Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving Proposed Rule Change To Establish Fees for NYSE Arca Trades, 12919-12921 [E9-6465]
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Federal Register / Vol. 74, No. 56 / Wednesday, March 25, 2009 / Notices
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III. Discussion and Commission’s
Findings
between issuers, and is generally
consistent with the Act.9
After careful review, the Commission
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. Specifically, the
Commission finds that the proposal is
consistent with Section 6(b)(4) of the
Act,6 which requires, among other
things, that the rules of an exchange
provide for the equitable allocation of
reasonable dues, fees, and other charges
among its members and issuers and
other persons using its facilities. The
Commission also finds that the proposal
is consistent with Section 6(b)(5) of the
Act,7 that an exchange have rules that
are designed to remove impediments to
and perfect the mechanism of a free and
open market and a national market
system, and are not designed to permit
unfair discrimination between issuers.
According to the Exchange, the
existing $5,000 fee is unsuitable for
Derivative Securities Products and
Structured Products, because it is
disproportionate in relation to the initial
and continued listing fees for those
securities.8 According to the Exchange,
a $2,500 fee is more consistent with the
pricing expectations of issuers for those
securities. Accordingly, the Commission
believes that the Exchange’s proposed
fee is reasonable, given that it will be
applied consistently to all listed
securities in those classes and is
consistent with the Exchange’s overall
approach to pricing for Derivative
Securities Products and Structured
Products.
Moreover, the Commission believes
that charging a one time $2,500
application fee for multiple issues of
securities on a single application is
appropriate in light of the general fee
structure for such products. The
Commission notes that the single fee for
multiple issues of securities applies
equally to all Derivative Securities
Products and Structured Products.
Finally, the Commission also believes
that it is appropriate to delete an
obsolete reference to a fee waiver that
expired in 2007.
For the foregoing reasons, the
Commission agrees that the proposed
rule change does not constitute an
inequitable allocation of reasonable
dues, fees and other charges and does
not permit unfair discrimination
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,10 that the
proposed rule change (SR–NYSEArca2009–03) be, and it hereby is, approved.
6 15
U.S.C. 78f(b)(4).
U.S.C. 78f(b)(5).
8 See Notice, supra note 3.
7 15
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–6464 Filed 3–24–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59598; File No. SR–
NYSEArca–2009–05]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Approving Proposed
Rule Change To Establish Fees for
NYSE Arca Trades
March 18, 2009.
I. Introduction
On January 21, 2009, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or ‘‘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 its NYSE Arca
Trades service, a NYSE Arca-only
market data service that allows a vendor
to redistribute on a real-time basis the
same last sale information that NYSE
Arca reports to the Consolidated Tape
Association (‘‘CTA’’) for inclusion in the
CTA’s consolidated data stream and
certain other related data elements
(‘‘NYSE Arca Last Sale Information’’),
and to establish fees for that service.
The proposed rule change was
published for comment in the Federal
Register on February 3, 2009.3 The
Commission received no comment
letters on the proposal. This order
approves the proposed rule change.
II. Description of the Proposal
The Exchange proposes to introduce
NYSE Arca Trades, a new service
pursuant to which it will allow vendors,
9 15 U.S.C. 78f(b)(4). In approving the proposed
rule change, the Commission has considered the
proposed rule’s impact in efficiency, competition
and capital formation. See 15 U.S.C. 78c(f).
10 15 U.S.C. 78s(b)(2).
11 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 59308
(January 28, 2009), 74 FR 5955 (February 3, 2009).
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12919
broker-dealers, and others (‘‘NYSE ArcaOnly Vendors’’) to make available NYSE
Arca Last Sale Information on a realtime basis. NYSE Arca Last Sale
Information would include last sale
information for all securities that are
traded on the Exchange. The Exchange
will make NYSE Arca Last Sale
Information available through its new
NYSE Arca Trades service at the same
time as it provides last sale information
to the processor under the CTA Plan. In
addition to the information that the
Exchange provides to CTA, NYSE Arca
Last Sale Information will also include
a unique sequence number that the
Exchange assigns to each trade and that
allows an investor to track the context
of the trade through such other
Exchange market data products as
ArcaBook®.
