Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Implementing Fees for the NYSE ArcaBook for Arca Options Complex Feed and Changing the NYSE Arca Options Proprietary Market Data Fee Schedule (“Market Data Fee Schedule”) Regarding Non-Display Use Fees, 68922-68927 [2014-27314]
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Federal Register / Vol. 79, No. 223 / Wednesday, November 19, 2014 / Notices
2014–56 and should be submitted on or
before December 10, 2014.
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
IV. Solicitation of Comments
[FR Doc. 2014–27311 Filed 11–18–14; 8:45 am]
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as modified by Amendment No.
1, is consistent with the Act. Comments
may be submitted by any of the
following methods:
BILLING CODE 8011–01–P
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.
SECURITIES AND EXCHANGE
COMMISSION
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
[Release No. 34–73588; File No. SR–
NYSEARCA–2014–129]
1. Purpose
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–
MIAX–2014–56 on the subject line.
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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–MIAX–2014–56. 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 principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–MIAX–
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Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Implementing Fees for
the NYSE ArcaBook for Arca Options
Complex Feed and Changing the NYSE
Arca Options Proprietary Market Data
Fee Schedule (‘‘Market Data Fee
Schedule’’) Regarding Non-Display
Use Fees
November 13, 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 October
30, 2014, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) 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 add fees for
the NYSE ArcaBook for Arca Options
Complex feed, operative on November
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, 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,
19 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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NYSE ArcaBook for Arca Options—
Complex—Fee Changes
The Exchange offers six NYSE Arca
Options real-time options market data
products: ArcaBook for Arca Options—
Trades, ArcaBook for Arca Options—
Top of Book, ArcaBook for Arca
Options—Depth of Book, ArcaBook for
Arca Options—Complex, ArcaBook for
Arca Options—Series Status, and
ArcaBook for Arca Options—Order
Imbalance (collectively, ‘‘Arca Options
Products’’).4 The Exchange currently
charges the following fees for receipt of
all six Arca Options Products: 5 an
Access Fee of $3,000 per month; a
Redistribution Fee of $2,000 per month;
a Professional User Fee of $50 per
month for each Professional User; and a
Non-Professional User Fee of $1 per
month for each Non-Professional User.
There is a Non-Professional User Fee
Cap of $5,000 per month per
Redistributor. The fee for non-display
use of all six Arca Options Products is
$5,000 per data recipient for each
category of organization (i.e., for
Category 1, Category 2 and Category 3).6
4 See Securities Exchange Act Release No. 67720
(August 23, 2012), 77 FR 52769 (August 30, 2012)
(SR–NYSEArca–2012–89) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
Proposing To Offer Certain Proprietary Options
Data Products).
5 See Securities Exchange Act Release No. 68005
(October 9, 2012), 77 FR 63362 (October 16, 2012)
(SR–NYSEArca–2012–106) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
Establishing Fees for Certain Proprietary Options
Market Data Products). See also Securities
Exchange Act Release No. 69554 (May 10, 2013), 78
FR 28917 (May 16, 2013) (SR–NYSEArca–2013–47)
(Notice of Filing and Immediate Effectiveness of
Proposed Rule Change Establishing Non-Display
Usage Fees and Amending the Professional EndUser Fees for NYSE Arca Options Market Data). See
also Securities and Exchange Act Release No. 71933
(April 11, 2014), 79 FR 21821 (April 17, 2014) (SR–
NYSEArca–2014–34)(Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
Amending the Professional User Fees for NYSE
Arca Options Market Data, Operative on April 1,
2014).
6 See Securities Exchange Act Release No. 73010
(September 5, 2014), 79 FR 54307 (September 11,
2014) (SR–NYSEArca–2014–94) (Notice of Filing
and Immediate Effectiveness of Proposed Rule
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The Exchange does not currently have
separate pricing for each of the
individual products.
Starting on May 1, 2014, the Exchange
began offering one of the six feeds,
ArcaBook for Arca Options—Complex,
on a standalone basis without charge
from May 1, 2014 to October 31, 2014.7
The Exchange proposes to charge fees
for ArcaBook for Arca Options—
Complex, beginning November 1, 2014,
as follows: An Access Fee of $1,500 per
month; a Redistribution Fee of $1,000
per month for ArcaBook for Arca
Options—Complex; and fees of $20 per
month for each Professional User and $1
per month for each Non-Professional
User. The Exchange is not proposing a
Non-Professional User Fee Cap. In
addition, the Exchange proposes to
charge a Non-Display Fee for nondisplay use of ArcaBook for Arca
Options—Complex of $1,000 per data
recipient for each category of
organization (i.e., for Category 1,
Category 2 and Category 3).8 As with the
fees for Arca Options Products, data
recipients would not be liable for
Category 2 Non-Display fees for which
they are also paying Category 1 NonDisplay fees; and similarly, Category 3
fees would be capped at $3,000.
