Self-Regulatory Organizations; New York Stock Exchange, LLC; Order Approving Proposed Rule Change To Introduce a NYSE OpenBook Nonprofessional Subscriber Fee and To Revise the Unit of Count That Determines the Device Fees Payable by Data Recipients, 11162-11167 [E9-5570]
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Federal Register / Vol. 74, No. 49 / Monday, March 16, 2009 / Notices
NYSE to act reasonably in setting its
fees for NYSE market data, particularly
given that the market participants that
must pay such fees often will be the
same market participants from whom
NYSE must attract order flow. These
market participants particularly include
the large broker-dealer firms that control
the handling of a large volume of
customer and proprietary order flow.
Given the portability of order flow from
one trading venue to another, any
exchange that sought to charge
unreasonably high data fees would risk
alienating many of the same customers
on whose orders it depends for
competitive survival. Specifically with
respect to trading prior to the open and
close, for example, the Commission
notes that exchanges other than the
NYSE currently offer, or could easily
offer, trading services that compete with
the NYSE open and close.
In addition to the need to attract order
flow, the availability of alternatives to
NYSE’s Order Imbalance Information
significantly affect the terms on which
NYSE can distribute this market data.21
In setting the fees for its NYSE
OpenBook data, NYSE must consider
the extent to which market participants
would choose one or more alternatives
instead of purchasing the exchange’s
data. The various self-regulatory
organizations, the several Trade
Reporting Facilities of FINRA, and ECNs
that produce proprietary data are all
sources of competition. Accordingly, a
variety of alternative sources of
information impose significant
competitive pressures on the NYSE in
setting the terms for distributing its
market data. The Commission believes
that the availability of those
alternatives, as well as the NYSE’s
compelling need to attract order flow,
imposed significant competitive
pressure on the NYSE to act equitably,
21 See Richard Posner, Economic Analysis of Law
§ 9.1 (5th ed., 1998) (discussing the theory of
monopolies and pricing). See also U.S. Dep’t of
Justice & Fed’l Trade Comm’n, Horizontal Merger
Guidelines § 1.11 (1992), as revised (1997)
(explaining the importance of alternatives to the
presence of competition and the definition of
markets and market power). Courts frequently refer
to the Department of Justice and Federal Trade
Commission merger guidelines to define product
markets and evaluate market power. See, e.g., FTC
v. Whole Foods Market, Inc., 502 F. Supp. 2d 1
(D.D.C. 2007); FTC v. Arch Coal, Inc., 329 F. Supp.
2d 109 (D.D.C. 2004). In considering antitrust
issues, courts have recognized the value of
competition in producing lower prices. See, e.g.,
Leegin Creative Leather Products v. PSKS, Inc., 127
S. Ct. 2705 (2007); Atlanta Richfield Co. v. United
States Petroleum Co., 495 U.S. 328 (1990);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574 (1986); State Oil Co. v. Khan, 522 U.S.
3 (1997); Northern Pacific Railway Co. v. U.S., 356
U.S. 1 (1958).
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fairly, and reasonably in setting the
terms of its proposal.
Because the NYSE was subject to
significant competitive forces in setting
the terms of the proposal, the
Commission will approve the proposal
in the absence of a substantial
countervailing basis to find that its
terms nevertheless fail to meet an
applicable requirement of the Act or the
rules thereunder. An analysis of the
proposal does not provide such a basis,
nor were there any comments on this
filing, so no one raised any issues under
this portion of the test. For example, the
proposal does not unreasonably
discriminate among types of users. The
proposed fee entitles the datafeed
recipient to make displays of the
information available to an unlimited
number of subscribers at no extra
charge.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,22 that the
proposed rule change (SR–NYSE–2008–
132) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–5569 Filed 3–13–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59544; File No. SR–NYSE–
2008–131]
Self-Regulatory Organizations; New
York Stock Exchange, LLC; Order
Approving Proposed Rule Change To
Introduce a NYSE OpenBook
Nonprofessional Subscriber Fee and
To Revise the Unit of Count That
Determines the Device Fees Payable
by Data Recipients
March 9, 2009.
I. Introduction
On December 18, 2008, the New York
Stock Exchange, LLC (‘‘NYSE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
introduce a nonprofessional subscriber
fee for its NYSE OpenBook product
22 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
23 17
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offerings and to revise the unit of count
that determines the device fees payable
by data recipients. The proposed rule
change was published for comment in
the Federal Register on January 12,
2009.3 The Commission received two
comment letters on the proposal.4 NYSE
responded to the comment letters on
February 25, 2009.5 This order approves
the proposed rule change.
II. Description of the Proposal
A. Unit of Count
As part of a one-year pilot and a wider
initiative to simplify and modernize
market data administration, the
Exchange proposes to redefine some of
the basic ‘‘units of measure’’ that
Vendors are required to report to the
Exchange and on which the Exchange
bases its fees for its NYSE OpenBook
product packages. NYSE believes the
proposal is designed to be more closely
aligned with current data consumption,
reduce costs for the Exchange’s
customers, and potentially serve as a
model for additional pricing
efficiencies.
NYSE OpenBook is a packaged suite
of data feed products. It includes: (i)
NYSE OpenBook Realtime, by which
the Exchange makes NYSE OpenBook
Realtime available on a snapshot basis,
with updates distributed in real-time at
intervals of one second; and (ii) NYSE
OpenBook Ultra, by which the Exchange
updates NYSE OpenBook information
upon receipt of each displayed limit
order, or upon an event that removes
limit orders from NYSE OpenBook (i.e.,
cancellation or execution). For no
additional charge, the Exchange makes
available to recipients of NYSE
OpenBook additional data feeds
containing: (i) NYSE BestQuote,6 which
allows customers to see NYSE’s best bid
and offer as made available through the
Consolidated Quotation System, and
which may contain additional market
interest that is not displayed in the
3 See Securities Exchange Act Release No. 59198
(January 5, 2009), 74 FR 1268.
4 See February 2, 2009 letter from Ira D.
Hammerman, Senior Managing Director and
General Counsel, Securities Industry and Financial
Markets Association (‘‘SIFMA’’), to Elizabeth M.
Murphy, Secretary, Commission (‘‘SIFMA Letter’’);
February 2, 2009 letter from Jeffrey T. Brown,
Senior Vice President, Charles Schwab Corporation
(‘‘Schwab’’), to Florence Harmon, Deputy Secretary,
Commission, (‘‘Schwab Letter’’).
5 See February 25, 2009 letter from Janet M.
Kissane, Senior Vice President—Legal & Corporate
Secretary, Office of the General Counsel, NYSE, to
Elizabeth M. Murphy, Secretary, Commission
(‘‘NYSE Letter’’).
6 NYSE added NYSE BestQuote to the NYSE
OpenBook Realtime package in October 2006. See
Securities Exchange Act Release No. 54594 (October
12, 2006); 71 FR 61819 (October 19, 2006) (SR–
NYSE–2006–81).
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NYSE limit order book and that,
therefore, is not available in NYSE
OpenBook; and (ii) Order Imbalance
Information, which includes
information regarding order imbalances
prior to the market opening and closing
auctions.
Currently, an end-user of NYSE
OpenBook pays (or its Vendor pays on
its behalf) the monthly per-terminal
NYSE OpenBook device fee of $60. In
addition, a NYSE OpenBook data feed
recipient pays a monthly $5,000 access
fee for NYSE OpenBook, plus the perterminal fee if the data feed recipient
also displays the data. These fees
currently apply regardless of whether
the recipient receives NYSE OpenBook
Realtime or NYSE OpenBook Ultra and
whether the subscriber is a professional
subscriber or a nonprofessional
subscriber. The recipients receive NYSE
Order Imbalance Information and NYSE
BestQuote for no additional charge.
Under the proposal, the Exchange will
no longer define the Vendor-Subscriber
relationship based on the manner in
which a Data Feed Recipient or
Subscriber receives data (i.e., through
controlled displays or through data
feeds). Instead, the Exchange proposes
to adopt more objective billing criteria.
The following basic principles underlie
this proposal.
i. Vendors
• ‘‘Vendors’’ are market data vendors,
broker-dealers, private network
providers and other entities that control
Subscribers’ access to data through
Subscriber Entitlement Controls.
ii. Subscribers
• ‘‘Subscribers’’ are unique
individual persons or devices to which
a Vendor provides data. Any individual
or device that receives data from a
Vendor is a Subscriber, whether the
individual or device works for or
belongs to the Vendor, or works for or
belongs to an entity other than the
Vendor.
• Only a Vendor may control
Subscriber access to data.
• Subscribers may not redistribute
data in any manner.
iii. Subscriber Entitlements
• A Subscriber Entitlement is a
Vendor’s permitting a Subscriber to
receive access to data through an
Exchange-approved Subscriber
Entitlement Control.