The Exchange proposes to charge
$750 per month for access to each of the
NYSE Arca Last Sale Information
datafeeds that NYSE Arca makes
available. The Exchange proposes to
charge each subscriber to an NYSE
Arca-Only Vendor’s NYSE Arca Trades
service: $5 per month per display device
for the receipt and use of NYSE Arca
Last Sale Information relating to
Network A and Network B Eligible
Securities (as the CTA Plan uses those
terms); and $5 per month per display
device for the receipt and use of NYSE
Arca Last Sale Information relating to
securities listed on Nasdaq.4 The access
fee applies equally to all NYSE ArcaOnly Vendors that receive the NYSE
Arca Trades datafeed and the device fee
applies equally to all subscribers that
receive an NYSE Arca-Only Vendor’s
NYSE Arca Trades service. The
Exchange does not propose to impose
any program classification charges for
the use of NYSE Arca Trades.
NYSE Arca represents that no
investors or broker-dealers are required
to subscribe to the product, as they can
find the same NYSE Arca last sale prices
either in the Exchange’s NYSE Arca
Realtime Reference Prices service,5 or
integrated with the prices that other
markets make available under the CTA
Plan. NYSE Arca anticipates that, even
though NYSE Arca Trades’ Last Sale
Information provides a less expensive
alternative to the consolidated price
information that investors and brokerdealers receive from CTA, the
information that NYSE Arca contributes
to the CTA consolidated datafeed and
4 The Exchange does not currently perceive a
demand for a nonprofessional subscriber fee for
NYSE Arca Trades, but will monitor customer
response.
5 See Securities Exchange Act Release No. 58444
(August 29, 2008), 73 FR 51872 (September 5, 2008)
(SR–NYSEArca–2008–96).
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Federal Register / Vol. 74, No. 56 / Wednesday, March 25, 2009 / Notices
the low latency of the CTA datafeed will
continue to satisfy the needs of the vast
majority of individual and professional
investors. The Exchange developed
NYSE Arca Trades primarily at the
request of traders who are very latency
sensitive and anticipates that demand
for the product will derive primarily
from investors and broker-dealers who
desire to use NYSE Arca Trades to
power certain trading algorithms or
smart order routers.6
The Exchange will require NYSE
Arca-Only Vendors to enter into the
form of ‘‘vendor’’ agreement into which
the CTA Plan requires recipients of the
Network A last sale prices information
datafeeds to enter (the ‘‘Network A
Vendor Form’’). The Network A Vendor
Form will authorize the NYSE ArcaOnly Vendor to provide the NYSE Arca
Trades service to its subscribers and
customers. The Network A Participants
drafted the Network A Vendor Form, it
is sufficiently generic to accommodate
NYSE Arca Trades, and it has been in
use in substantially the same form since
1990.7 The Exchange will require
professional and non-professional
subscribers to NYSE Arca Trades to
undertake to comply with the same
contract, reporting, payment, and other
administrative requirements as to which
the Network A Participants subject them
in respect of Network A last sale
information under the CTA Plan.
The Commission 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.8 In particular, it is consistent
with Section 6(b)(4) of the Act,9 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,10 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,11 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,12 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.13
The Commission has reviewed the
proposal using the approach set forth in
the NYSE Arca Order for non-core
market data fees.14 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.’’ 15 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.’’ 16 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
6 The latency difference between accessing last
sales through the NYSE Arca datafeed or through
the CTA datafeed can be measured in tens of
milliseconds.
7 See Securities Exchange Act Release Nos. 28407
(September 6, 1990), 55 FR 37276 (September 10,
1990); and 49185 (February 4, 2004), 69 FR 6704
(February 11, 2004).
