other platforms may
choose a strategy of paying lower
rebates (or no rebates) to attract orders,
setting relatively high prices for market
data products, and setting relatively low
prices for accessing posted liquidity. For
example, BATS and Direct Edge, which
previously operated as ATSs and
obtained exchange status in 2008 and
2010, respectively, have provided
certain market data at no charge on their
Web sites in order to attract more order
flow, and use revenue rebates from
resulting additional executions to
maintain low execution charges for their
users.36 Similarly, LavaFlow ECN
provides market data to its subscribers
at no charge.37 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.38
mstockstill on DSK4VPTVN1PROD with NOTICES
Existence of Alternatives
The large number of SROs, ATSs, and
internalizing broker-dealers that
currently produce proprietary data or
are currently capable of producing it
provides further pricing discipline for
proprietary data products. Each SRO,
ATS, and broker-dealer is currently
permitted to produce and sell
proprietary data products, and many
currently do or have announced plans to
do so, including but not limited to the
Exchange, NYSE MKT, NYSE Arca,
NASDAQ OMX, BATS, and Direct Edge.
The fact that proprietary data from
ATSs, internalizing broker-dealers, and
vendors can bypass SROs is significant
in two respects. First, non-SROs can
compete directly with SROs for the
production and sale of proprietary data
36 This is simply a securities market-specific
example of the well-established principle that in
certain circumstances more sales at lower margins
can be more profitable than fewer sales at higher
margins; this example is additional evidence that
market data is an inherent part of a market’s joint
platform.
37 See ‘‘LavaFlow—ADF Migration,’’ available at
https://www.lavatrading.com/news/pdf/
LavaFlow_ADF_Migration.pdf.
38 The Exchange notes that a small number
Category 3 non-display data recipients could be
using the market data strictly for competitive
purposes (e.g., other exchanges and ATSs) or for
business purposes unrelated to trading or
investment (e.g., Internet portals that wish to attract
‘‘eyeballs’’ to their pages primarily generate
advertising revenue for themselves). The Exchange
does not believe that the proposed fees will impose
any unnecessary burden on these competitors or
other businesses.
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products. By way of example, BATS and
NYSE Arca both published proprietary
data on the Internet before registering as
exchanges. Second, because a single
order or transaction report can appear in
an SRO proprietary product, a non-SRO
proprietary product, or both, the amount
of data available via proprietary
products is greater in size than the
actual number of orders and transaction
reports that exist in the marketplace. For
example, with respect to NYSE Trades
and NYSE BBO, the data appears in
both the real-time core data offered by
the SIPs for a fee and free SIP data that
is offered on a 15-minute time delay.
With respect to NYSE Trades, NYSE
BBO, NYSE OpenBook, and NYSE
Order Imbalances, a close substitute
product is offered by several
competitors.39 Because market data
users can find suitable substitutes for
most proprietary market data products,
a market that overprices its market data
products stands a high risk that users
may substitute another source of market
data information for its own.
Those competitive pressures imposed
by available alternatives are evident in
the Exchange’s proposed pricing. As
noted above, the proposed non-display
fees are generally lower than the
maximum non-display fees charged by
other exchanges such as NASDAQ,
Phlx, and BX for comparable
products.40
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 and inexpensive. 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,
TrackECN, BATS Trading and Direct
Edge. As noted above, BATS launched
as an ATS in 2006 and became an
exchange in 2008, while Direct Edge
began operations in 2007 and obtained
exchange status in 2010. As noted
above, LavaFlow ECN provides market
data to its subscribers at no charge.41
In establishing the proposed fees, the
Exchange considered the
competitiveness of the market for
proprietary data and all of the
implications of that competition. The
Exchange believes that it has considered
39 See supra notes 18–24. With respect to order
imbalances, the Exchange further notes that other
venues trade NYSE listed securities before the
Exchange’s opening cross at 9:30 a.m., and therefore
indicative price information is available through
these venues.
40 Id.
41 See supra note 38.
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52085
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 the Exchange’s products,
including proprietary data from other
sources, ensures that the Exchange
cannot set unreasonable fees, or fees
that are unreasonably discriminatory,
when vendors and subscribers can elect
these alternatives or choose not to
purchase a specific proprietary data
product if the attendant fees are not
justified by the returns that any
particular vendor or data recipient
would achieve through the purchase.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 42 of the Act and
subparagraph (f)(2) of Rule 19b–4 43
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such 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
under Section 19(b)(2)(B) 44 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
42 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
44 15 U.S.C. 78s(b)(2)(B).
43 17
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Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSE–2014–43 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
mstockstill on DSK4VPTVN1PROD with NOTICES
All submissions should refer to File
Number SR–NYSE–2014–43. 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 (https://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 such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
publicly available. All submissions
should refer to File Number SR–NYSE–
2014–43 and should be submitted on or
before September 23, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority. 45
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–20703 Filed 8–29–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72920; File No. SR–
NASDAQ–2014–084]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
NOM Market Maker Requirements
August 26, 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 August
21, 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 NASDAQ. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
NASDAQ proposes to amend Chapter
VII (Market Participants) at Section 6
(Market Maker Quotations) on The
NASDAQ Options Market (‘‘NOM’’),
NASDAQ’s facility for executing and
routing standardized equity and index
options.
The text of the proposed rule change
is set forth below. Proposed new
language is italicized; proposed
deletions are in brackets.
*
*
*
*
*
Chapter VII
*
*
CFR 200.30–3(a)(12).
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*
*
Sec. 6 Market Maker Quotations
(a)–(c) No change.
(d) Continuous Quotes. A Market
Maker must enter continuous bids and
offers for the options to which it is
registered, as follows:
i. On a daily basis, a Market Maker
must during regular market hours make
markets consistent with the applicable
quoting requirements specified in these
rules, on a continuous basis [in at least
sixty percent (60%) of the series] in
options in which the Market Maker is
registered.