• A Vendor may not provide data
access to a Subscriber except through a
unique Subscriber Entitlement.
• The Exchange will require each
Vendor to provide a unique Subscriber
Entitlement to each unique Subscriber.
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• At prescribed intervals (normally
monthly), the Exchange will require
each Vendor to report each unique
Subscriber Entitlement.
iv. Subscriber Entitlement Controls
• A Subscriber Entitlement Control is
the Vendor’s process of permitting
Subscribers’ access to data.
• Prior to using any Subscriber
Entitlement Control or changing a
previously approved Subscriber
Entitlement Control, a Vendor must
provide the Exchange with a
demonstration and a detailed written
description of the control or change and
the Exchange must have approved it in
writing.
• The Exchange will approve a
Subscriber Entitlement Control if it
allows only authorized, unique endusers or devices to access data or
monitors access to data by each unique
end-user or device.
• Vendors must design Subscriber
Entitlement Controls to produce an
audit report and make each audit report
available to the Exchange upon request.
The audit report must identify:
A. Each entitlement update to the
Subscriber Entitlement Control;
B. The status of the Subscriber
Entitlement Control; and
C. Any other changes to the
Subscriber Entitlement Control over a
given period.
• Only the Vendor may have access to
Subscriber Entitlement Controls.
The Exchange recognizes that each
Vendor and Subscriber may use NYSE
OpenBook data differently and that the
Exchange is one of many markets with
whom Vendors and Subscribers may
enter into arrangements for the receipt
and use of data. Accordingly, the
Exchange does not propose to restrict
how Vendors may use NYSE OpenBook
data in their display services and
encourages Vendors to create and
promote innovative uses of NYSE
OpenBook information. For instance, a
Vendor may use NYSE OpenBook data
to create derived information displays,
such as displays that aggregate NYSE
OpenBook data with data from other
markets.7 The proposal does not
discriminate among data recipients and
users, as the new ‘‘unit of measure’’
concepts would apply equally to
everyone.
Under the proposed rule change, the
Exchange would require Vendors to
7 In the case of derived displays, the Vendor is
required to: (1) Pay the Exchange’s device fees
(described below); (2) include derived displays in
its reports of NYSE OpenBook usage; and (3) use
reasonable efforts to assure that any person viewing
a display of derived data understands what the
display represents and the manner in which it was
derived.
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count every Subscriber Entitlement,
whether it be an individual person or a
device. Thus, the Vendor would have to
include in the count every person and
device that has access to the data,
regardless of the purposes for which the
individual or device uses the data. The
proposal eliminates current exceptions
to the device-reporting obligation in
order to subject the count to a more
objective process and simplify the
reporting obligation for Vendors. For
instance, the Exchange previously has
not required Vendors to report certain
programmers and other individuals who
receive access to data for certain
specific, non-trading purposes. These
exceptions require the Exchange to
monitor the manner end-users consume
data, which in turn adds cost for both
the Exchange and customers.
To simplify the process, the Exchange
will require Vendors to report all
entitlements in accordance with the
following:
i. In connection with a Vendor’s
external distribution of NYSE
OpenBook data, the Vendor should
count as one Subscriber Entitlement
each unique Subscriber that the Vendor
has entitled to have access to the
Exchange’s market data. However,
where a device is dedicated specifically
to a single individual, the Vendor
should count only the individual and
need not count the device.
ii. In connection with a Vendor’s
internal distribution of NYSE OpenBook
data, the Vendor should count as one
Subscriber Entitlement each unique
individual (but not devices) that the
Vendor has entitled to have access to
the Exchange’s market data.
iii. The Vendor should identify and
report each unique Subscriber. If a
Subscriber uses the same unique
Subscriber Entitlement to gain access to
multiple market data services, the
Vendor should count that as one
Subscriber Entitlement. However, if a
unique Subscriber uses multiple
Subscriber Entitlements to gain access
to one or more market data services
(e.g., a single Subscriber has multiple
passwords and user identifications), the
Vendor should report all of those
Subscriber Entitlements.
iv. Vendors should report each unique
individual person who receives access
through multiple devices as one
Subscriber Entitlement so long as each
device is dedicated specifically to that
individual.
v. The Vendor should include in the
count as one Subscriber Entitlement
devices serving no entitled individuals.
However, if the Vendor entitles one or
more individuals to use the same
device, the Vendor should include only
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the entitled individuals, and not the
device, in the count.
B. Nonprofessional Subscriber Fee and
Fee Cap
In addition to the unit of count oneyear pilot program, the Exchange also
proposes to establish a fee applicable to
the receipt and use of NYSE OpenBook
data by nonprofessional Subscribers.
Currently, the Exchange does not have
a separate fee for the receipt of NYSE
OpenBook data by nonprofessional
Subscribers. Under the present
structure, NYSE OpenBook subscribers
pay a device fee of $60. In the instant
proposal, the Exchange would reduce
the NYSE OpenBook device fee to $15
per month for investors who qualify as
nonprofessional Subscribers; the fee
would be imposed on the Vendor, rather
than on the nonprofessional Subscriber.
In establishing a reduced rate for
nonprofessional Subscribers, the
Exchange proposes to apply the same
criteria for qualification as a
‘‘nonprofessional subscriber’’ as the
CTA and CQ Plan Participants use.8
Individuals that qualify as
nonprofessional subscribers would be
eligible to enjoy the lower
nonprofessional subscriber rate
regardless of whether they receive the
NYSE OpenBook service from a Vendor
that receives the NYSE OpenBook
datafeed directly from the Exchange, or
from a Vendor that receives the database
indirectly through an intermediary.
The Exchange proposes to introduce a
monthly maximum amount (the
‘‘Maximum Amount’’) that a brokerdealer would have to pay to provide
NYSE OpenBook Realtime or NYSE
OpenBook Ultra to any number of
nonprofessional Subscribers if such
Subscriber maintains a brokerage
account with the broker-dealer. The
broker-dealer must be registered as a
broker/dealer under the Act.
The Exchange proposes to set the
Maximum Amount at $25,000 per
8 Like the CTA and CQ Plans, classification as a
nonprofessional subscriber is subject to Exchange
review and requires the subscriber to attest to his
or her nonprofessional subscriber status. A
‘‘nonprofessional subscriber’’ is a natural person
who uses the data solely for his personal, nonbusiness use and who is neither (i) registered or
qualified with the SEC, the Commodities Futures
Trading Commission, any state securities agency,
any securities exchange or association, or any
commodities or futures contract market or
association, (ii) engaged as an ‘‘investment adviser’’
as that term is defined in Section 202(a)(11) of the
Investment Advisors Act of 1940 (whether or not
registered or qualified under that act), nor (iii)
employed by a bank or other organization
exemption from registration under Federal and/or
State securities laws to perform functions that
would require him/her to be so registered or
qualified if he/she were to perform such function
for an organization not so exempt.
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month for each calendar year subject to
an increase or decrease by the
percentage increase or decrease in the
annual cost-of-living adjustment
(‘‘COLA’’) that the U.S. Social Security
Administration applies to Supplemental
Security Income for the calendar year
preceding that subsequent calendar
year. For example, if the COLA for
calendar year 2008 is a two percent
increase, then the monthly Maximum
Amount for months falling in calendar
year 2009 would increase by two
percent to $25,500.
The Exchange believes that the
maximum monthly payment will benefit
broker-dealers that service a large
customer base in particular. Under the
proposal, these broker-dealers would
have to have procedures in place that
enable them to: (i) Procure readily the
nonprofessional subscriber attestation
from each nonprofessional customer, a
requirement that is a prerequisite for
qualification as a nonprofessional
subscriber; and (ii) review periodically
the accounts included under their
nonprofessional cap to ensure their
nonprofessional status. Recognizing that
these broker-dealers may have a small
number of account-holding customers
that technically do not qualify for the
nonprofessional Subscriber fee, but
whom a broker-dealer may
inadvertently include under the cap
because of the complexities of managing
thousands or even millions of accounts,
the Exchange proposes guidelines under
which the broker-dealer will not be
penalized for using the nonprofessional
Subscriber fee cap notwithstanding the
inclusion of a limited number of
account-holding professional
Subscribers.
Specifically, a broker-dealer may
include professional Subscribers in the
calculation of the monthly maximum
amount if:
i. Nonprofessional Subscribers
comprise no less than 95 percent of the
pool of Subscribers that are included in
the calculation;
ii. Each professional Subscriber
included in the calculation maintains an
active brokerage account directly with
the broker-dealer (that is, with the
broker-dealer rather than with a
correspondent firm of the brokerdealer); and
iii. Each professional Subscriber that
is included in the calculation is not
affiliated with the broker-dealer or any
of its affiliates.9
9 A professional Subscriber is ‘‘affiliated’’ with a
broker-dealer if he or she is an officer, partner,
member, or employee of the broker dealer or an
affiliate of the broker-dealer or enjoys a similar
status with the broker-dealer or affiliate.