8 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
9 15 U.S.C. 78f(b)(4).
10 15 U.S.C. 78f(b)(5).
11 15 U.S.C. 78f(b)(6).
12 17 CFR 242.603(a).
13 NYSE Arca is an exclusive processor of NYSE
Arca Trades 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.
14 See Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770 (December 9,
2008) (SR-NYSEArca-2006-21) (‘‘NYSE Arca
Oder’’). In the NYSE Arca Order, the Commission
describes the competitive factors that apply to noncore market data products. The Commission hereby
incorporates by reference the data and analysis from
the NYSE Arca Order into this order.
15 Id. at 74771.
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III. Discussion
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Exchange Act or the rules
thereunder.’’ 17
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.18 In
contrast, individual exchanges and
other market participants distribute
non-core data voluntarily. The
mandatory nature of the core data
disclosure regime leaves little room for
competitive forces to determine
products and fees. 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. Because NYSE Arca’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.
In the NYSE Arca Order, the
Commission discussed two broad types
of competitive forces that generally
apply to exchanges in their distribution
of a non-core data product—the need to
attract order flow and the availability of
data alternatives. These forces also
applied to NYSE Arca in setting the
terms of this proposal for the NYSE
Arca Trades data product: (i) NYSE
Arca’s compelling need to attract order
flow from market participants; and (ii)
the availability to market participants of
alternatives to purchasing NYSE Arca’s
data.
Table 1 below provides a recent
snapshot of the state of competition in
the U.S. equity markets in the month of
January 2009: 19
16 Id.
at 74782.
at 74781.
18 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.’’).
19 Source: ArcaVision (available at https://
www.arcavision.com).
17 Id.
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Federal Register / Vol. 74, No. 56 / Wednesday, March 25, 2009 / Notices
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 ......................................................................................................................
PWALKER on PROD1PC71 with NOTICES
The market share percentages in Table
1 strongly indicate that NYSE Arca must
compete vigorously for order flow to
maintain its share of trading volume.
The need to attract order flow imposes
significant pressure on NYSE Arca to act
reasonably in setting its fees for NYSE
Arca market data, particularly given that
the market participants that must pay
such fees often will be the same market
participants from whom NYSE Arca
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.
Moreover, distributing data widely
among investors, and thereby promoting
familiarity with the exchange and its
services, is an important exchange
strategy for attracting order flow.20
In addition to the need to attract order
flow, the availability of alternatives to
NYSE Arca Trades significantly affect
the terms on which NYSE Arca can
distribute this market data.21 In setting
20 See NYSE Arca Order at 74784 nn. 218–219
and accompanying text (noting exchange strategy of
offering data for free as a means to gain visibility
in the marketplace).
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
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01:23 Mar 25, 2009
Jkt 217001
the fees for its NYSE Arca Trades, the
Exchange must consider the extent to
which market participants would
choose one or more alternatives instead
of purchasing the Exchange’s data.22 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.23 In this respect,
the core data feeds that include an
exchange’s own transaction information
are a significant alternative to the
exchange’s market data product.24
The various self-regulatory
organizations, the several Trade
Reporting Facilities of FINRA, and ECNs
that produce proprietary data, as well as
the core data feed, are all sources of
competition in non-core data products.
As Table 1 illustrates, share volume in
U.S.-listed equities is widely dispersed
among trading venues, and these venues
are able to offer competitive data
products as alternatives to NYSE Arca
Trades. The Commission believes that
the availability of those alternatives, as
well as the NYSE Arca’s compelling
need to attract order flow, imposed
significant competitive pressure on the
NYSE Arca to act equitably, fairly, and
reasonably in setting the terms of its
proposal.
Because NYSE Arca 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.
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 Raliway Co. v. U.S., 356
U.S. 1 (1958).