The Exchange does not propose to
make any other changes to the fees for
Arca Options Products.
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Changes to Fee Schedule Regarding
Non-Display Use
The Exchange proposes a change to
the Market Data Fee Schedule regarding
non-display use fees. Specifically, with
respect to the three categories of, and
fees applicable to, market data
recipients for non-display use, the
Exchange proposes to describe the three
categories in the Market Data Fee
Schedule.
In September 2014, the Exchange
revised the fees for non-display use of
and added fees for non-display use of
NYSE ArcaBook for Arca Options.9 In
the 2014 Non-Display Filing, the
Exchange proposed certain changes to
the categories of, and fees applicable to,
data recipients for non-display use. As
set forth in the 2014 Non-Display Filing:
(i) Category 1 Fees apply when a data
recipient’s non-display use of real-time
Change Amending Its Fees for Non-Display Use of
NYSE Arca Options Market Data) (‘‘2014 NonDisplay Filing’’).
7 See Securities Exchange Act Release No. 72074
(May 1, 2014), 79 FR 26277 (May 7, 2014) (SR–
NYSEArca–2014–51) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
Offering ArcaBook for Arca Options—Complex on
a Standalone Basis Without Charge from May 1,
2014 Through October 31, 2014).
8 See 2014 Non-Display Filing, supra n.6.
9 See 2014 Non-Display Filing, supra n.6.
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market data is on its own behalf as
opposed to use on behalf of its clients;
(ii) Category 2 Fees apply when a data
recipient’s non-display use of real-time
market data is on behalf of its clients as
opposed to use on its own behalf; and
(iii) Category 3 Fees apply when a data
recipient’s non-display use of real-time
market data is for the purpose of
internally matching buy and sell orders
within an organization, including
matching customer orders on a data
recipient’s own behalf and/or on behalf
of its clients. The Market Data Fee
Schedule currently lists each category as
Category 1, Category 2, and Category 3,
without further description.
The Exchange is proposing to amend
the Market Data Fee Schedule to add the
descriptions of the three categories, as
set forth above, as a footnote to the
Market Data Fee Schedule. Because
there will now be multiple footnotes to
the Market Data Fee Schedule, the
Exchange proposes non-substantive
edits to change the existing footnote
references from asterisks to numbers.
The Exchange does not propose to
make any other changes to the fees for
Arca Options Products.
Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,10
in general, and Sections 6(b)(4) and
6(b)(5) of the Act,11 in particular, in that
it would provide 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 the
proposed change is reasonable because
it would allow vendors and subscribers
to pay the standalone fees associated
with the one product rather than
payment of the higher fees associated
with all six Arca Options Products. In
this regard, the Exchange notes that
some vendors of, and subscribers, to the
Arca Options Products currently utilize
only ArcaBook for Arca Options—
Complex. The proposed change is also
equitable and not unfairly
discriminatory because the same levels
of fees would be charged to similar
types of users of the same market data
products.
The Exchange believes that the
proposed change is reasonable because
the proposed fees would be comparable
to the fees that other option markets
charge for comparable market data
products. For example, CBOE charges,
10 15
11 15
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U.S.C. 78f(b).
U.S.C. 78f(b)(4), (5).
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for its ‘‘Complex Order Book Feed,’’ a
Distributor Fee of $3,000 per month, a
Professional User Fee of $25 per month
and a Non-Professional User Fee of $1
per month.12 Similarly, the
International Securities Exchange, LLC
(‘‘ISE’’) offers a ‘‘Spread Feed,’’ which
includes order and quote data for
complex strategies, and charges related
fees, including $3,000 per month for
distributors and a monthly controlled
device fee of $25 per controlled device
for Professionals.13 NASDAQ OMX
PHLX LLC (‘‘PHLX’’) also offers a
market data product entitled ‘‘PHLX
Orders,’’ which similarly includes order
and last sale information for complex
strategies and other market data, and
charges a $3,000 internal monthly fee
($3,500 for external), $2,000 per
Distributor and $500 per subscriber.14
The Exchange believes that it is
reasonable for the proposed NonDisplay Fee for ArcaBook for Arca
Options—Complex to be lower than the
fee for non-display use for all six Arca
Options Products (i.e., $5,000 per
month). Specifically, some vendors of,
and subscribers to, the Arca Options
Products currently utilize only
ArcaBook for Arca Options—Complex
and the proposed rate reflects this use
of only one of the six Arca Options
Products. This proposal would also be
equitable and not unfairly
discriminatory because it would
establish an overall monthly fee that
reflects the value of the data to the data
recipients in their profit-generating
activities.