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iv. All Subscribers receive access to
the identical service, regardless of
whether the Subscribers are professional
Subscribers or nonprofessional
Subscribers.
v. Upon discovery of the inclusion in
the cap of an individual that does not
qualify as a nonprofessional Subscriber,
the broker-dealer takes reasonable
action to reclassify and report that
individual as a professional Subscriber
during the immediately following
reporting period.
Notwithstanding clauses (iii) and (v),
the broker-dealer may include a
professional Subscriber that is affiliated
with the broker-dealer or its affiliates
(subject to clauses (i) and (ii)) if he or
she accesses market data on-line
through his or her personal account
solely for the non-business purpose of
managing his or her own portfolio.
Notwithstanding clause (v), professional
Subscribers may constitute up to five
percent of the pool of Subscribers that
the broker-dealer includes in the
calculation of the monthly maximum
amount if those professional Subscribers
can only view data derived from NYSE
OpenBook Ultra through the
Subscriber’s online brokerage account;
and in an inquiry/response per-quote
display (i.e., not in a streaming display).
The Exchange proposes this exception
to permit broker-dealers that primarily
serve non-institutional brokerage
account holders to offer a consistent
online client experience without undue
administrative burdens but guard
against potential abuses by monitoring
the use of the exception closely and
reserving the right to deny application
of this exception if a broker-dealer is
determined to be misusing it, such as by
opening up retail brokerage accounts to
disseminate data to institutional clients.
The Exchange intends for the Maximum
Amount to enable much wider
distribution of NYSE OpenBook data to
retail investors holding brokerage
accounts and further the goal of market
transparency for investors. If the $15
per-device fee would allow a brokerdealer to pay less than the Maximum
Amount for any month, the brokerdealer may pay the lower amount for
that month.
III. Summary of Comments and NYSE
Response
The Commission received two
comments on the proposed rule change.
In general, the commenters supported
the proposed changes to the market data
fee structure. NYSE responded to the
comments.
SIFMA supports several aspects of the
proposed rule change. In particular,
SIFMA believes that the unit of count
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pilot holds the promise of simplified
and fairer market date fee
administration that would avoid
duplicate counting of an individual
using multiple devices.10 In addition,
SIFMA supports the nonprofessional
subscriber fee and fee cap.
Schwab supports NYSE’s proposal to
introduce nonprofessional fees and fee
cap for nonprofessional recipients of the
NYSE’s OpenBook product. Schwab
believes that the proposal should for the
first time allow retail customers to
obtain affordable depth-of-book market
data.11 Schwab notes that before this
proposal, NYSE OpenBook would have
cost $60 million a month to distribute
across the firm. The proposal would
limit the charges to $25,000 per month
for Schwab to distribute NYSE
OpenBook to its nonprofessional clients.
In addition, Schwab commented that
NYSE’s changes in the way users of data
are counted will make the market data
billing process more efficient and less
burdensome.12
The commenters noted their objection
to the Commission’s approach for
reviewing and evaluating market data
proposals. SIFMA and Schwab objected
to the application of the test set forth in
the NYSE Arca Order for determining
whether specific market data fee
proposals are consistent with the
Exchange Act.13 SIFMA also stated that
NYSE ‘‘erroneously applies’’ the
competitive factors test enumerated in
the NYSE Arca Order.14
NYSE appreciated SIFMA’s and
Schwab’s strong support and positive
feedback regarding the nonprofessional
subscriber fee and the changes to the
10 SIFMA
Letter at 2.
Letter at 1.
12 Schwab Letter at 2.
13 SIFMA Letter at 1 and Schwab Letter at 2.
SIFMA continues to object for the reasons set forth
in prior SIFMA comment letters. See January 17,
2007 letter from Ira D. Hammerman, Senior
Managing Director and General Counsel, SIFMA to
Nancy M. Morris, Secretary, Commission; August 1,
2007 letter from Ira D. Hammerman, Senior
Managing Director and General Counsel, SIFMA, to
Nancy M. Morris, Secretary, Commission; August
16, 2007 letter from Marc E. Lackritz, President and
CEO, SIFMA, to Nancy M. Morris, Secretary,
Commission; November 7, 2007 letter from Melissa
MacGregor, Vice President & Assistant General
Counsel, SIFMA, to Dr. Erik R. Sirri, Director,
Division of Market Regulation, Commission;
February 7, 2008 letter from Ira D. Hammerman,
Senior Managing Director and General Counsel,
SIFMA, to Nancy M. Morris, Secretary,
Commission; February 14, 2008 letter from
Christopher Gilkerson and Gregory Babyak, Market
Data Subcommittee Co-Chairs to Nancy M. Morris,
Secretary, Commission; July 10, 2008 letter from Ira
D. Hammerman, Senior Managing Director and
General Counsel, SIFMA to Florence Harmon,
Deputy Secretary, Commission; November 17, 2008
letter from Ira D. Hammerman, Senior Managing
Director and General Counsel, SIFMA to Florence
Harmon, Deputy Secretary, Commission.
14 SIFMA Letter at 3.
11 Schwab
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unit of count policies. In addition, the
Exchange clarified that it intended to
file a proposed rule change with the
Commission to amend the pilot program
to retroactively cap the fees payable by
a vendor in respect of the use of data for
administrative purposes to $1500 per
month. The Exchange also clarified the
terms and conditions applicable to the
NYSE Open Book Ultra ‘‘five percent’’
exception. Finally, NYSE addressed
SIFMA’s disagreement with
Commission’s application of the NYSE
Arca Order approach. In this regard,
NYSE noted that the SIFMA letter did
not provide a basis for its claim that the
Exchange failed to comply with the
competitive forces test set forth in the
NYSE Arca Order. In addition, the
Exchange noted its substantive analysis
of the application of the test to this
proposal. The Exchange also reasserted
that it is subject to significant
competitive forces and this proposal,
which reduces fees, is in part a response
to such competition.
IV. Discussion
The Commission has reviewed
carefully the proposed rule change, the
comment letters, and NYSE’s response
to the comment letters, and finds that
the proposed rule change is consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange. In particular, it is consistent
with Section 6(b)(4) of the Act,15 which
requires that the rules of a national
securities exchange provide for the
equitable allocation of reasonable dues,
fees, and other charges among its
members and issuers and other parties
using its facilities, and Section 6(b)(5) of
the Act,16 which requires, among other
things, that the rules of a national
securities exchange be designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system and, in general, to protect
investors and the public interest, and
not be designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
The Commission also finds that the
proposed rule change is consistent with
the provisions of Section 6(b)(8) of the
Act,17 which requires that the rules of
an exchange not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. Finally, the
Commission finds that the proposed
15 15
U.S.C. 78f(b)(4).
U.S.C. 78f(b)(5).
17 15 U.S.C. 78f(b)(8).
16 15
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rule change is consistent with Rule
603(a) of Regulation NMS,18 adopted
under Section 11A(c)(1) of the Act,
which requires an exclusive processor
that distributes information with respect
to quotations for or transactions in an
NMS stock to do so on terms that are
fair and reasonable and that are not
unreasonably discriminatory.19
The Commission has reviewed the
proposal using the approach set forth in
the NYSE Arca Order for non-core
market data fees.20 In the NYSE Arca
Order, the Commission stated that
‘‘when possible, reliance on competitive
forces is the most appropriate and
effective means to assess whether the
terms for the distribution of non-core
data are equitable, fair and reasonable,
and not unreasonably
discriminatory.’’ 21 It noted that the
‘‘existence of significant competition
provides a substantial basis for finding
that the terms of an exchange’s fee
proposal are equitable, fair, reasonable,
and not unreasonably or unfairly
discriminatory.’’ 22 If an exchange ‘‘was
subject to significant competitive forces
in setting the terms of a proposal,’’ the
Commission will approve a proposal
unless it determines that ‘‘there is a
substantial countervailing basis to find
that the terms nevertheless fail to meet
an applicable requirement of the
Exchange Act or the rules
thereunder.’’ 23
As noted in the NYSE Arca Order, the
standards in Section 6 of the Act and
Rule 603 of Regulation NMS do not
differentiate between types of data and
therefore apply to exchange proposals to
distribute both core data and non-core
data. Core data is the best-priced
quotations and comprehensive last-sale
reports of all markets that the
Commission, pursuant to Rule 603(b),
requires a central processor to
consolidate and distribute to the public
pursuant to joint-SRO plans.24 In
18 17
CFR 242.603(a).
is an exclusive processor of NYSE depthof-book data under Section 3(a)(22)(B) of the Act,
15 U.S.C. 78c(a)(22)(B), which defines an exclusive
processor as, among other things, an exchange that
distributes information with respect to quotations
or transactions on an exclusive basis on its own
behalf.