22 See NYSE Arca Order at 74783.
23 Id.
24 Id.
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NYSE-listed
27.1
26.7
17.9
14.8
10.7
1.3
0.6
0.4
0.2
0.1
0.0
NASDAQlisted
20.5
26.2
15.7
26.2
9.0
1.4
0.7
0.4
0.0
0.0
0.0
39.9
31.0
15.8
0.0
10.8
1.4
0.7
0.3
0.1
0.0
0.0
No comments were submitted on this
proposal, and the Commission notes
that the proposal does not unreasonably
discriminate among types of users.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,25 that the
proposed rule change (SR–NYSEArca–
2009–05), be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–6465 Filed 3–24–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59468; File No. SR–
NYSEALTR–2009–16]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Change by NYSE
Alternext US LLC Amending Rule
300.10T—NYSE Alternext Equities To
Provide a Grace Period Under That
Rule for Member Organizations That
Have Applied for a Trading License To
Comply With Certain Exchange Rules
Correction
In notice document E9–4678
beginning on page 9651 in the issue of
Thursday, March 5, 2009, make the
following correction:
On page 9654, in the first column, in
the first paragraph, in the second line
from the bottom, ‘‘March 25, 2009’’
should read ‘‘March 26, 2009’’.
[FR Doc. Z9–4678 Filed 3–25–09; 8:45 am]
BILLING CODE 1505–01–D
25 15
26 17
E:\FR\FM\25MRN1.SGM
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
25MRN1
]]>Agencies
[Federal Register Volume 74, Number 56 (Wednesday, March 25, 2009)]
[Notices]
[Pages 12919-12921]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-6465]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59598; File No. SR-NYSEArca-2009-05]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving
Proposed Rule Change To Establish Fees for NYSE Arca Trades
March 18, 2009.
I. Introduction
On January 21, 2009, NYSE Arca, Inc. (``NYSE Arca'' or
``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 its NYSE Arca Trades service, a NYSE
Arca-only market data service that allows a vendor to redistribute on a
real-time basis the same last sale information that NYSE Arca reports
to the Consolidated Tape Association (``CTA'') for inclusion in the
CTA's consolidated data stream and certain other related data elements
(``NYSE Arca Last Sale Information''), and to establish fees for that
service. The proposed rule change was published for comment in the
Federal Register on February 3, 2009.\3\ The Commission received no
comment letters on the proposal. 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. 59308 (January 28,
2009), 74 FR 5955 (February 3, 2009).
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange proposes to introduce NYSE Arca Trades, a new service
pursuant to which it will allow vendors, broker-dealers, and others
(``NYSE Arca-Only Vendors'') to make available NYSE Arca Last Sale
Information on a real-time basis. NYSE Arca Last Sale Information would
include last sale information for all securities that are traded on the
Exchange. The Exchange will make NYSE Arca Last Sale Information
available through its new NYSE Arca Trades service at the same time as
it provides last sale information to the processor under the CTA Plan.
In addition to the information that the Exchange provides to CTA, NYSE
Arca Last Sale Information will also include a unique sequence number
that the Exchange assigns to each trade and that allows an investor to
track the context of the trade through such other Exchange market data
products as ArcaBook[supreg].
The Exchange proposes to charge $750 per month for access to each
of the NYSE Arca Last Sale Information datafeeds that NYSE Arca makes
available. The Exchange proposes to charge each subscriber to an NYSE
Arca-Only Vendor's NYSE Arca Trades service: $5 per month per display
device for the receipt and use of NYSE Arca Last Sale Information
relating to Network A and Network B Eligible Securities (as the CTA
Plan uses those terms); and $5 per month per display device for the
receipt and use of NYSE Arca Last Sale Information relating to
securities listed on Nasdaq.\4\ The access fee applies equally to all
NYSE Arca-Only Vendors that receive the NYSE Arca Trades datafeed and
the device fee applies equally to all subscribers that receive an NYSE
Arca-Only Vendor's NYSE Arca Trades service. The Exchange does not
propose to impose any program classification charges for the use of
NYSE Arca Trades.