(1) To satisfy this requirement [with
respect to quoting a series], a Market
Maker must quote [such series 90]60%
of the trading day (as a percentage of the
total number of minutes in such trading
day) or such higher percentage as
1 15
45 17
*
Market Participants
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00144
Fmt 4703
Sfmt 4703
Nasdaq may announce in advance.
Nasdaq Regulation may consider
exceptions to the requirement to quote
[90]60% (or higher) of the trading day
based on demonstrated legal or
regulatory requirements or other
mitigating circumstances. This
obligation will apply to all of a Market
Maker’s registered options collectively
to all appointed issues, rather than on
an option-by-option basis. Compliance
with this obligation will be determined
on a monthly basis. However,
determining compliance with the
continuous quoting requirement on a
monthly basis does not relieve a Market
Maker of the obligation to provide
continuous two-sided quotes on a daily
basis, nor will it prohibit the Exchange
from taking disciplinary action against
a Market Maker for failing to meet the
continuous quoting obligation each
trading day.
(2) and (3) No change.
ii.–iii. No change.
(e) 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
The purpose of the proposed rule
change is to amend quoting obligations
applicable to NOM Market Makers.
Currently, Chapter VII, Section 6(d)
provides that on a daily basis, a Market
Maker must during regular market hours
make markets consistent with the
applicable quoting requirements
specified in these rules, on a continuous
basis in at least sixty percent (60%) of
the series in options in which the
Market Maker is registered. It further
provides that, to satisfy this requirement
with respect to quoting a series, a
Market Maker must quote such series
90% of the trading day (as a percentage
of the total number of minutes in such
trading day) or such higher percentage
E:\FR\FM\02SEN1.SGM
02SEN1
]]>Agencies
[Federal Register Volume 79, Number 169 (Tuesday, September 2, 2014)]
[Notices]
[Pages 52079-52086]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20703]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72923; File No. SR-NYSE-2014-43]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending Its Fees for Non-Display Use of NYSE OpenBook, NYSE Trades,
and NYSE BBO, and To Establish Fees for Non-Display Use of NYSE Order
Imbalances
August 26, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on August 13, 2014, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its fees for non-display use of NYSE
OpenBook, NYSE Trades, and NYSE BBO, and to establish fees for non-
display use of NYSE Order Imbalances, operative on September 1, 2014.
The text of the proposed rule change is available on the Exchange's Web
site at www.nyse.com, at the principal office of the Exchange, on the
Commission's Web site at www.sec.gov, 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 self-regulatory organization
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 those 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 parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend its non-display fees for NYSE
OpenBook, NYSE Trades, and NYSE BBO, to establish such fees for NYSE
Order Imbalances, and to establish managed non-display services fees
for NYSE BBO, operative on September 1, 2014.
The Exchange established the current non-display and managed non-
display services fees for NYSE OpenBook, NYSE Trades, and NYSE BBO in
April 2013.\4\ The Exchange now proposes to change those fees and to
establish similar fees for NYSE Order Imbalances.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 69278 (April 2,
2013), 78 FR 20973 (April 8, 2013) (SR-NYSE-2013-25) (``2013
Release'').
---------------------------------------------------------------------------
Under the proposal, non-display use would continue to mean
accessing, processing, or consuming an NYSE data product delivered via
direct and/or Redistributor \5\ data feeds for a purpose other than in
support of a data recipient's display or further internal or external
redistribution (``Non-Display Use''). As is the case today, non-display
and managed non-display services fees would apply to the Non-Display
Use of the data product as part of automated calculations or algorithms
to support trading decision-making processes or the operation of
trading platforms.
---------------------------------------------------------------------------
\5\ ``Redistributor'' means a vendor or any person that provides
a real-time NYSE data product to a data recipient or to any system
that a data recipient uses, irrespective of the means of
transmission or access.
---------------------------------------------------------------------------
The Exchange is proposing to expand the types of uses considered
Non-Display Use to also include non-trading uses. In addition, the
proposal would specify that Non-Display Use would include any trading
use, rather than only certain types of trading, such as high frequency
or algorithmic trading, as under the current fee structure. Under the
proposal, examples of Non-Display Use would include any trading in any
asset class, automated order or quote generation and/or order pegging,
price referencing for algorithmic trading or smart order routing,
operations control programs, investment analysis, order verification,
surveillance programs, risk management, compliance, and portfolio
management. The Exchange believes that non-trading uses benefit data
recipients by allowing users to automate functions, achieving greater
speed and accuracy, and in turn, for example, reducing costs of labor
to perform the functions manually. This approach would address the
difficulties
[[Page 52080]]
of monitoring and auditing different types of trading versus non-
trading uses of the data and the burden of counting devices used for
non-trading purposes under the current fees.
Proposed Changes to Non-Display Fees
The Exchange proposes to amend the fee structure applicable to Non-
Display Use of NYSE OpenBook, NYSE BBO, and NYSE Trades and to
establish such fees for NYSE Order Imbalance. Specifically, the
Exchange proposes certain changes to the three categories of, and fees
applicable to, data recipients.
Under the proposal, Category 1 Fees would apply when a data
recipient's Non-Display Use of real-time market data is on its own
behalf as opposed to use on behalf of its clients. This proposal
represents an expansion of the application of Category 1 Fees, which
currently apply solely to the Non-Display Use of real time market data
for the purpose of principal trading, to usage of such data for non-
trading purposes.
Under the proposal, Category 2 Fees would apply to data recipients'
Non-Display Use of real-time market data is [sic] on behalf of its
clients as opposed to use on its own behalf. This proposal also
represents an expansion of the application of Category 2 Fees, which
currently apply solely to trading activities to facilitate a customer
business, to usage of such data for non-trading purposes. As under the
current fee, if a data recipient's use of NYSE market data is covered
by Category 1 and Category 2, then the data recipient must pay both
categories of fees.\6\
---------------------------------------------------------------------------
\6\ See 2013 Release, supra note 4, at 20976.