20 Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770 (December 9,
2008) (SR–NYSEArca–2006–21) (‘‘NYSE Arca
Order’’). In the NYSE Arca Order, the Commission
describes in great detail the competitive factors that
apply to non-core market data products. The
Commission hereby incorporates by reference the
data and analysis from the NYSE Arca Order into
this order.
21 Id. at 74771.
22 Id. at 74782.
23 Id. at 74781.
24 See 17 CFR 242.603(b). (‘‘Every national
securities exchange on which an NMS stock is
19 NYSE
Continued
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Federal Register / Vol. 74, No. 49 / Monday, March 16, 2009 / Notices
contrast, individual exchanges and
other market participants distribute
non-core data voluntarily.25 The
mandatory nature of the core data
disclosure regime leaves little room for
competitive forces to determine
products and fees.26 Non-core data
products and their fees are, by contrast,
much more sensitive to competitive
forces. The Commission therefore is able
to use competitive forces in its
determination of whether an exchange’s
proposal to distribute non-core data
meets the standards of Section 6 and
Rule 603.27 Because NYSE’s instant
proposal relates to the distribution of
non-core data, the Commission will
apply the market-based approach set
forth in the NYSE Arca Order.
The Exchange proposes to modify the
manner that it imposes fees for the
NYSE OpenBook product packages. The
proposal rule change would simplify the
way the Exchange charges for NYSE
OpenBook by changing the methodology
for the Unit of Count. It also would
introduce a nonprofessional Subscriber
fee, as well as the Maximum Amount a
broker-dealer would have to pay for
nonprofessional Subscribers.
Collectively, these changes should
reduce the fees and administrative costs
related to the receipt and distribution of
NYSE OpenBook packages.
The proposal before the Commission
relates to fees for NYSE OpenBook
products which are non-core, depth of
book market data products, and as in the
Commission’s NYSE Arca Order
analysis at least two broad types of
significant competitive forces applied to
NYSE in setting the terms of this
proposal: (i) NYSE’s compelling need to
attract order flow from market
participants; and (ii) the availability to
market participants of alternatives to
purchasing NYSE’s depth-of-book order
data.
Attracting order flow is the core
competitive concern of any equity
exchange, including NYSE. Attracting
order flow is an essential part of an
NYSE’s competitive success. If NYSE
cannot attract order flow to its market,
it will not be able to execute
transactions. If NYSE cannot execute
transactions on its market, it will not
generate transaction revenue. If NYSE
cannot attract orders or execute
transactions on its market, it will not
have market data to distribute, for a fee
or otherwise, and will not earn market
data revenue and thus not be
competitive with other exchanges that
have this ability. Table 1 below provides
a useful recent snapshot of the state of
competition in the U.S. equity markets
in the month of January 2009: 28
TABLE 1—REPORTED SHARE VOLUME IN U.S-LISTED EQUITIES DURING JANUARY 2009
[%]
Trading venue
All stocks
NASDAQ ......................................................................................................................................
All Non-Exchange ........................................................................................................................
NYSE Arca ...................................................................................................................................
NYSE ...........................................................................................................................................
BATS ............................................................................................................................................
International Stock Exchange ......................................................................................................
National Stock Exchange ............................................................................................................
Chicago Stock Exchange ............................................................................................................
CBOE Stock Exchange ...............................................................................................................
NYSE Alternext ............................................................................................................................
NASDAQ OMX BX ......................................................................................................................
27.1
26.7
17.9
14.8
10.7
1.3
0.6
0.4
0.2
0.1
0.0
NYSElisted
20.5
26.2
15.7
26.2
9.0
1.4
0.7
0.4
0.0
0.0
0.0
NASDAQlisted
39.9
31.0
15.8
0.0
10.8
1.4
0.7
0.3
0.1
0.0
0.0
The market share percentages in Table
1 strongly indicate that NYSE must
compete vigorously for order flow to
maintain its share of trading volume.
This compelling need to attract order
flow imposes significant pressure on
NYSE to act reasonably in setting its
fees for NYSE market data, particularly
given that the market participants that
must pay such fees often will be the
same market participants from whom
NYSE must attract order flow. These
market participants particularly include
the large broker-dealer firms that control
the handling of a large volume of
customer and proprietary order flow.
Given the portability of order flow from
one trading venue to another, any
exchange that sought to charge
unreasonably high data fees would risk
alienating many of the same customers
on whose orders it depends for
competitive survival.29
In addition to the need to attract order
flow, the availability of alternatives to
NYSE’s OpenBook data significantly
affect the terms on which NYSE can
distribute this market data.30 In setting
the fees for its NYSE OpenBook data,
NYSE must consider the extent to which
market participants would choose one
or more alternatives instead of
purchasing the exchange’s data.31 Of
course, the most basic source of
information generally available at an
exchange is the complete record of an
exchange’s transactions that is provided
in the core data feeds.32 In this respect,
the core data feeds that include an
exchange’s own transaction information
traded and national securities association shall act
jointly pursuant to one or more effective national
market system plans to disseminate consolidated
information, including a national best bid and
national best offer, on quotations for and
transactions in NMS stocks. Such plan or plans
shall provide for the dissemination of all
consolidated information for an individual NMS
stock through a single plan processor.’’).
25 See NYSE Arca Order at 74779.
26 Id.
27 Id.
28 Source: ArcaVision (available at https://
www.arcavision.com).
29 See NYSE Arca Order at 74783.
30 See Richard Posner, Economic Analysis of Law
§ 9.1 (5th ed. 1998) (discussing the theory of
monopolies and pricing). See also U.S. Dep’t of
Justice & Fed’l Trade Comm’n, Horizontal Merger
Guidelines § 1.11 (1992), as revised (1997)
(explaining the importance of alternatives to the
presence of competition and the definition of
markets and market power). Courts frequently refer
to the Department of Justice and Federal Trade
Commission merger guidelines to define product
markets and evaluate market power. See, e.g., FTC
v. Whole Foods Market, Inc., 502 F. Supp. 2d 1
(D.D.C. 2007); FTC v. Arch Coal, Inc., 329 F. Supp.
2d 109 (D.D.C. 2004). In considering antitrust
issues, courts have recognized the value of
competition in producing lower prices. See, e.g.,
Leegin Creative Leather Products v. PSKS, Inc., 127
S. Ct. 2705 (2007); Atlanta Richfield Co. v. United
States Petroleum Co., 495 U.S. 328 (1990);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574 (1986); State Oil Co. v. Khan, 522 U.S.
3 (1997); Northern Pacific Railway Co. v. U.S., 356
U.S. 1 (1958).
31 See NYSE Arca Order at 74783.
32 Id.
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are a significant alternative to the
exchange’s market data product.33
For more specific information
concerning depth, market participants
can choose among products offered by
the various exchanges and ECNs.34 The
various self-regulatory organizations,
the several Trade Reporting Facilities of
FINRA, and ECNs that produce
proprietary data are all sources of
competition. In addition, market
participants can assess depth with tools
other than market data, such as
‘‘pinging’’ orders that search out both
displayed and nondisplayed size at all
price points within an order’s limit
price.35
In sum, there are a variety of
alternative sources of information that
impose significant competitive
pressures on the NYSE in setting the
terms for distributing its depth-of-book
order data. The Commission believes
that the availability of those
alternatives, as well as the NYSE’s
compelling need to attract order flow,
imposed significant competitive
pressure on the NYSE to act equitably,
fairly, and reasonably in setting the
terms of its proposal.
Because the NYSE was subject to
significant competitive forces in setting
the terms of the proposal, the
Commission will approve the proposal
in the absence of a substantial
countervailing basis to find that its
terms nevertheless fail to meet an
applicable requirement of the Act or the
rules thereunder. Neither commenter
raised concerns with regard to a
substantial countervailing basis that the
terms of the proposal failed to meet the
requirements of the Act or the rules
thereunder. Further, an analysis of the
proposal does not provide such a basis.
The Exchange proposes to switch
from a per-device fee to a Subscriber
Entitlement fee. The Exchange is also
proposing to introduce a
nonprofessional Subscriber Fee that is
subject to a monthly maximum amount.
This change will lower the fees payable
for NYSE OpenBook data for
nonprofessional Subscribers from $60
per month to $15 per month per
individual and device. The commenters
supported NYSE’s changes to its market
data fee structure. SIFMA believes that
the unit of count pilot holds the promise
of simplified and fairer market date fee
administration that would avoid
duplicate counting of an individual
using multiple devices.36 Schwab stated
that the changes in how users are of data
33 Id.
34 See
NYSE Arca Order at 74784.