The Exchange also believes that it is
reasonable for the proposed NonProfessional User Fee to be the same as
the existing fee for all six Arca Options
Products (i.e., $1 per User per month)
because the current fee is already set at
a very reasonable and competitive level.
This is also equitable and not unfairly
discriminatory because the current fee
of $1 per Non-Professional User is
charged if the Non-Professional User
receives the six Arca Options Products,
and not on the basis of how many of the
six Arca Options Products a Non12 See the Chicago Board Options Exchange, Inc.
(‘‘CBOE’’) ‘‘Complex Order Book Feed’’ product and
pricing information, available at https://
www.cboe.org/MDX/CSM/OBOOKMain.aspx. CBOE
also applies a User Fee Cap of $2,000. The
Exchange is not proposing a Non-Professional Fee
Cap at this time.
13 See ISE ‘‘Spread Feed’’ market data product
and pricing information, available at https://
www.ise.com/market-data/products/data-feeds/.
14 See PHLX ‘‘PHLX Orders’’ market data product
and pricing information, available at https://
www.nasdaqtrader.com/
Micro.aspx?id=PHLXOrders and https://
www.nasdaqtrader.com/
Trader.aspx?id=DPPriceListOptions#PHLX,
respectively.
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Professional User utilizes. Therefore,
currently, a Non-Professional User that
is receiving all six Arca Options
Products but using only one feed would
pay the $1 per User fee, and similarly,
as proposed, a Non-Professsional User
that is only subscribing to the ArcaBook
for Arca Options—Complex feed would
pay the same $1 per User fee.
The Exchange also believes that it is
reasonable not to propose a NonProfessional User Fee Cap at this time
because such a cap is not anticipated to
encourage greater subscription to or
distribution of ArcaBook for Arca
Options—Complex. The absence of a
Non-Professional User Fee Cap is
equitable and not unfairly
discriminatory because each
Redistributor would be charged the
same amount for each additional NonProfessional User that subscribes to
ArcaBook for Arca Options—Complex,
regardless of how many NonProfessional Users to which the
Redistributor makes ArcaBook for Arca
Options—Complex available.
The Exchange also notes that
purchasing Arca Options Products is
entirely optional. Firms are not required
to purchase them and have a wide
variety of alternative options market
data products from which to choose.
Moreover, the Exchange is not required
to make these proprietary data products
available or to offer any specific pricing
alternatives to any customers.
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:
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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.’ ’’ 15 The Exchange
15 NetCoalition,
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615 F.3d at 535.
16:16 Nov 18, 2014
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believes that this is also true with
respect to options markets.
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 data and that the
Commission can rely upon such
evidence in concluding that the fees
proposed in this filing are the product
of competition and therefore satisfy the
relevant statutory standards.16 In
addition, the existence of alternatives to
these data products, such as options
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 elect such alternatives.
As the NetCoalition decision noted,
the Commission is not required to
undertake a cost-of-service or
ratemaking approach.17 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.18
For these reasons, the Exchange
believes that the proposed fees are
reasonable, equitable, and not unfairly
discriminatory.
The Exchange believes that adding the
description of the three categories of
16 Section 916 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (the
‘‘Dodd-Frank Act’’) amended paragraph (A) of
Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3), to
make clear that all exchange fees for market data
may be filed by exchanges on an immediately
effective basis.
17 NetCoalition, 615 F.3d at 536.
18 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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data recipients for non-display use to
the Market Data Fee Schedule would
remove impediments to and help perfect
a free and open market by providing
greater transparency for the Exchange’s
customers regarding the category
descriptions that have been previously
filed with the Commission and are
applicable to the existing Market Data
Fee Schedule.19
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 data products is constrained
by actual competition for the sale of
proprietary 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 options 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 to the
proprietary products themselves.
Numerous exchanges compete with
each other for options trades and sales
of options 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 options market
data. Proprietary options 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 itself. 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.’’ 20
Similarly, the options markets
vigorously compete with respect to
options data products.21
19 See
2014 Non-Display Filing, supra n.6.
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.
21 See, e.g., Securities Exchange Act Release No.
67466 (July 19, 2012), 77 FR 43629 (July 25, 2012)
20 Press
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Moreover, competitive markets for
order flow, executions, and transaction
reports provide pricing discipline for
the inputs of proprietary options data
products and therefore constrain
markets from overpricing proprietary
options market data. Broker-dealers
send their order flow to multiple
venues, rather than providing them all
to a single venue, which in turn
reinforces this competitive constraint.
Options markets, similar to the equities
markets, are highly fragmented.22
If an exchange succeeds in its
competition for quotations, order flow,
and trade executions, then it earns
trading revenues and increases the value
of its proprietary options 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
options 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 Arca
Options Products described herein
unless their customers request them,
and customers will not elect to pay the
proposed fees unless this data product
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
(SR–Phlx–2012–93), which describes a variety of
options market data products and their pricing.