---------------------------------------------------------------------------
The Exchange believes its proposal to apply Category 1 Fees and
Category 2 Fees to Non-Display Use of market data for non-trading
purposes would address the difficulties of monitoring and auditing
trading versus non-trading uses of the data and the burden of counting
devices used for purposes of applying the per-device fees. As discussed
in more detail in the 2013 Release,\7\ the ability to accurately count
devices and audit such counts creates administrative challenges for
vendors, data recipients, and the Exchange.
---------------------------------------------------------------------------
\7\ See 2013 Release, supra note 4, at 20975.
---------------------------------------------------------------------------
Under the proposal, Category 3 Fees would apply to data recipients'
Non-Display Use of real-time market data for the purpose of internally
matching buy and sell orders within an organization, including matching
customer orders for data recipient's own behalf and/or on behalf of its
clients. This category would apply to Non-Display Use in trading
platform(s), such as, but not restricted to, alternative trading
systems (``ATSs''), broker crossing networks, broker crossing systems
not filed as ATSs, dark pools, multilateral trading facilities,
exchanges and systematic internalization systems. Currently, Category 3
Fees apply where a data recipient's non-display use of market data is,
in whole or in part, for the purpose of providing reference prices in
the operation of one or more trading platforms. The Exchange believes
its proposed revision to its description of the data recipients to whom
Category 3 Fees apply is more precise because it focuses on the
functions of internally matching orders.
In addition, the Exchange is proposing to change the application of
Category 3 Fees to data recipients that also use data for purposes that
give rise to Category 1 and/or Category 2 Fees. Currently, a data
recipient is not liable for Category 3 Fees for those market data
products for which it is also paying Category 1 and/or Category 2
Fees.\8\ Under the proposal, a data recipient's Non-Display Use of
real-time market data for Category 3 purposes would require such data
recipient to pay Category 3 Fees in addition to any Category 1 Fees or
Category 2 Fees it is required to pay for Non-Display Use of market
data.
---------------------------------------------------------------------------
\8\ See 2013 Release, supra note 4, at 20976.
---------------------------------------------------------------------------
There will continue to be no monthly or other reporting
requirements for data recipients' Non-Display Use. However, the
Exchange continues to reserve the right to audit data recipients' Non-
Display Use of NYSE market data products in accordance with NYSE's
vendor and subscriber agreements.
Data recipient that receive real-time NYSE market data for Non-
Display Use would be required to complete and submit a Non-Display Use
Declaration before September 1, 2014. The Non-Display Use Declaration
would replace the current declaration on NYSE Euronext Non-Display
Usage Declaration.\9\ A firm subject to Category 3 Fees would be
required to identify each platform that uses data on a Non-Display Use
basis, such as ATSs and broker crossing systems not registered as ATSs,
as part of the Non-Display Use Declaration. Beginning in 2016, data
recipients would be required to submit, by January 31 of each year, a
Non-Display Use Declaration. In addition, if a data recipient's use of
real-time NYSE market data changes at any time after the data recipient
submits a Non-Display Use Declaration, the data recipient would be
required to update it at the time of the change to reflect the change
of use.
---------------------------------------------------------------------------
\9\ As described in more detail in the Statutory Basis section,
in order to modulate the overall fee increase that could apply, if a
firm subject to Category 3 Fees has more than three platforms, it
would only be required to declare three platforms. If a data
recipient only subscribes to products for which there are no non-
display usage fees, e.g., NYSE Realtime Reference Prices, then no
declaration is required.
---------------------------------------------------------------------------
Proposed Changes to Fees for Managed Non-Display Services
The Exchange also proposes to change the fees for managed non-
display services for NYSE OpenBook and NYSE Trades and establish
managed non-display service fees for NYSE BBO and NYSE Order
Imbalances. Managed non-display services fees would apply, as they do
currently, where data recipients' non-display applications are hosted
by an approved third party.\10\ To be an approved third party, the
third party must manage and control the access to real-time NYSE market
data for the data recipients' non-display applications and not allow
for further internal distribution or external redistribution of the
information.
---------------------------------------------------------------------------
\10\ See 2013 Release, supra note 4, at 20976.
---------------------------------------------------------------------------
The managed non-display services fee would only apply if a data
recipient is receiving real-time NYSE market data for Non-Display Use
from a third party Redistributor \11\ that is approved by the Exchange.
As for the current managed non-display services fees, this
Redistributor must manage and control the access to NYSE OpenBook, NYSE
Trades, NYSE BBO, and NYSE Order Imbalances for these applications and
may not allow for further internal distribution or external
redistribution of these market data products. The Redistributor of the
managed non-display services and the data recipient must be approved
under the NYSE Global Data Products Unit-of-Count Policy.\12\ If a data
recipient receives NYSE OpenBook, NYSE Trades, NYSE BBO, and NYSE Order
Imbalances from a Redistributor that is not approved by the Exchange,
then the non-display fees would apply, and data recipients would not be
liable for managed non-display fees for those market data products for
which they pay non-display fees.
---------------------------------------------------------------------------
\11\ See supra note 5.
\12\ The Unit-of-Count Policy is described in the 2013 Release,
supra note 4, at note 10 and accompanying text.
---------------------------------------------------------------------------
A data recipient of real-time NYSE market data through an approved
Redistributor would continue to have no reporting requirements.
However, a Redistributor would be required to report to NYSE on a
monthly basis the data recipients that are receiving real-
[[Page 52081]]
time NYSE market data through the Redistributor's managed non-display
service and the real-time NYSE market data that such data recipients
are receiving through such service. This monthly reporting requirement
would be new, though the Exchange currently has the right to audit data
recipients' non-display use of NYSE market data products in accordance
with NYSE's vendor and subscriber agreements.