35 Id.
36 SIFMA
Letter at 2.
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15:38 Mar 13, 2009
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are counted will make the market data
billing process more efficient and
reduce administrative burdens.37
Schwab stated that the proposal would
for the first-time allow retail customers
obtain affordable depth-of-book market
data.38 The Commission believes that
this proposed rule change will provide
vendors with the flexibility to manage
NYSE market data in a manner that they
determine is most useful and efficient to
their business operations.39 In addition,
the overall reduction in costs for NYSE
OpenBook could lead to a wider
distribution of the market data and
greater market transparency.40
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,41 that the
proposed rule change (SR–NYSE–2008–
131) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.42
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–5570 Filed 3–13–09; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59542; File No. SR–
NYSEArca–2009–14]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to the Leverage
Factor Applicable to the MacroShares
Major Metro Housing Trusts
March 9, 2008.
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 March 3,
2009, NYSE Arca, Inc. (‘‘NYSE Arca’’ or
the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
37 Schwab
Letter at 2.
Letter at 1.
39 See Schwab Letter at 2 (‘‘[T]he proposal will
allow [Vendors] to manipulate the data as we
choose and to aggregate this data with data from
other exchanges to offer innovative market data
displays to our customers.’’).
40 See SIFMA Letter at 3 (‘‘SIFMA has long
advocated a nonprofessional fee for depth-of-book
data to promote market transparency and investor
protection’’).
41 15 U.S.C. 78s(b)(2).
42 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
38 Schwab
PO 00000
Frm 00090
Fmt 4703
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11167
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
Pursuant to the provisions of Section
19(b)(1) of the Act,4 the Exchange,
through its wholly-owned subsidiary
NYSE Arca Equities, Inc. (‘‘NYSE Arca
Equities’’ or the ‘‘Corporation’’)
proposes to modify the representation
made in SR–NYSEArca–2008–92
regarding the leverage factor applicable
to the MacroShares Major Metro
Housing Up Trust (‘‘Up Trust’’) and the
MacroShares Major Metro Housing
Down Trust (‘‘Down Trust’’)
(collectively, the ‘‘Trusts’’), and,
specifically, to indicate that the leverage
factor to be applied will be 3 rather than
2. The shares of the Up Trust are
referred to as the Up MacroShares, and
the shares of the Down Trust are
referred to as the Down MacroShares
(collectively, the ‘‘Shares’’). The text of
the proposed rule change is available on
the Exchange’s Web site at https://
www.nyse.com, at the Exchange’s
principal office and at the Public
Reference Room of the Commission.
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
The Commission has approved
pursuant to Section 19(b)(2) of the Act
the Exchange’s proposal to list and trade
the Up MacroShares and the Down
MacroShares under NYSE Arca Equities
Rule 8.400.5 As described in the
Approval Order and Notice, the Up
4 15
U.S.C. 78s(b)(1).
Securities Exchange Act Release Nos. 58704
(October 1, 2008), 73 FR 59026 (October 8, 2008)
(order approving listing and trading on the
Exchange of the Trusts (‘‘Approval Order’’)); 58469
5 See
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]]>Agencies
[Federal Register Volume 74, Number 49 (Monday, March 16, 2009)]
[Notices]
[Pages 11162-11167]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-5570]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59544; File No. SR-NYSE-2008-131]
Self-Regulatory Organizations; New York Stock Exchange, LLC;
Order Approving Proposed Rule Change To Introduce a NYSE OpenBook
Nonprofessional Subscriber Fee and To Revise the Unit of Count That
Determines the Device Fees Payable by Data Recipients
March 9, 2009.
I. Introduction
On December 18, 2008, the New York Stock Exchange, LLC (``NYSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to introduce a nonprofessional subscriber fee for
its NYSE OpenBook product offerings and to revise the unit of count
that determines the device fees payable by data recipients. The
proposed rule change was published for comment in the Federal Register
on January 12, 2009.\3\ The Commission received two comment letters on
the proposal.\4\ NYSE responded to the comment letters on February 25,
2009.\5\ This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 59198 (January 5,
2009), 74 FR 1268.
\4\ See February 2, 2009 letter from Ira D. Hammerman, Senior
Managing Director and General Counsel, Securities Industry and
Financial Markets Association (``SIFMA''), to Elizabeth M. Murphy,
Secretary, Commission (``SIFMA Letter''); February 2, 2009 letter
from Jeffrey T. Brown, Senior Vice President, Charles Schwab
Corporation (``Schwab''), to Florence Harmon, Deputy Secretary,
Commission, (``Schwab Letter'').
\5\ See February 25, 2009 letter from Janet M. Kissane, Senior
Vice President--Legal & Corporate Secretary, Office of the General
Counsel, NYSE, to Elizabeth M. Murphy, Secretary, Commission (``NYSE
Letter'').
---------------------------------------------------------------------------
II. Description of the Proposal
A. Unit of Count
As part of a one-year pilot and a wider initiative to simplify and
modernize market data administration, the Exchange proposes to redefine
some of the basic ``units of measure'' that Vendors are required to
report to the Exchange and on which the Exchange bases its fees for its
NYSE OpenBook product packages. NYSE believes the proposal is designed
to be more closely aligned with current data consumption, reduce costs
for the Exchange's customers, and potentially serve as a model for
additional pricing efficiencies.
NYSE OpenBook is a packaged suite of data feed products. It
includes: (i) NYSE OpenBook Realtime, by which the Exchange makes NYSE
OpenBook Realtime available on a snapshot basis, with updates
distributed in real-time at intervals of one second; and (ii) NYSE
OpenBook Ultra, by which the Exchange updates NYSE OpenBook information
upon receipt of each displayed limit order, or upon an event that
removes limit orders from NYSE OpenBook (i.e., cancellation or
execution). For no additional charge, the Exchange makes available to
recipients of NYSE OpenBook additional data feeds containing: (i) NYSE
BestQuote,\6\ which allows customers to see NYSE's best bid and offer
as made available through the Consolidated Quotation System, and which
may contain additional market interest that is not displayed in the
[[Page 11163]]
NYSE limit order book and that, therefore, is not available in NYSE
OpenBook; and (ii) Order Imbalance Information, which includes
information regarding order imbalances prior to the market opening and
closing auctions.
---------------------------------------------------------------------------
\6\ NYSE added NYSE BestQuote to the NYSE OpenBook Realtime
package in October 2006. See Securities Exchange Act Release No.
54594 (October 12, 2006); 71 FR 61819 (October 19, 2006) (SR-NYSE-
2006-81).
---------------------------------------------------------------------------
Currently, an end-user of NYSE OpenBook pays (or its Vendor pays on
its behalf) the monthly per-terminal NYSE OpenBook device fee of $60.
In addition, a NYSE OpenBook data feed recipient pays a monthly $5,000
access fee for NYSE OpenBook, plus the per-terminal fee if the data
feed recipient also displays the data. These fees currently apply
regardless of whether the recipient receives NYSE OpenBook Realtime or
NYSE OpenBook Ultra and whether the subscriber is a professional
subscriber or a nonprofessional subscriber. The recipients receive NYSE
Order Imbalance Information and NYSE BestQuote for no additional
charge.
Under the proposal, the Exchange will no longer define the Vendor-
Subscriber relationship based on the manner in which a Data Feed
Recipient or Subscriber receives data (i.e., through controlled
displays or through data feeds). Instead, the Exchange proposes to
adopt more objective billing criteria. The following basic principles
underlie this proposal.
i. Vendors
``Vendors'' are market data vendors, broker-dealers,
private network providers and other entities that control Subscribers'
access to data through Subscriber Entitlement Controls.
ii. Subscribers
``Subscribers'' are unique individual persons or devices
to which a Vendor provides data. Any individual or device that receives
data from a Vendor is a Subscriber, whether the individual or device
works for or belongs to the Vendor, or works for or belongs to an
entity other than the Vendor.
Only a Vendor may control Subscriber access to data.
Subscribers may not redistribute data in any manner.
iii. Subscriber Entitlements
A Subscriber Entitlement is a Vendor's permitting a
Subscriber to receive access to data through an Exchange-approved
Subscriber Entitlement Control.
A Vendor may not provide data access to a Subscriber
except through a unique Subscriber Entitlement.
The Exchange will require each Vendor to provide a unique
Subscriber Entitlement to each unique Subscriber.
At prescribed intervals (normally monthly), the Exchange
will require each Vendor to report each unique Subscriber Entitlement.
iv. Subscriber Entitlement Controls
A Subscriber Entitlement Control is the Vendor's process
of permitting Subscribers' access to data.