22 See, e.g., Press Release, TABB Says US Equity
Options Market Makers Need Scalable Technology
to Compete in Today’s Complex Market Structure
(February 25, 2013), available at https://
www.tabbgroup.com/
PageDetail.aspx?PageID=16&ItemID=1231;
Fragmentation Vexes Options Markets (April 21,
2014), available at https://marketsmedia.com/
fragmentation-vexes-options-market/.
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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 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 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 July 2014
more than 80% of the options
transaction volume on each of NYSE
Arca and NYSE MKT LLC (‘‘NYSE
MKT’’) was executed by market
participants that purchased one or more
proprietary market data products. 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
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68925
platform and have common costs.23 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.24
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.
23 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 (September 14, 2010), 75 FR
57314, 57317 (September 20, 2010) (SR–NASDAQ–
2010–110), and Securities Exchange Act Release
No. 62908 (September 14, 2010), 75 FR 57321,
57324 (September 20, 2010) (SR–NASDAQ–2010–
111).
24 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.’’).
E:\FR\FM\19NON1.SGM
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68926
Federal Register / Vol. 79, No. 223 / Wednesday, November 19, 2014 / Notices
mstockstill on DSK4VPTVN1PROD with NOTICES
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 self-regulatory
organization (‘‘SRO’’) options markets.
Two of the 12 have launched operations
since December 2012.25 The Exchange
believes that these new entrants
demonstrate that competition is robust.
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
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 Exchange, Inc.
(‘‘BATS’’), which previously operated as
an ATS and obtained exchange status in
2008, has provided certain market data
at no charge on its Web site in order to
attract more order flow, and uses
revenue rebates from resulting
additional executions to maintain low
execution charges for its users.26 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.
Existence of Alternatives. The large
number of SROs that currently produce
proprietary data or are currently capable
of producing it provides further pricing
discipline for proprietary data products.
Each SRO is currently permitted to
produce and sell proprietary data
products, and many currently do or
have announced plans to do so,
25 See Securities Exchange Act Release Nos.
70050 (July 26, 2013), 78 FR (August 1, 2013)
(approving exchange registration for Topaz
Exchange, LLC) (known as ISE Gemini); and 68341
(December 3, 2012), 77 FR 73065 (December 7,
2012) (approving exchange registration for Miami
International Securities Exchange LLC (‘‘Miami
Exchange’’)).
26 See description of free market data from BATS
Options, available at https://www.batsoptions.com/
market_data/products/. 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.
VerDate Sep<11>2014
16:16 Nov 18, 2014
Jkt 235001
including but not limited to the
Exchange, NYSE Arca; CBOE; C2
Options Exchange, Incorporated; ISE;
ISE Gemini; NASDAQ; Phlx; BX; BATS;
and Miami Exchange.
The fact that proprietary data from
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.
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 one or more other sources of
market data information for its own.
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, and BATS. As noted above,
BATS launched as an ATS in 2006 and
became an exchange in 2008. Two new
options exchanges have launched
operations since December 2012.27
In establishing the proposed fees, the
Exchange considered the
competitiveness of the market for
proprietary options market 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
27 See
PO 00000
supra note 25.
Frm 00085
Fmt 4703
Sfmt 4703
any particular vendor or data recipient
would achieve through the purchase.
The Exchange does not believe that
the proposed rule change to describe the
three categories of data recipients for
non-display use in the Market Data Fee
Schedule would impose any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act because the
Exchange is merely adding to the
Market Data Fee Schedule information
that has been previously filed with the
Commission.28
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) 29 of the Act and
subparagraph (f)(2) of Rule 19b–4 30
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) 31 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:
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
28 See
2014 Non-Display Filing, supra n.6.
U.S.C. 78s(b)(3)(A).
30 17 CFR 240.19b–4(f)(2).
31 15 U.S.C. 78s(b)(2)(B).
29 15
E:\FR\FM\19NON1.SGM
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Federal Register / Vol. 79, No. 223 / Wednesday, November 19, 2014 / Notices
Number SR–NYSEARCA–2014–129 on
the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEARCA–2014–129.
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 will also 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–2014–129 and should be
submitted on or before December 10,
2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–27314 Filed 11–18–14; 8:45 am]
mstockstill on DSK4VPTVN1PROD with NOTICES
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–73585; File No. SR–
NYSEArca–2014–116]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the NYSE Arca
Options Fee Schedule To Add a
Service Fee for Certain Post-Trade
Adjustments Performed by the
Exchange To Be Effective December 1,
2014
November 13, 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 November
4, 2014, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) a
proposed rule change as described in
Items I, II and III below, which Items
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
NYSE Arca Options Fee Schedule to
add a service fee for certain post-trade
adjustments performed by the Exchange.