Comparison of Current Fees to Proposed Fees
The chart below compares the proposed changes to current monthly
fees:
------------------------------------------------------------------------
Data feed Current fee Proposed fee
------------------------------------------------------------------------
NYSE OpenBook Non-Display $5,000............ $6,000.
Category 1.
NYSE OpenBook Non-Display $5,000............ $6,000.
Category 2.
NYSE OpenBook Non-Display $5,000, or $0 if $6,000, capped at
Category 3. Category 1 or 2 $18,000.
fees paid.
NYSE OpenBook Managed Non- $2,000............ $2,400.
Display.
NYSE BBO Non-Display Category 3. $1,500, or $0 if $1,500, capped at
Category 1 or 2 $4,500.
fees paid.
NYSE BBO Managed Non-Display.... n/a............... $300.
NYSE Trades Non-Display Category $2,000............ $3,000.
1.
NYSE Trades Non-Display Category $2,000............ $3,000.
2.
NYSE Trades Non-Display Category $2,000, or $0 if $3,000, capped at
3. Category 1 or 2 $9,000.
fees paid.
NYSE Trades Managed Non-Display. $700.............. $1,000.
NYSE Order Imbalances Category 1 n/a............... $2,000.
NYSE Order Imbalances Category 2 n/a............... $2,000.
NYSE Order Imbalances Category 3 n/a............... $2,000, capped at
$6,000.
NYSE Order Imbalances Managed n/a............... $200.
Non-Display.
------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\13\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ in particular, in that it
provides an equitable allocation of reasonable fees among users and
recipients of the data and is not designed to permit unfair
discrimination among customers, issuers, and brokers.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------
The Exchange believes that charging for non-trading uses is
reasonable because data recipients can derive substantial value from
such uses, for example, by automating tasks so that they can be
performed more quickly and accurately and less expensively than if they
were performed manually. The Exchange also notes that The NASDAQ Stock
Market (``NASDAQ'') and NASDAQ OMX PHLX (``Phlx'') do not make any
distinction in their non-display use fees between trading or non-
trading uses, and as such, the proposed change will harmonize the
Exchange's approach with those exchanges. Finally, the Exchange notes
that eliminating the trading versus non-trading distinction would
substantially simplify fee calculations and ease administrative burdens
for the Exchange.
After further experience, the Exchange also believes that it is
more equitable and not unfairly discriminatory to eliminate the
distinction for non-trading versus trading uses in light of the
significant value of both types of uses. The Exchange notes that
because non-display fees are flat fees, the expansion to cover non-
trading uses could only result in a fee increase for a data recipient
that is using the data solely for non-trading purposes and is only
subject to per-device fees; at this time, the Exchange has not
identified such a data recipient. Based on data available to the
Exchange, all data recipients use the data for at least one trading
purpose, and therefore the changes to the fees that they will pay under
the proposal would not be due to the elimination of the distinction
between trading and non-trading uses. The Exchange further notes that
based on Proposed Declarations submitted to date, some users have
declared no non-display use, and as such the proposed changes would
have no impact on them.
The Exchange believes that it is reasonable to require annual
submissions of the Proposed Declaration so that the Exchange will have
current and accurate information about the use of its market data
products and can correctly assess fees for the uses of those products.
The annual submission requirement is equitable and not unfairly
discriminatory because it will apply to all users.
The Exchange believes that requiring Redistributors to provide
monthly reports of data recipients that are receiving the Managed Non-
Display service is reasonable because as a matter of practice, the
Exchange already has been requiring such reporting pursuant to the
Exchange's right under the vendor and subscriber agreements to request
such information, and there is no indication that this has been
burdensome for Redistributors. The reporting requirement is equitable
and not unfairly discriminatory because it will apply to all
Redistributors and help to ensure that ultimate data recipients are
receiving data in accordance with the Exchange's rules.
The Exchange believes that the proposed fee increases of $1,000 per
month for each of Categories 1, 2, and 3 for NYSE OpenBook and NYSE
Trades are reasonable. In establishing the non-display fees in April
2013, the Exchange set its fees substantially below comparable fees
charged by certain of its competitors.\15\ After gaining further
experience with its new display/non-display fee structure, the Exchange
believes that the proposed fees better reflect the significant value of
the non-display data to data recipients, which purchase such data on an
entirely voluntary basis. Non-display data can be used by data
recipients for a wide variety of profit-generating purposes, including
proprietary and agency trading and smart order routing, as well as by
data recipients that operate order matching and execution platforms
that compete directly with the Exchange for order flow. The data also
can be used for a variety of non-trading purposes that indirectly
support trading, such as risk management and compliance. While some of
these non-trading uses do not directly generate revenues, they can
nonetheless substantially reduce the recipient's costs by automating
such functions so that they can be carried out in a more efficient and
accurate manner and reduce errors and labor costs, thereby benefiting
end users. The Exchange believes that the proposed fees directly and
appropriately reflect the significant value of using non-display data
in a wide range of computer-automated functions relating
[[Page 52082]]
to both trading and non-trading activities and that the number and
range of these functions continue to grow through innovation and
technology developments.\16\
---------------------------------------------------------------------------
\15\ See 2013 Release, supra note 4, at 20977.
\16\ See also Exchange Act Release No. 69157, March 18, 2013, 78
FR 17946, 17949 (March 25, 2013) (SR-CTA/CQ-2013-01) (``[D]ata feeds
have become more valuable, as recipients now use them to perform a
far larger array of non-display functions. Some firms even base
their business models on the incorporation of data feeds into black
boxes and application programming interfaces that apply trading
algorithms to the data, but that do not require widespread data
access by the firm's employees. As a result, these firms pay little
for data usage beyond access fees, yet their data access and usage
is critical to their businesses.'').