Prior to using any Subscriber Entitlement Control or
changing a previously approved Subscriber Entitlement Control, a Vendor
must provide the Exchange with a demonstration and a detailed written
description of the control or change and the Exchange must have
approved it in writing.
The Exchange will approve a Subscriber Entitlement Control
if it allows only authorized, unique end-users or devices to access
data or monitors access to data by each unique end-user or device.
Vendors must design Subscriber Entitlement Controls to
produce an audit report and make each audit report available to the
Exchange upon request. The audit report must identify:
A. Each entitlement update to the Subscriber Entitlement Control;
B. The status of the Subscriber Entitlement Control; and
C. Any other changes to the Subscriber Entitlement Control over a
given period.
Only the Vendor may have access to Subscriber Entitlement
Controls.
The Exchange recognizes that each Vendor and Subscriber may use
NYSE OpenBook data differently and that the Exchange is one of many
markets with whom Vendors and Subscribers may enter into arrangements
for the receipt and use of data. Accordingly, the Exchange does not
propose to restrict how Vendors may use NYSE OpenBook data in their
display services and encourages Vendors to create and promote
innovative uses of NYSE OpenBook information. For instance, a Vendor
may use NYSE OpenBook data to create derived information displays, such
as displays that aggregate NYSE OpenBook data with data from other
markets.\7\ The proposal does not discriminate among data recipients
and users, as the new ``unit of measure'' concepts would apply equally
to everyone.
---------------------------------------------------------------------------
\7\ In the case of derived displays, the Vendor is required to:
(1) Pay the Exchange's device fees (described below); (2) include
derived displays in its reports of NYSE OpenBook usage; and (3) use
reasonable efforts to assure that any person viewing a display of
derived data understands what the display represents and the manner
in which it was derived.
---------------------------------------------------------------------------
Under the proposed rule change, the Exchange would require Vendors
to count every Subscriber Entitlement, whether it be an individual
person or a device. Thus, the Vendor would have to include in the count
every person and device that has access to the data, regardless of the
purposes for which the individual or device uses the data. The proposal
eliminates current exceptions to the device-reporting obligation in
order to subject the count to a more objective process and simplify the
reporting obligation for Vendors. For instance, the Exchange previously
has not required Vendors to report certain programmers and other
individuals who receive access to data for certain specific, non-
trading purposes. These exceptions require the Exchange to monitor the
manner end-users consume data, which in turn adds cost for both the
Exchange and customers.
To simplify the process, the Exchange will require Vendors to
report all entitlements in accordance with the following:
i. In connection with a Vendor's external distribution of NYSE
OpenBook data, the Vendor should count as one Subscriber Entitlement
each unique Subscriber that the Vendor has entitled to have access to
the Exchange's market data. However, where a device is dedicated
specifically to a single individual, the Vendor should count only the
individual and need not count the device.
ii. In connection with a Vendor's internal distribution of NYSE
OpenBook data, the Vendor should count as one Subscriber Entitlement
each unique individual (but not devices) that the Vendor has entitled
to have access to the Exchange's market data.
iii. The Vendor should identify and report each unique Subscriber.
If a Subscriber uses the same unique Subscriber Entitlement to gain
access to multiple market data services, the Vendor should count that
as one Subscriber Entitlement. However, if a unique Subscriber uses
multiple Subscriber Entitlements to gain access to one or more market
data services (e.g., a single Subscriber has multiple passwords and
user identifications), the Vendor should report all of those Subscriber
Entitlements.
iv. Vendors should report each unique individual person who
receives access through multiple devices as one Subscriber Entitlement
so long as each device is dedicated specifically to that individual.
v. The Vendor should include in the count as one Subscriber
Entitlement devices serving no entitled individuals. However, if the
Vendor entitles one or more individuals to use the same device, the
Vendor should include only
[[Page 11164]]
the entitled individuals, and not the device, in the count.
B. Nonprofessional Subscriber Fee and Fee Cap
In addition to the unit of count one-year pilot program, the
Exchange also proposes to establish a fee applicable to the receipt and
use of NYSE OpenBook data by nonprofessional Subscribers. Currently,
the Exchange does not have a separate fee for the receipt of NYSE
OpenBook data by nonprofessional Subscribers. Under the present
structure, NYSE OpenBook subscribers pay a device fee of $60. In the
instant proposal, the Exchange would reduce the NYSE OpenBook device
fee to $15 per month for investors who qualify as nonprofessional
Subscribers; the fee would be imposed on the Vendor, rather than on the
nonprofessional Subscriber.
In establishing a reduced rate for nonprofessional Subscribers, the
Exchange proposes to apply the same criteria for qualification as a
``nonprofessional subscriber'' as the CTA and CQ Plan Participants
use.\8\ Individuals that qualify as nonprofessional subscribers would
be eligible to enjoy the lower nonprofessional subscriber rate
regardless of whether they receive the NYSE OpenBook service from a
Vendor that receives the NYSE OpenBook datafeed directly from the
Exchange, or from a Vendor that receives the database indirectly
through an intermediary.
---------------------------------------------------------------------------
\8\ Like the CTA and CQ Plans, classification as a
nonprofessional subscriber is subject to Exchange review and
requires the subscriber to attest to his or her nonprofessional
subscriber status. A ``nonprofessional subscriber'' is a natural
person who uses the data solely for his personal, non-business use
and who is neither (i) registered or qualified with the SEC, the
Commodities Futures Trading Commission, any state securities agency,
any securities exchange or association, or any commodities or
futures contract market or association, (ii) engaged as an
``investment adviser'' as that term is defined in Section 202(a)(11)
of the Investment Advisors Act of 1940 (whether or not registered or
qualified under that act), nor (iii) employed by a bank or other
organization exemption from registration under Federal and/or State
securities laws to perform functions that would require him/her to
be so registered or qualified if he/she were to perform such
function for an organization not so exempt.
---------------------------------------------------------------------------
The Exchange proposes to introduce a monthly maximum amount (the
``Maximum Amount'') that a broker-dealer would have to pay to provide
NYSE OpenBook Realtime or NYSE OpenBook Ultra to any number of
nonprofessional Subscribers if such Subscriber maintains a brokerage
account with the broker-dealer. The broker-dealer must be registered as
a broker/dealer under the Act.
The Exchange proposes to set the Maximum Amount at $25,000 per
month for each calendar year subject to an increase or decrease by the
percentage increase or decrease in the annual cost-of-living adjustment
(``COLA'') that the U.S. Social Security Administration applies to
Supplemental Security Income for the calendar year preceding that
subsequent calendar year. For example, if the COLA for calendar year
2008 is a two percent increase, then the monthly Maximum Amount for
months falling in calendar year 2009 would increase by two percent to
$25,500.
The Exchange believes that the maximum monthly payment will benefit
broker-dealers that service a large customer base in particular. Under
the proposal, these broker-dealers would have to have procedures in
place that enable them to: (i) Procure readily the nonprofessional
subscriber attestation from each nonprofessional customer, a
requirement that is a prerequisite for qualification as a
nonprofessional subscriber; and (ii) review periodically the accounts
included under their nonprofessional cap to ensure their
nonprofessional status. Recognizing that these broker-dealers may have
a small number of account-holding customers that technically do not
qualify for the nonprofessional Subscriber fee, but whom a broker-
dealer may inadvertently include under the cap because of the
complexities of managing thousands or even millions of accounts, the
Exchange proposes guidelines under which the broker-dealer will not be
penalized for using the nonprofessional Subscriber fee cap
notwithstanding the inclusion of a limited number of account-holding
professional Subscribers.
Specifically, a broker-dealer may include professional Subscribers
in the calculation of the monthly maximum amount if:
i. Nonprofessional Subscribers comprise no less than 95 percent of
the pool of Subscribers that are included in the calculation;
ii. Each professional Subscriber included in the calculation
maintains an active brokerage account directly with the broker-dealer
(that is, with the broker-dealer rather than with a correspondent firm
of the broker-dealer); and
iii. Each professional Subscriber that is included in the
calculation is not affiliated with the broker-dealer or any of its
affiliates.\9\
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\9\ A professional Subscriber is ``affiliated'' with a broker-
dealer if he or she is an officer, partner, member, or employee of
the broker dealer or an affiliate of the broker-dealer or enjoys a
similar status with the broker-dealer or affiliate.
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iv. All Subscribers receive access to the identical service,
regardless of whether the Subscribers are professional Subscribers or
nonprofessional Subscribers.
v. Upon discovery of the inclusion in the cap of an individual that
does not qualify as a nonprofessional Subscriber, the broker-dealer
takes reasonable action to reclassify and report that individual as a
professional Subscriber during the immediately following reporting
period.
Notwithstanding clauses (iii) and (v), the broker-dealer may
include a professional Subscriber that is affiliated with the broker-
dealer or its affiliates (subject to clauses (i) and (ii)) if he or she
accesses market data on-line through his or her personal account solely
for the non-business purpose of managing his or her own portfolio.