The Exchange proposes to implement
the fee change effective December 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, 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
32 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
16:16 Nov 18, 2014
2 17
Jkt 235001
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00086
Fmt 4703
Sfmt 4703
68927
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
Fee Schedule to add a service fee for
certain post-trade adjustments
performed by the Exchange (the
‘‘Service Fee’’). The Exchange proposes
to implement the Service Fee effective
December 1, 2014. As described below,
the proposed Service Fee would apply
to certain post-trade adjustments
performed by Exchange staff. The
purpose of the proposed Service Fee is
to ensure a fair and reasonable use of
Exchange resources by allowing the
Exchange to recoup for valuable
employee time and resources expended
on these post-trade adjustments that
may also be self-executed by OTP
Holders or OTP Firms (collectively,
‘‘OTPs’’). In addition, the Exchange
believes that the proposed Service Fee
would incentivize OTPs to process their
own post-trade adjustments going
forward.
In an effort to conserve Exchange
resources, the Exchange has provided
OTPs with the functionality to perform
certain of their own post-trade
adjustments. Specifically, OTPs may
perform post-trade adjustments on their
side of the trade that do not affect the
contractual terms of a transaction. For
example, OTPs may currently make the
following non-contractual post-trade
adjustments without Exchange
interaction: changing the position
indicator (e.g., from Open to Close or
Close to Open); adding or removing
Clearing Member Trade Agreement
(‘‘CMTA’’) information; allocating trades
(e.g., adding multiple executing
domains or ‘‘give-ups’’); changing the
clearing account type (e.g., Customer,
Firm, Market Maker) and modifying the
optional data field, which may be used
by OTPs for their own internal backoffice processing (collectively, the
‘‘Post-Trade Adjustments’’).
Notwithstanding the availability of
functionality for OTPs to perform this
function themselves, OTPs still send the
Exchange a significant number of
requests, on a daily basis, to perform
these straightforward Post-Trade
Adjustments on the OTPs’ behalf. The
Exchange uses its best efforts to respond
to these requests by OTPs in a timely
manner. While the Exchange is
committed to delivering a certain level
of customer service to its OTPs, it
believes that performing the Post-Trade
Adjustments free of charge results in the
diversion of valuable Exchange time and
resources in a manner that is not a [sic]
E:\FR\FM\19NON1.SGM
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]]>Agencies
[Federal Register Volume 79, Number 223 (Wednesday, November 19, 2014)]
[Notices]
[Pages 68922-68927]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-27314]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73588; File No. SR-NYSEARCA-2014-129]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Implementing Fees
for the NYSE ArcaBook for Arca Options Complex Feed and Changing the
NYSE Arca Options Proprietary Market Data Fee Schedule (``Market Data
Fee Schedule'') Regarding Non-Display Use Fees
November 13, 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 October 30, 2014, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') 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 add fees for the NYSE ArcaBook for Arca
Options Complex feed, operative on November 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, 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
NYSE ArcaBook for Arca Options--Complex--Fee Changes
The Exchange offers six NYSE Arca Options real-time options market
data products: ArcaBook for Arca Options--Trades, ArcaBook for Arca
Options--Top of Book, ArcaBook for Arca Options--Depth of Book,
ArcaBook for Arca Options--Complex, ArcaBook for Arca Options--Series
Status, and ArcaBook for Arca Options--Order Imbalance (collectively,
``Arca Options Products'').\4\ The Exchange currently charges the
following fees for receipt of all six Arca Options Products: \5\ an
Access Fee of $3,000 per month; a Redistribution Fee of $2,000 per
month; a Professional User Fee of $50 per month for each Professional
User; and a Non-Professional User Fee of $1 per month for each Non-
Professional User. There is a Non-Professional User Fee Cap of $5,000
per month per Redistributor. The fee for non-display use of all six
Arca Options Products is $5,000 per data recipient for each category of
organization (i.e., for Category 1, Category 2 and Category 3).\6\
[[Page 68923]]
The Exchange does not currently have separate pricing for each of the
individual products.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 67720 (August 23,
2012), 77 FR 52769 (August 30, 2012) (SR-NYSEArca-2012-89) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change
Proposing To Offer Certain Proprietary Options Data Products).