---------------------------------------------------------------------------
The fee increases are also reasonable in that they support the
Exchange's efforts to regularly upgrade systems to support more modern
data distribution formats and protocols as technology evolves. For
example, the Exchange will begin to make its proprietary data products
available over both its existing distribution channel as well as the
XDP protocol later this year.
Charging a separate fee for Category 3 data recipients that already
pay a fee under Category 1 or 2 is reasonable because it eliminates
what is effectively a discount for such data recipients under the
current Fee Schedule and results in a more equitable allocation of fees
to users that derive a benefit from a Category 3 use, and as such is
not unfairly discriminatory. The current fee can be viewed as having an
effective non-display fee cap of $10,000 for NYSE OpenBook, $4,000 for
NYSE Trades, and $3,000 for NYSE BBO while the proposed fee would have
an effective non-display fee cap of $30,000 for NYSE OpenBook, $15,000
for NYSE Trades, and $7,500 for NYSE BBO. The Exchange believes that
the proposed fees (and their associated caps) more closely correspond
to the value that Category 3 recipients derive from the various uses of
the data, some of which are operating various types of alternative
trading venues that directly compete for order flow with the Exchange.
Limiting the fees in Category 3 to no more than three trading platforms
is reasonable because it modulates the size of the fee increase for
certain recipients as compared to what they pay under the current fee
structure, in much the same manner as the current fee does by limiting
the non-display fees to a maximum of two categories. The Exchange does
not believe that it will be burdensome for Category 3 recipients to
determine, or the Exchange to audit, whether a recipient has one, two,
or three or more separate platforms.
The proposed non-display fees for NYSE Order Imbalance are
reasonable because they reflect the valuable non-display uses of this
data feed for recipients and will be easier for the Exchange to
administer than counting devices, as is required under the current Fee
Schedule. The fees are equitable and not unfairly discriminatory
because they will apply to all data recipients that choose to subscribe
to the NYSE Order Imbalances feed.
The proposed monthly fees of $300 for NYSE BBO Managed Non-Display
data and $200 for NYSE Order Imbalances Managed Non-Display data are
reasonable because they are less than other managed non-display fees
charged by the Exchange for other managed non-display products as well
as by other exchanges for comparable products.\17\ The fees are also
equitable and not unfairly discriminatory because they will apply to
all data recipients that choose to subscribe to the feeds.
---------------------------------------------------------------------------
\17\ NASDAQ offers a Managed Data Solution that assesses a
monthly Managed Data Solution Administration fee of $1,500 and
monthly Subscriber fees of $60 for non-professionals to $300 for
professionals. See NASDAQ Rule 7026(b). Phlx charges a monthly
Managed Data Solution Administration fee of $2,000 and a monthly
Subscriber fee of $500. The monthly License fee is in addition to
the monthly Distributor fee of $3,500 (for external usage), and the
$500 monthly Subscriber fee is assessed for each Subscriber of a
Managed Data Solution. See Securities Exchange Act Release No. 70748
(October 23, 2013), 78 FR 64569 (October 29, 2013) (SR-Phlx-2013-
105).
---------------------------------------------------------------------------
The proposed increase in the NYSE Trades Managed Non-Display fee
from $700 to $1,000 per month is reasonable because it remains less
than the comparable fee for other exchanges' similar products.\18\ The
fee also is equitable and not unfairly discriminatory because it will
apply to all data recipients that choose to subscribe to the feed.
---------------------------------------------------------------------------
\18\ See id.
---------------------------------------------------------------------------
The fees are also competitive with offerings by other exchanges,
which structure and set their fees in a variety of ways. For example,
NASDAQ professional subscribers pay monthly fees for non-display usage
based upon direct access to NASDAQ Level 2, NASDAQ TotalView,\19\ or
NASDAQ OpenView, which range from $300 per month for customers with one
to 10 subscribers to $75,000 for customers with 250 or more
subscribers.\20\ NASDAQ also offers an enterprise license for its last
sale data at $50,000 per month.\21\ In addition, Phlx offers an
alternative $10,000 per month ``Non-Display Enterprise License'' fee
that permits distribution to an unlimited number of internal non-
display subscribers without incurring additional fees for each internal
subscriber.\22\ The Non-Display Enterprise License covers non-display
subscriber fees for all Phlx proprietary direct data feed products and
is in addition to any other associated distributor fees for Phlx
proprietary direct data feed products. NASDAQ OMX BX, Inc. (``BX'')
also offers an alternative non-display usage fee of $16,000 per month
for its BX TotalView data feed.\23\ NASDAQ and Phlx also both offer
managed non-display data solutions at higher overall fees than the
Exchange proposes to charge.\24\
---------------------------------------------------------------------------
\19\ NASDAQ disseminates its Net Order Imbalance Indicator for
the NASDAQ Opening and Closing Crosses and NASDAQ IPO/Halt Cross as
part of the TotalView product.
\20\ See NASDAQ Rule 7023(b)(4).
\21\ See NASDAQ Rule 7039(b).
\22\ Alternatively, Phlx charges each professional subscriber
$40 per month. See Section IX of the Phlx Pricing Schedule.
\23\ See NASDAQ OMX BX Rule 7023(a)(2). Alternatively, BX
charges each professional subscriber $40 per month.
\24\ See supra note 18.
---------------------------------------------------------------------------
The Exchange also notes that all of the products described herein
are entirely optional. The Exchange is not required to make these
proprietary data products available or to offer any specific pricing
alternatives to any customers, nor is any firm required to purchase any
of the products. Firms that do purchase non-display products do so for
the primary goals of using them to increase revenues, reduce expenses,
and in some instances compete directly with the Exchange for order
flow; those firms are able to determine for themselves whether any
specific product such as these are attractively priced or not.