Notwithstanding clause (v), professional Subscribers may constitute up
to five percent of the pool of Subscribers that the broker-dealer
includes in the calculation of the monthly maximum amount if those
professional Subscribers can only view data derived from NYSE OpenBook
Ultra through the Subscriber's online brokerage account; and in an
inquiry/response per-quote display (i.e., not in a streaming display).
The Exchange proposes this exception to permit broker-dealers that
primarily serve non-institutional brokerage account holders to offer a
consistent online client experience without undue administrative
burdens but guard against potential abuses by monitoring the use of the
exception closely and reserving the right to deny application of this
exception if a broker-dealer is determined to be misusing it, such as
by opening up retail brokerage accounts to disseminate data to
institutional clients. The Exchange intends for the Maximum Amount to
enable much wider distribution of NYSE OpenBook data to retail
investors holding brokerage accounts and further the goal of market
transparency for investors. If the $15 per-device fee would allow a
broker-dealer to pay less than the Maximum Amount for any month, the
broker-dealer may pay the lower amount for that month.
III. Summary of Comments and NYSE Response
The Commission received two comments on the proposed rule change.
In general, the commenters supported the proposed changes to the market
data fee structure. NYSE responded to the comments.
SIFMA supports several aspects of the proposed rule change. In
particular, SIFMA believes that the unit of count
[[Page 11165]]
pilot holds the promise of simplified and fairer market date fee
administration that would avoid duplicate counting of an individual
using multiple devices.\10\ In addition, SIFMA supports the
nonprofessional subscriber fee and fee cap.
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\10\ SIFMA Letter at 2.
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Schwab supports NYSE's proposal to introduce nonprofessional fees
and fee cap for nonprofessional recipients of the NYSE's OpenBook
product. Schwab believes that the proposal should for the first time
allow retail customers to obtain affordable depth-of-book market
data.\11\ Schwab notes that before this proposal, NYSE OpenBook would
have cost $60 million a month to distribute across the firm. The
proposal would limit the charges to $25,000 per month for Schwab to
distribute NYSE OpenBook to its nonprofessional clients. In addition,
Schwab commented that NYSE's changes in the way users of data are
counted will make the market data billing process more efficient and
less burdensome.\12\
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\11\ Schwab Letter at 1.
\12\ Schwab Letter at 2.
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The commenters noted their objection to the Commission's approach
for reviewing and evaluating market data proposals. SIFMA and Schwab
objected to the application of the test set forth in the NYSE Arca
Order for determining whether specific market data fee proposals are
consistent with the Exchange Act.\13\ SIFMA also stated that NYSE
``erroneously applies'' the competitive factors test enumerated in the
NYSE Arca Order.\14\
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\13\ SIFMA Letter at 1 and Schwab Letter at 2. SIFMA continues
to object for the reasons set forth in prior SIFMA comment letters.
See January 17, 2007 letter from Ira D. Hammerman, Senior Managing
Director and General Counsel, SIFMA to Nancy M. Morris, Secretary,
Commission; August 1, 2007 letter from Ira D. Hammerman, Senior
Managing Director and General Counsel, SIFMA, to Nancy M. Morris,
Secretary, Commission; August 16, 2007 letter from Marc E. Lackritz,
President and CEO, SIFMA, to Nancy M. Morris, Secretary, Commission;
November 7, 2007 letter from Melissa MacGregor, Vice President &
Assistant General Counsel, SIFMA, to Dr. Erik R. Sirri, Director,
Division of Market Regulation, Commission; February 7, 2008 letter
from Ira D. Hammerman, Senior Managing Director and General Counsel,
SIFMA, to Nancy M. Morris, Secretary, Commission; February 14, 2008
letter from Christopher Gilkerson and Gregory Babyak, Market Data
Subcommittee Co-Chairs to Nancy M. Morris, Secretary, Commission;
July 10, 2008 letter from Ira D. Hammerman, Senior Managing Director
and General Counsel, SIFMA to Florence Harmon, Deputy Secretary,
Commission; November 17, 2008 letter from Ira D. Hammerman, Senior
Managing Director and General Counsel, SIFMA to Florence Harmon,
Deputy Secretary, Commission.
\14\ SIFMA Letter at 3.
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NYSE appreciated SIFMA's and Schwab's strong support and positive
feedback regarding the nonprofessional subscriber fee and the changes
to the unit of count policies. In addition, the Exchange clarified that
it intended to file a proposed rule change with the Commission to amend
the pilot program to retroactively cap the fees payable by a vendor in
respect of the use of data for administrative purposes to $1500 per
month. The Exchange also clarified the terms and conditions applicable
to the NYSE Open Book Ultra ``five percent'' exception. Finally, NYSE
addressed SIFMA's disagreement with Commission's application of the
NYSE Arca Order approach. In this regard, NYSE noted that the SIFMA
letter did not provide a basis for its claim that the Exchange failed
to comply with the competitive forces test set forth in the NYSE Arca
Order. In addition, the Exchange noted its substantive analysis of the
application of the test to this proposal. The Exchange also reasserted
that it is subject to significant competitive forces and this proposal,
which reduces fees, is in part a response to such competition.
IV. Discussion
The Commission has reviewed carefully the proposed rule change, the
comment letters, and NYSE's response to the comment letters, and finds
that the proposed rule change is consistent with the requirements of
the Act and the rules and regulations thereunder applicable to a
national securities exchange. In particular, it is consistent with
Section 6(b)(4) of the Act,\15\ which requires that the rules of a
national securities exchange provide for the equitable allocation of
reasonable dues, fees, and other charges among its members and issuers
and other parties using its facilities, and Section 6(b)(5) of the
Act,\16\ which requires, among other things, that the rules of a
national securities exchange be designed to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system and, in general,
to protect investors and the public interest, and not be designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers.
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\15\ 15 U.S.C. 78f(b)(4).
\16\ 15 U.S.C. 78f(b)(5).
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The Commission also finds that the proposed rule change is
consistent with the provisions of Section 6(b)(8) of the Act,\17\ which
requires that the rules of an exchange not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act. Finally, the Commission finds that the proposed rule change
is consistent with Rule 603(a) of Regulation NMS,\18\ adopted under
Section 11A(c)(1) of the Act, which requires an exclusive processor
that distributes information with respect to quotations for or
transactions in an NMS stock to do so on terms that are fair and
reasonable and that are not unreasonably discriminatory.\19\
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\17\ 15 U.S.C. 78f(b)(8).
\18\ 17 CFR 242.603(a).
\19\ NYSE is an exclusive processor of NYSE depth-of-book data
under Section 3(a)(22)(B) of the Act, 15 U.S.C. 78c(a)(22)(B), which
defines an exclusive processor as, among other things, an exchange
that distributes information with respect to quotations or
transactions on an exclusive basis on its own behalf.
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The Commission has reviewed the proposal using the approach set
forth in the NYSE Arca Order for non-core market data fees.\20\ In the
NYSE Arca Order, the Commission stated that ``when possible, reliance
on competitive forces is the most appropriate and effective means to
assess whether the terms for the distribution of non-core data are
equitable, fair and reasonable, and not unreasonably discriminatory.''
\21\ It noted that the ``existence of significant competition provides
a substantial basis for finding that the terms of an exchange's fee
proposal are equitable, fair, reasonable, and not unreasonably or
unfairly discriminatory.'' \22\ If an exchange ``was subject to
significant competitive forces in setting the terms of a proposal,''
the Commission will approve a proposal unless it determines that
``there is a substantial countervailing basis to find that the terms
nevertheless fail to meet an applicable requirement of the Exchange Act
or the rules thereunder.'' \23\
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\20\ Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE
Arca Order''). In the NYSE Arca Order, the Commission describes in
great detail the competitive factors that apply to non-core market
data products. The Commission hereby incorporates by reference the
data and analysis from the NYSE Arca Order into this order.
\21\ Id. at 74771.
\22\ Id. at 74782.
\23\ Id. at 74781.
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As noted in the NYSE Arca Order, the standards in Section 6 of the
Act and Rule 603 of Regulation NMS do not differentiate between types
of data and therefore apply to exchange proposals to distribute both
core data and non-core data. Core data is the best-priced quotations
and comprehensive last-sale reports of all markets that the Commission,
pursuant to Rule 603(b), requires a central processor to consolidate
and distribute to the public pursuant to joint-SRO plans.\24\ In
[[Page 11166]]
contrast, individual exchanges and other market participants distribute
non-core data voluntarily.\25\ The mandatory nature of the core data
disclosure regime leaves little room for competitive forces to
determine products and fees.\26\ Non-core data products and their fees
are, by contrast, much more sensitive to competitive forces. The
Commission therefore is able to use competitive forces in its
determination of whether an exchange's proposal to distribute non-core
data meets the standards of Section 6 and Rule 603.\27\ Because NYSE's
instant proposal relates to the distribution of non-core data, the
Commission will apply the market-based approach set forth in the NYSE
Arca Order.