\5\ See Securities Exchange Act Release No. 68005 (October 9,
2012), 77 FR 63362 (October 16, 2012) (SR-NYSEArca-2012-106) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change
Establishing Fees for Certain Proprietary Options Market Data
Products). See also Securities Exchange Act Release No. 69554 (May
10, 2013), 78 FR 28917 (May 16, 2013) (SR-NYSEArca-2013-47) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change
Establishing Non-Display Usage Fees and Amending the Professional
End-User Fees for NYSE Arca Options Market Data). See also
Securities and Exchange Act Release No. 71933 (April 11, 2014), 79
FR 21821 (April 17, 2014) (SR-NYSEArca-2014-34)(Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending the
Professional User Fees for NYSE Arca Options Market Data, Operative
on April 1, 2014).
\6\ See Securities Exchange Act Release No. 73010 (September 5,
2014), 79 FR 54307 (September 11, 2014) (SR-NYSEArca-2014-94)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change Amending Its Fees for Non-Display Use of NYSE Arca Options
Market Data) (``2014 Non-Display Filing'').
---------------------------------------------------------------------------
Starting on May 1, 2014, the Exchange began offering one of the six
feeds, ArcaBook for Arca Options--Complex, on a standalone basis
without charge from May 1, 2014 to October 31, 2014.\7\ The Exchange
proposes to charge fees for ArcaBook for Arca Options--Complex,
beginning November 1, 2014, as follows: An Access Fee of $1,500 per
month; a Redistribution Fee of $1,000 per month for ArcaBook for Arca
Options--Complex; and fees of $20 per month for each Professional User
and $1 per month for each Non-Professional User. The Exchange is not
proposing a Non-Professional User Fee Cap. In addition, the Exchange
proposes to charge a Non-Display Fee for non-display use of ArcaBook
for Arca Options--Complex of $1,000 per data recipient for each
category of organization (i.e., for Category 1, Category 2 and Category
3).\8\ As with the fees for Arca Options Products, data recipients
would not be liable for Category 2 Non-Display fees for which they are
also paying Category 1 Non-Display fees; and similarly, Category 3 fees
would be capped at $3,000.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 72074 (May 1, 2014),
79 FR 26277 (May 7, 2014) (SR-NYSEArca-2014-51) (Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Offering
ArcaBook for Arca Options--Complex on a Standalone Basis Without
Charge from May 1, 2014 Through October 31, 2014).
\8\ See 2014 Non-Display Filing, supra n.6.
---------------------------------------------------------------------------
The Exchange does not propose to make any other changes to the fees
for Arca Options Products.
Changes to Fee Schedule Regarding Non-Display Use
The Exchange proposes a change to the Market Data Fee Schedule
regarding non-display use fees. Specifically, with respect to the three
categories of, and fees applicable to, market data recipients for non-
display use, the Exchange proposes to describe the three categories in
the Market Data Fee Schedule.
In September 2014, the Exchange revised the fees for non-display
use of and added fees for non-display use of NYSE ArcaBook for Arca
Options.\9\ In the 2014 Non-Display Filing, the Exchange proposed
certain changes to the categories of, and fees applicable to, data
recipients for non-display use. As set forth in the 2014 Non-Display
Filing: (i) Category 1 Fees 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; (ii) Category 2 Fees apply when a data
recipient's non-display use of real-time market data is on behalf of
its clients as opposed to use on its own behalf; and (iii) Category 3
Fees apply when a data recipient's non-display use of real-time market
data is for the purpose of internally matching buy and sell orders
within an organization, including matching customer orders on a data
recipient's own behalf and/or on behalf of its clients. The Market Data
Fee Schedule currently lists each category as Category 1, Category 2,
and Category 3, without further description.
---------------------------------------------------------------------------
\9\ See 2014 Non-Display Filing, supra n.6.
---------------------------------------------------------------------------
The Exchange is proposing to amend the Market Data Fee Schedule to
add the descriptions of the three categories, as set forth above, as a
footnote to the Market Data Fee Schedule. Because there will now be
multiple footnotes to the Market Data Fee Schedule, the Exchange
proposes non-substantive edits to change the existing footnote
references from asterisks to numbers.
The Exchange does not propose to make any other changes to the fees
for Arca Options Products.
Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\10\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ in particular, in that it
would provide 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.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------
The Exchange believes that the proposed change is reasonable
because it would allow vendors and subscribers to pay the standalone
fees associated with the one product rather than payment of the higher
fees associated with all six Arca Options Products. In this regard, the
Exchange notes that some vendors of, and subscribers, to the Arca
Options Products currently utilize only ArcaBook for Arca Options--
Complex. The proposed change is also equitable and not unfairly
discriminatory because the same levels of fees would be charged to
similar types of users of the same market data products.