Firms that do not wish to purchase the data at the new prices have
a wide variety of alternative market data products from which to
choose,\25\ or if the non-display data products do not provide
sufficient value to firms as offered based on the uses those firms have
or planned to make of them, such firms may simply choose to conduct
their business operations in ways that do not require those data
products. The Exchange notes that broker-dealers are not required to
purchase proprietary market data to comply with their best execution
obligations.\26\ Similarly, there is no requirement in Regulation NMS
or any other rule that proprietary data be utilized for order routing
decisions, and
[[Page 52083]]
some broker-dealers and ATSs have chosen not to do so.\27\
---------------------------------------------------------------------------
\25\ See supra notes 18-24. Because NYSE BBO and NYSE Trades are
subsets of the consolidated core data offered by the CTA and CQS,
customers may choose to purchase those consolidated data products or
free delayed data instead.
\26\ See In the Matter of the Application of Securities Industry
And Financial Markets Association For Review of Actions Taken by
Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-15350;
AP-3-15351 (May 16, 2014).
\27\ For example, Goldman Sachs Execution and Clearing, L.P. has
disclosed that it does not use proprietary market data in connection
with Sigma X, its ATS. See response to Question E3, available at
https://www.goldmansachs.com/media-relations/in-the-news/current/pdf-media/gsec-order-handling-practices-ats-specific.pdf. By way of
comparison, IEX has disclosed that it uses proprietary market data
feeds from all registered stock exchanges and LavaFlow ECN. See
https://www.iextrading.com/about/.
---------------------------------------------------------------------------
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 reliance by the Securities and Exchange Commission
(``Commission'') upon the existence of competitive market mechanisms to
set reasonable and equitably allocated fees for proprietary 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.'
Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted
in 1975 U.S.C.C.A.N. 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.' '' \28\
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\28\ NetCoalition, 615 F.3d at 535.
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As explained below in the Exchange's Statement on Burden on
Competition, the Exchange believes that there is substantial evidence
of competition in the marketplace for proprietary market data and that
the Commission can rely upon such evidence in concluding that the fees
established in this filing are the product of competition and therefore
satisfy the relevant statutory standards. In addition, the existence of
alternatives to these data products, such as consolidated data and
proprietary data from other sources, as described below, further
ensures that the Exchange cannot set unreasonable fees, or fees that
are unreasonably discriminatory, when vendors and subscribers can
select such alternatives.
As the NetCoalition decision noted, the Commission is not required
to undertake a cost-of-service or ratemaking approach. The Exchange
believes that, even if it were possible as a matter of economic theory,
cost-based pricing for non-core market data would be so complicated
that it could not be done practically or offer any significant
benefits.\29\
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\29\ The Exchange believes that cost-based pricing would be
impractical because it would create enormous administrative burdens
for all parties, including the Commission, to cost-regulate a large
number of participants and standardize and analyze extraordinary
amounts of information, accounts, and reports. In addition, and as
described below, it is impossible to regulate market data prices in
isolation from prices charged by markets for other services that are
joint products. Cost-based rate regulation would also lead to
litigation and may distort incentives, including those to minimize
costs and to innovate, leading to further waste. Under cost-based
pricing, the Commission would be burdened with determining a fair
rate of return, and the industry could experience frequent rate
increases based on escalating expense levels. Even in industries
historically subject to utility regulation, cost-based ratemaking
has been discredited. As such, the Exchange believes that cost-based
ratemaking would be inappropriate for proprietary market data and
inconsistent with Congress's direction that the Commission use its
authority to foster the development of the national market system,
and that market forces will continue to provide appropriate pricing
discipline. See Appendix C to NYSE's comments to the Commission's
2000 Concept Release on the Regulation of Market Information Fees
and Revenues, which can be found on the Commission's Web site at
https://www.sec.gov/rules/concept/s72899/buck1.htm.
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For these reasons, the Exchange believes that the proposed fees are
reasonable, equitable, and not unfairly discriminatory.
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 that is not necessary or appropriate
in furtherance of the purposes of the Act. An exchange's ability to
price its proprietary market data feed products is constrained by
actual competition for the sale of proprietary market data products,
the joint product nature of exchange platforms, and the existence of
alternatives to the Exchange's proprietary data.
The Existence of Actual Competition.
The market for proprietary data products is currently competitive
and inherently contestable because there is fierce competition for the
inputs necessary for the creation of proprietary data and strict
pricing discipline for the proprietary products themselves. Numerous
exchanges compete with one another for listings and order flow and
sales of market data itself, providing ample opportunities for
entrepreneurs who wish to compete in any or all of those areas,
including producing and distributing their own market data. Proprietary
data products are produced and distributed by each individual exchange,
as well as other entities, in a vigorously competitive market. Indeed,
the U.S. Department of Justice (``DOJ'') (the primary antitrust
regulator) has expressly acknowledged the aggressive actual competition
among exchanges, including for the sale of proprietary market data. In
2011, the DOJ stated that exchanges ``compete head to head to offer
real-time equity data products. These data products include the best
bid and offer of every exchange and information on each equity trade,
including the last sale.'' \30\
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\30\ Press Release, U.S. Department of Justice, Assistant
Attorney General Christine Varney Holds Conference Call Regarding
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011), available at https://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html.
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Moreover, competitive markets for listings, order flow, executions,
and transaction reports provide pricing discipline for the inputs of
proprietary data products and therefore constrain markets from
overpricing proprietary market data. Broker-dealers send their order
flow and transaction reports to multiple venues, rather than providing
them all to a single venue, which in turn reinforces this competitive
constraint. As a 2010 Commission Concept Release noted, the ``current
market structure can be described as dispersed and complex'' with
``trading volume . . . dispersed among many highly automated trading
centers that compete for order flow in the same stocks'' and ``trading
centers offer[ing] a wide range of services that are designed to
attract different types of market participants with varying trading
needs.'' \31\ More recently, SEC Chair Mary Jo White has noted that
competition for order flow in exchange-listed equities is ``intense''
and divided among many trading venues, including exchanges, more than
40 alternative trading systems, and more than 250 broker-dealers.\32\
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\31\ Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21,
2010) (File No. S7-02-10). This Concept Release included data from
the third quarter of 2009 showing that no market center traded more
than 20% of the volume of listed stocks, further evidencing the
dispersal of and competition for trading activity. Id. at 3598. Data
available on ArcaVision show that from June 30, 2013 to June 30,
2014, no exchange traded more than 12% of the volume of listed
stocks by either trade or dollar volume, further evidencing the
continued dispersal of and fierce competition for trading activity.