---------------------------------------------------------------------------
\24\ See 17 CFR 242.603(b). (``Every national securities
exchange on which an NMS stock is traded and national securities
association shall act jointly pursuant to one or more effective
national market system plans to disseminate consolidated
information, including a national best bid and national best offer,
on quotations for and transactions in NMS stocks. Such plan or plans
shall provide for the dissemination of all consolidated information
for an individual NMS stock through a single plan processor.'').
\25\ See NYSE Arca Order at 74779.
\26\ Id.
\27\ Id.
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The Exchange proposes to modify the manner that it imposes fees for
the NYSE OpenBook product packages. The proposal rule change would
simplify the way the Exchange charges for NYSE OpenBook by changing the
methodology for the Unit of Count. It also would introduce a
nonprofessional Subscriber fee, as well as the Maximum Amount a broker-
dealer would have to pay for nonprofessional Subscribers. Collectively,
these changes should reduce the fees and administrative costs related
to the receipt and distribution of NYSE OpenBook packages.
The proposal before the Commission relates to fees for NYSE
OpenBook products which are non-core, depth of book market data
products, and as in the Commission's NYSE Arca Order analysis at least
two broad types of significant competitive forces applied to NYSE in
setting the terms of this proposal: (i) NYSE's compelling need to
attract order flow from market participants; and (ii) the availability
to market participants of alternatives to purchasing NYSE's depth-of-
book order data.
Attracting order flow is the core competitive concern of any equity
exchange, including NYSE. Attracting order flow is an essential part of
an NYSE's competitive success. If NYSE cannot attract order flow to its
market, it will not be able to execute transactions. If NYSE cannot
execute transactions on its market, it will not generate transaction
revenue. If NYSE cannot attract orders or execute transactions on its
market, it will not have market data to distribute, for a fee or
otherwise, and will not earn market data revenue and thus not be
competitive with other exchanges that have this ability. Table 1 below
provides a useful recent snapshot of the state of competition in the
U.S. equity markets in the month of January 2009: \28\
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\28\ Source: ArcaVision (available at https://
www.arcavision.com).
Table 1--Reported Share Volume in U.S-Listed Equities During January 2009
[%]
----------------------------------------------------------------------------------------------------------------
Trading venue All stocks NYSE- listed NASDAQ- listed
----------------------------------------------------------------------------------------------------------------
NASDAQ.......................................................... 27.1 20.5 39.9
All Non-Exchange................................................ 26.7 26.2 31.0
NYSE Arca....................................................... 17.9 15.7 15.8
NYSE............................................................ 14.8 26.2 0.0
BATS............................................................ 10.7 9.0 10.8
International Stock Exchange.................................... 1.3 1.4 1.4
National Stock Exchange......................................... 0.6 0.7 0.7
Chicago Stock Exchange.......................................... 0.4 0.4 0.3
CBOE Stock Exchange............................................. 0.2 0.0 0.1
NYSE Alternext.................................................. 0.1 0.0 0.0
NASDAQ OMX BX................................................... 0.0 0.0 0.0
----------------------------------------------------------------------------------------------------------------
The market share percentages in Table 1 strongly indicate that NYSE
must compete vigorously for order flow to maintain its share of trading
volume. This compelling need to attract order flow imposes significant
pressure on NYSE to act reasonably in setting its fees for NYSE market
data, particularly given that the market participants that must pay
such fees often will be the same market participants from whom NYSE
must attract order flow. These market participants particularly include
the large broker-dealer firms that control the handling of a large
volume of customer and proprietary order flow. Given the portability of
order flow from one trading venue to another, any exchange that sought
to charge unreasonably high data fees would risk alienating many of the
same customers on whose orders it depends for competitive survival.\29\
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\29\ See NYSE Arca Order at 74783.
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In addition to the need to attract order flow, the availability of
alternatives to NYSE's OpenBook data significantly affect the terms on
which NYSE can distribute this market data.\30\ In setting the fees for
its NYSE OpenBook data, NYSE must consider the extent to which market
participants would choose one or more alternatives instead of
purchasing the exchange's data.\31\ Of course, the most basic source of
information generally available at an exchange is the complete record
of an exchange's transactions that is provided in the core data
feeds.\32\ In this respect, the core data feeds that include an
exchange's own transaction information
[[Page 11167]]
are a significant alternative to the exchange's market data
product.\33\
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\30\ See Richard Posner, Economic Analysis of Law Sec. 9.1 (5th
ed. 1998) (discussing the theory of monopolies and pricing). See
also U.S. Dep't of Justice & Fed'l Trade Comm'n, Horizontal Merger
Guidelines Sec. 1.11 (1992), as revised (1997) (explaining the
importance of alternatives to the presence of competition and the
definition of markets and market power). Courts frequently refer to
the Department of Justice and Federal Trade Commission merger
guidelines to define product markets and evaluate market power. See,
e.g., FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1 (D.D.C.
2007); FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004). In
considering antitrust issues, courts have recognized the value of
competition in producing lower prices. See, e.g., Leegin Creative
Leather Products v. PSKS, Inc., 127 S. Ct. 2705 (2007); Atlanta
Richfield Co. v. United States Petroleum Co., 495 U.S. 328 (1990);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574
(1986); State Oil Co. v. Khan, 522 U.S. 3 (1997); Northern Pacific
Railway Co. v. U.S., 356 U.S. 1 (1958).
\31\ See NYSE Arca Order at 74783.
\32\ Id.
\33\ Id.
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For more specific information concerning depth, market participants
can choose among products offered by the various exchanges and
ECNs.\34\ The various self-regulatory organizations, the several Trade
Reporting Facilities of FINRA, and ECNs that produce proprietary data
are all sources of competition. In addition, market participants can
assess depth with tools other than market data, such as ``pinging''
orders that search out both displayed and nondisplayed size at all
price points within an order's limit price.\35\
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\34\ See NYSE Arca Order at 74784.
\35\ Id.
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In sum, there are a variety of alternative sources of information
that impose significant competitive pressures on the NYSE in setting
the terms for distributing its depth-of-book order data. The Commission
believes that the availability of those alternatives, as well as the
NYSE's compelling need to attract order flow, imposed significant
competitive pressure on the NYSE to act equitably, fairly, and
reasonably in setting the terms of its proposal.
Because the NYSE was subject to significant competitive forces in
setting the terms of the proposal, the Commission will approve the
proposal in the absence of a substantial countervailing basis to find
that its terms nevertheless fail to meet an applicable requirement of
the Act or the rules thereunder. Neither commenter raised concerns with
regard to a substantial countervailing basis that the terms of the
proposal failed to meet the requirements of the Act or the rules
thereunder. Further, an analysis of the proposal does not provide such
a basis.
The Exchange proposes to switch from a per-device fee to a
Subscriber Entitlement fee. The Exchange is also proposing to introduce
a nonprofessional Subscriber Fee that is subject to a monthly maximum
amount. This change will lower the fees payable for NYSE OpenBook data
for nonprofessional Subscribers from $60 per month to $15 per month per
individual and device. The commenters supported NYSE's changes to its
market data fee structure. SIFMA believes that the unit of count pilot
holds the promise of simplified and fairer market date fee
administration that would avoid duplicate counting of an individual
using multiple devices.\36\ Schwab stated that the changes in how users
are of data are counted will make the market data billing process more
efficient and reduce administrative burdens.\37\ Schwab stated that the
proposal would for the first-time allow retail customers obtain
affordable depth-of-book market data.\38\ The Commission believes that
this proposed rule change will provide vendors with the flexibility to
manage NYSE market data in a manner that they determine is most useful
and efficient to their business operations.\39\ In addition, the
overall reduction in costs for NYSE OpenBook could lead to a wider
distribution of the market data and greater market transparency.\40\
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\36\ SIFMA Letter at 2.
\37\ Schwab Letter at 2.
\38\ Schwab Letter at 1.
\39\ See Schwab Letter at 2 (``[T]he proposal will allow
[Vendors] to manipulate the data as we choose and to aggregate this
data with data from other exchanges to offer innovative market data
displays to our customers.'').
\40\ See SIFMA Letter at 3 (``SIFMA has long advocated a
nonprofessional fee for depth-of-book data to promote market
transparency and investor protection'').
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\41\ that the proposed rule change (SR-NYSE-2008-131) be, and
hereby is, approved.
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\41\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
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\42\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-5570 Filed 3-13-09; 8:45 am]
BILLING CODE 8011-01-P