The Exchange believes that the proposed change is reasonable
because the proposed fees would be comparable to the fees that other
option markets charge for comparable market data products. For example,
CBOE charges, for its ``Complex Order Book Feed,'' a Distributor Fee of
$3,000 per month, a Professional User Fee of $25 per month and a Non-
Professional User Fee of $1 per month.\12\ Similarly, the International
Securities Exchange, LLC (``ISE'') offers a ``Spread Feed,'' which
includes order and quote data for complex strategies, and charges
related fees, including $3,000 per month for distributors and a monthly
controlled device fee of $25 per controlled device for
Professionals.\13\ NASDAQ OMX PHLX LLC (``PHLX'') also offers a market
data product entitled ``PHLX Orders,'' which similarly includes order
and last sale information for complex strategies and other market data,
and charges a $3,000 internal monthly fee ($3,500 for external), $2,000
per Distributor and $500 per subscriber.\14\
---------------------------------------------------------------------------
\12\ See the Chicago Board Options Exchange, Inc. (``CBOE'')
``Complex Order Book Feed'' product and pricing information,
available at https://www.cboe.org/MDX/CSM/OBOOKMain.aspx. CBOE also
applies a User Fee Cap of $2,000. The Exchange is not proposing a
Non-Professional Fee Cap at this time.
\13\ See ISE ``Spread Feed'' market data product and pricing
information, available at https://www.ise.com/market-data/products/data-feeds/.
\14\ See PHLX ``PHLX Orders'' market data product and pricing
information, available at https://www.nasdaqtrader.com/Micro.aspx?id=PHLXOrders and https://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX, respectively.
---------------------------------------------------------------------------
The Exchange believes that it is reasonable for the proposed Non-
Display Fee for ArcaBook for Arca Options--Complex to be lower than the
fee for non-display use for all six Arca Options Products (i.e., $5,000
per month). Specifically, some vendors of, and subscribers to, the Arca
Options Products currently utilize only ArcaBook for Arca Options--
Complex and the proposed rate reflects this use of only one of the six
Arca Options Products. This proposal would also be equitable and not
unfairly discriminatory because it would establish an overall monthly
fee that reflects the value of the data to the data recipients in their
profit-generating activities.
The Exchange also believes that it is reasonable for the proposed
Non-Professional User Fee to be the same as the existing fee for all
six Arca Options Products (i.e., $1 per User per month) because the
current fee is already set at a very reasonable and competitive level.
This is also equitable and not unfairly discriminatory because the
current fee of $1 per Non-Professional User is charged if the Non-
Professional User receives the six Arca Options Products, and not on
the basis of how many of the six Arca Options Products a Non-
[[Page 68924]]
Professional User utilizes. Therefore, currently, a Non-Professional
User that is receiving all six Arca Options Products but using only one
feed would pay the $1 per User fee, and similarly, as proposed, a Non-
Professsional User that is only subscribing to the ArcaBook for Arca
Options--Complex feed would pay the same $1 per User fee.
The Exchange also believes that it is reasonable not to propose a
Non-Professional User Fee Cap at this time because such a cap is not
anticipated to encourage greater subscription to or distribution of
ArcaBook for Arca Options--Complex. The absence of a Non-Professional
User Fee Cap is equitable and not unfairly discriminatory because each
Redistributor would be charged the same amount for each additional Non-
Professional User that subscribes to ArcaBook for Arca Options--
Complex, regardless of how many Non-Professional Users to which the
Redistributor makes ArcaBook for Arca Options--Complex available.
The Exchange also notes that purchasing Arca Options Products is
entirely optional. Firms are not required to purchase them and have a
wide variety of alternative options market data products from which to
choose. Moreover, the Exchange is not required to make these
proprietary data products available or to offer any specific pricing
alternatives to any customers.
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.' '' \15\ The Exchange
believes that this is also true with respect to options markets.
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\15\ 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 data and that the Commission can
rely upon such evidence in concluding that the fees proposed in this
filing are the product of competition and therefore satisfy the
relevant statutory standards.\16\ In addition, the existence of
alternatives to these data products, such as options 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 elect such alternatives.
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\16\ Section 916 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (the ``Dodd-Frank Act'') amended
paragraph (A) of Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3),
to make clear that all exchange fees for market data may be filed by
exchanges on an immediately effective basis.
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As the NetCoalition decision noted, the Commission is not required
to undertake a cost-of-service or ratemaking approach.\17\ 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.\18\
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\17\ NetCoalition, 615 F.3d at 536.
\18\ 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.
The Exchange believes that adding the description of the three
categories of data recipients for non-display use to the Market Data
Fee Schedule would remove impediments to and help perfect a free and
open market by providing greater transparency for the Exchange's
customers regarding the category descriptions that have been previously
filed with the Commission and are applicable to the existing Market
Data Fee Schedule.\19\
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\19\ See 2014 Non-Display Filing, supra n.6.