See https://www.arcavision.com/Arcavision/arcalogin.jsp.
\32\ Mary Jo White, Enhancing Our Equity Market Structure,
Sandler O'Neill & Partners, L.P. Global Exchange and Brokerage
Conference (June 5, 2014) (available on the Commission Web site),
citing Tuttle, Laura, 2014, ``OTC Trading: Description of Non-ATS
OTC Trading in National Market System Stocks,'' at 7-8.
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If an exchange succeeds in its competition for quotations, order
flow, and trade executions, then it earns
[[Page 52084]]
trading revenues and increases the value of its proprietary market data
products because they will contain greater quote and trade information.
Conversely, if an exchange is less successful in attracting quotes,
order flow, and trade executions, then its market data products may be
less desirable to customers using them in support of order routing and
trading decisions in light of the diminished content; data products
offered by competing venues may become correspondingly more attractive.
Thus, competition for quotations, order flow, and trade executions puts
significant pressure on an exchange to maintain both execution and data
fees at reasonable levels.
In addition, in the case of products that are distributed through
market data vendors, such as Bloomberg and Thompson Reuters, the
vendors themselves provide additional price discipline for proprietary
data products because they control the primary means of access to
certain end users. These vendors impose price discipline based upon
their business models. For example, vendors that assess a surcharge on
data they sell are able to refuse to offer proprietary products that
their end users do not or will not purchase in sufficient numbers.
Vendors will not elect to make available the NYSE products described
herein unless their customers request them, and customers will not
elect to pay the proposed increased fees for non-display uses unless
the non-display uses of these data products can provide value by
sufficiently increasing revenues or reducing costs in the customer's
business in a manner that will offset the fees. All of these factors
operate as constraints on pricing proprietary data products.
Joint Product Nature of Exchange Platform.
Transaction execution and proprietary data products are
complementary in that market data is both an input and a byproduct of
the execution service. In fact, proprietary market data and trade
executions are a paradigmatic example of joint products with joint
costs. The decision of whether and on which platform to post an order
will depend on the attributes of the platforms where the order can be
posted, including the execution fees, data availability and quality,
and price and distribution of their data products. Without a platform
to post quotations, receive orders, and execute trades, exchange data
products would not exist.
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 platform for posting quotes,
accepting orders, and executing transactions 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, an exchange's broker-dealer customers generally view the
costs of transaction executions and market data as a unified cost of
doing business with the exchange. A broker-dealer will only choose to
direct orders to an exchange if the revenue from the transaction
exceeds its cost, including the cost of any market data that the
broker-dealer chooses to buy in support of its order routing and
trading decisions. If the costs of the transaction are not offset by
its value, then the broker-dealer may choose instead not to purchase
the product and trade away from that exchange. There is substantial
evidence of the strong correlation between order flow and market data
purchases. For example, in May 2014 more than 80% of the transaction
volume on each of NYSE, NYSE Arca, and NYSE MKT was executed by market
participants that purchased one or more proprietary market data
products (the 20 firms were not the same for each market). A super-
competitive increase in the fees for either executions or market data
would create a risk of reducing an exchange's revenues from both
products.
Other market participants have noted that proprietary market data
and trade executions are joint products of a joint platform and have
common costs.\33\ The Exchange agrees with and adopts those discussions
and the arguments therein. The Exchange also notes that the economics
literature confirms that there is no way to allocate common costs
between joint products that would shed any light on competitive or
efficient pricing.\34\
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\33\ See Securities Exchange Act Release No. 72153 (May 12,
2014), 79 FR 28575, 28578 n.15 (May 16, 2014) (SR-NASDAQ-2014-045)
(``[A]ll 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.'').
See also Securities Exchange Act Release No. 62907 (Sept. 14, 2010),
75 FR 57314, 57317 (Sept. 20, 2010) (SR-NASDAQ-2010-110), and
Securities Exchange Act Release No. 62908 (Sept. 14, 2010), 75 FR
57321, 57324 (Sept. 20, 2010) (SR-NASDAQ-2010-111).
\34\ See generally Mark Hirschey, Fundamentals of Managerial
Economics, at 600 (2009) (``It is important to note, however, that
although it is possible to determine the separate marginal costs of
goods produced in variable proportions, it is impossible to
determine their individual average costs. This is because common
costs are expenses necessary for manufacture of a joint product.
Common costs of production--raw material and equipment costs,
management expenses, and other overhead--cannot be allocated to each
individual by-product on any economically sound basis. . . . Any
allocation of common costs is wrong and arbitrary.''). This is not
new economic theory. See, e.g., F. W. Taussig, ``A Contribution to
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4)
438, 465 (July 1891) (``Yet, surely, the division is purely
arbitrary. These items of cost, in fact, are jointly incurred for
both sorts of traffic; and I cannot share the hope entertained by
the statistician of the Commission, Professor Henry C. Adams, that
we shall ever reach a mode of apportionment that will lead to
trustworthy results.'').
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Analyzing the cost of market data product production and
distribution in isolation from the cost of all of the inputs supporting
the creation of market data and market data products will inevitably
underestimate the cost of the data and data products because it is
impossible to obtain the data inputs to create market data products
without a fast, technologically robust, and well-regulated execution
system, and system and regulatory costs affect the price of both
obtaining the market data itself and creating and distributing market
data products. It would be equally misleading, however, to attribute
all of an exchange's costs to the market data portion of an exchange's
joint products. Rather, all of an 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.