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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 data products is constrained by actual
competition for the sale of proprietary 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
options 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 to the proprietary products themselves. Numerous exchanges
compete with each other for options trades and sales of options 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 options market data. Proprietary options 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 itself. 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.'' \20\ Similarly, the options markets
vigorously compete with respect to options data products.\21\
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\20\ 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.
\21\ See, e.g., Securities Exchange Act Release No. 67466 (July
19, 2012), 77 FR 43629 (July 25, 2012) (SR-Phlx-2012-93), which
describes a variety of options market data products and their
pricing.
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[[Page 68925]]
Moreover, competitive markets for order flow, executions, and
transaction reports provide pricing discipline for the inputs of
proprietary options data products and therefore constrain markets from
overpricing proprietary options market data. Broker-dealers send their
order flow to multiple venues, rather than providing them all to a
single venue, which in turn reinforces this competitive constraint.
Options markets, similar to the equities markets, are highly
fragmented.\22\
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\22\ See, e.g., Press Release, TABB Says US Equity Options
Market Makers Need Scalable Technology to Compete in Today's Complex
Market Structure (February 25, 2013), available at https://www.tabbgroup.com/PageDetail.aspx?PageID=16&ItemID=1231;
Fragmentation Vexes Options Markets (April 21, 2014), available at
https://marketsmedia.com/fragmentation-vexes-options-market/.
---------------------------------------------------------------------------
If an exchange succeeds in its competition for quotations, order
flow, and trade executions, then it earns trading revenues and
increases the value of its proprietary options 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 options 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 Arca Options Products
described herein unless their customers request them, and customers
will not elect to pay the proposed fees unless this data product 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 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 July 2014 more than 80% of the options
transaction volume on each of NYSE Arca and NYSE MKT LLC (``NYSE MKT'')
was executed by market participants that purchased one or more
proprietary market data products. 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.\23\ 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.\24\
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\23\ 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 (September 14,
2010), 75 FR 57314, 57317 (September 20, 2010) (SR-NASDAQ-2010-110),
and Securities Exchange Act Release No. 62908 (September 14, 2010),
75 FR 57321, 57324 (September 20, 2010) (SR-NASDAQ-2010-111).
\24\ 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.'').
---------------------------------------------------------------------------
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.
[[Page 68926]]
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 self-regulatory organization (``SRO'') options
markets. Two of the 12 have launched operations since December
2012.\25\ The Exchange believes that these new entrants demonstrate
that competition is robust.
---------------------------------------------------------------------------
\25\ See Securities Exchange Act Release Nos. 70050 (July 26,
2013), 78 FR (August 1, 2013) (approving exchange registration for
Topaz Exchange, LLC) (known as ISE Gemini); and 68341 (December 3,
2012), 77 FR 73065 (December 7, 2012) (approving exchange
registration for Miami International Securities Exchange LLC
(``Miami Exchange'')).
---------------------------------------------------------------------------
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 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 Exchange, Inc. (``BATS''), which
previously operated as an ATS and obtained exchange status in 2008, has
provided certain market data at no charge on its Web site in order to
attract more order flow, and uses revenue rebates from resulting
additional executions to maintain low execution charges for its
users.\26\ 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.
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\26\ See description of free market data from BATS Options,
available at https://www.batsoptions.com/market_data/products/. 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.
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Existence of Alternatives. The large number of SROs that currently
produce proprietary data or are currently capable of producing it
provides further pricing discipline for proprietary data products. Each
SRO 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 Arca; CBOE; C2 Options
Exchange, Incorporated; ISE; ISE Gemini; NASDAQ; Phlx; BX; BATS; and
Miami Exchange.
The fact that proprietary data from 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. 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 one or more other sources
of market data information for its own.
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, and BATS. As noted above, BATS launched as
an ATS in 2006 and became an exchange in 2008. Two new options
exchanges have launched operations since December 2012.\27\
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\27\ See supra note 25.
---------------------------------------------------------------------------
In establishing the proposed fees, the Exchange considered the
competitiveness of the market for proprietary options market 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.
The Exchange does not believe that the proposed rule change to
describe the three categories of data recipients for non-display use in
the Market Data Fee Schedule would impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act because the Exchange is merely adding to the Market Data Fee
Schedule information that has been previously filed with the
Commission.\28\
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\28\ See 2014 Non-Display Filing, supra n.6.
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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) \29\ of the Act and subparagraph (f)(2) of Rule
19b-4 \30\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\29\ 15 U.S.C. 78s(b)(3)(A).
\30\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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) \31\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\31\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File
[[Page 68927]]
Number SR-NYSEARCA-2014-129 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEARCA-2014-129. 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 will also 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-2014-129 and should be submitted on or before
December 10, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-27314 Filed 11-18-14; 8:45 am]
BILLING CODE 8011-01-P