As noted above, the level of competition and contestability in the
market is evident in the numerous alternative venues that compete for
order flow, including 12 equities self-regulatory organization
(``SRO'') markets, as well as various forms of ATSs, including dark
pools and electronic communication networks (``ECNs''), and
internalizing broker-dealers. SRO markets compete to attract order flow
and produce transaction reports via trade executions, and two FINRA-
regulated Trade Reporting Facilities compete to attract transaction
reports from the non-SRO venues.\35\
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\35\ FINRA's Alternative Display Facility also receives over-
the-counter trade reports that it sends to CTA.
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Competition among trading platforms can be expected to constrain
the aggregate return that each platform earns from the sale of its
joint products, but different trading platforms may choose from a range
of possible, and equally reasonable, pricing strategies as
[[Page 52085]]
the means of recovering total costs. For example, some platforms may
choose to pay rebates to attract orders, charge relatively low prices
for market data products (or provide market data products free of
charge), and charge relatively high prices for accessing posted
liquidity. Other platforms may choose a strategy of paying lower
rebates (or no rebates) to attract orders, setting relatively high
prices for market data products, and setting relatively low prices for
accessing posted liquidity. For example, BATS and Direct Edge, which
previously operated as ATSs and obtained exchange status in 2008 and
2010, respectively, have provided certain market data at no charge on
their Web sites in order to attract more order flow, and use revenue
rebates from resulting additional executions to maintain low execution
charges for their users.\36\ Similarly, LavaFlow ECN provides market
data to its subscribers at no charge.\37\ 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.\38\
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\36\ This is simply a securities market-specific example of the
well-established principle that in certain circumstances more sales
at lower margins can be more profitable than fewer sales at higher
margins; this example is additional evidence that market data is an
inherent part of a market's joint platform.
\37\ See ``LavaFlow--ADF Migration,'' available at https://
www.lavatrading.com/news/pdf/
LavaFlowADFMigration.pdf.
\38\ The Exchange notes that a small number Category 3 non-
display data recipients could be using the market data strictly for
competitive purposes (e.g., other exchanges and ATSs) or for
business purposes unrelated to trading or investment (e.g., Internet
portals that wish to attract ``eyeballs'' to their pages primarily
generate advertising revenue for themselves). The Exchange does not
believe that the proposed fees will impose any unnecessary burden on
these competitors or other businesses.
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Existence of Alternatives
The large number of SROs, ATSs, and internalizing broker-dealers
that currently produce proprietary data or are currently capable of
producing it provides further pricing discipline for proprietary data
products. Each SRO, ATS, and broker-dealer is currently permitted to
produce and sell proprietary data products, and many currently do or
have announced plans to do so, including but not limited to the
Exchange, NYSE MKT, NYSE Arca, NASDAQ OMX, BATS, and Direct Edge.
The fact that proprietary data from ATSs, internalizing broker-
dealers, and vendors can bypass SROs is significant in two respects.
First, non-SROs can compete directly with SROs for the production and
sale of proprietary data products. By way of example, BATS and NYSE
Arca both published proprietary data on the Internet before registering
as exchanges. Second, because a single order or transaction report can
appear in an SRO proprietary product, a non-SRO proprietary product, or
both, the amount of data available via proprietary products is greater
in size than the actual number of orders and transaction reports that
exist in the marketplace. For example, with respect to NYSE Trades and
NYSE BBO, the data appears in both the real-time core data offered by
the SIPs for a fee and free SIP data that is offered on a 15-minute
time delay. With respect to NYSE Trades, NYSE BBO, NYSE OpenBook, and
NYSE Order Imbalances, a close substitute product is offered by several
competitors.\39\ Because market data users can find suitable
substitutes for most proprietary market data products, a market that
overprices its market data products stands a high risk that users may
substitute another source of market data information for its own.
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\39\ See supra notes 18-24. With respect to order imbalances,
the Exchange further notes that other venues trade NYSE listed
securities before the Exchange's opening cross at 9:30 a.m., and
therefore indicative price information is available through these
venues.
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Those competitive pressures imposed by available alternatives are
evident in the Exchange's proposed pricing. As noted above, the
proposed non-display fees are generally lower than the maximum non-
display fees charged by other exchanges such as NASDAQ, Phlx, and BX
for comparable products.\40\
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\40\ Id.
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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 and inexpensive. 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, TrackECN, BATS Trading and Direct Edge. As noted
above, BATS launched as an ATS in 2006 and became an exchange in 2008,
while Direct Edge began operations in 2007 and obtained exchange status
in 2010. As noted above, LavaFlow ECN provides market data to its
subscribers at no charge.\41\
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\41\ See supra note 38.
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In establishing the proposed fees, the Exchange considered the
competitiveness of the market for proprietary data and all of the
implications of that competition. The Exchange 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 the Exchange's
products, including proprietary data from other sources, ensures that
the Exchange cannot set unreasonable fees, or fees that are
unreasonably discriminatory, when vendors and subscribers can elect
these alternatives or choose not to purchase a specific proprietary
data product if the attendant fees are not justified by the returns
that any particular vendor or data recipient would achieve through the
purchase.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \42\ of the Act and subparagraph (f)(2) of Rule
19b-4 \43\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\42\ 15 U.S.C. 78s(b)(3)(A).
\43\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such 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 under
Section 19(b)(2)(B) \44\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\44\ 15 U.S.C. 78s(b)(2)(B).
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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:
[[Page 52086]]
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSE-2014-43 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSE-2014-43. 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 (https://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 such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available. All
submissions should refer to File Number SR-NYSE-2014-43 and should be
submitted on or before September 23, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority. \45\
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\45\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20703 Filed 8-29-14; 8:45 am]
BILLING CODE 8011-01-P