---------------------------------------------------------------------------
\4\ The Exchange does not currently perceive a demand for a
nonprofessional subscriber fee for NYSE Arca Trades, but will
monitor customer response.
---------------------------------------------------------------------------
NYSE Arca represents that no investors or broker-dealers are
required to subscribe to the product, as they can find the same NYSE
Arca last sale prices either in the Exchange's NYSE Arca Realtime
Reference Prices service,\5\ or integrated with the prices that other
markets make available under the CTA Plan. NYSE Arca anticipates that,
even though NYSE Arca Trades' Last Sale Information provides a less
expensive alternative to the consolidated price information that
investors and broker-dealers receive from CTA, the information that
NYSE Arca contributes to the CTA consolidated datafeed and
[[Page 12920]]
the low latency of the CTA datafeed will continue to satisfy the needs
of the vast majority of individual and professional investors. The
Exchange developed NYSE Arca Trades primarily at the request of traders
who are very latency sensitive and anticipates that demand for the
product will derive primarily from investors and broker-dealers who
desire to use NYSE Arca Trades to power certain trading algorithms or
smart order routers.\6\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 58444 (August 29,
2008), 73 FR 51872 (September 5, 2008) (SR-NYSEArca-2008-96).
\6\ The latency difference between accessing last sales through
the NYSE Arca datafeed or through the CTA datafeed can be measured
in tens of milliseconds.
---------------------------------------------------------------------------
The Exchange will require NYSE Arca-Only Vendors to enter into the
form of ``vendor'' agreement into which the CTA Plan requires
recipients of the Network A last sale prices information datafeeds to
enter (the ``Network A Vendor Form''). The Network A Vendor Form will
authorize the NYSE Arca-Only Vendor to provide the NYSE Arca Trades
service to its subscribers and customers. The Network A Participants
drafted the Network A Vendor Form, it is sufficiently generic to
accommodate NYSE Arca Trades, and it has been in use in substantially
the same form since 1990.\7\ The Exchange will require professional and
non-professional subscribers to NYSE Arca Trades to undertake to comply
with the same contract, reporting, payment, and other administrative
requirements as to which the Network A Participants subject them in
respect of Network A last sale information under the CTA Plan.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release Nos. 28407 (September 6,
1990), 55 FR 37276 (September 10, 1990); and 49185 (February 4,
2004), 69 FR 6704 (February 11, 2004).
---------------------------------------------------------------------------
III. Discussion
The Commission 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.\8\ In
particular, it is consistent with Section 6(b)(4) of the Act,\9\ 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,\10\ 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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\8\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78f(b)(4).
\10\ 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,\11\ 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,\12\ 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.\13\
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\11\ 15 U.S.C. 78f(b)(6).
\12\ 17 CFR 242.603(a).
\13\ NYSE Arca is an exclusive processor of NYSE Arca Trades
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.\14\ 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.''
\15\ 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.'' \16\ 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.'' \17\
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\14\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE
Arca Oder''). In the NYSE Arca Order, the Commission describes 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.
\15\ Id. at 74771.
\16\ Id. at 74782.
\17\ 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.\18\ In
contrast, individual exchanges and other market participants distribute
non-core data voluntarily. The mandatory nature of the core data
disclosure regime leaves little room for competitive forces to
determine products and fees. 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. Because NYSE Arca'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.
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\18\ 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.'').
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In the NYSE Arca Order, the Commission discussed two broad types of
competitive forces that generally apply to exchanges in their
distribution of a non-core data product--the need to attract order flow
and the availability of data alternatives. These forces also applied to
NYSE Arca in setting the terms of this proposal for the NYSE Arca
Trades data product: (i) NYSE Arca's compelling need to attract order
flow from market participants; and (ii) the availability to market
participants of alternatives to purchasing NYSE Arca's data.
Table 1 below provides a recent snapshot of the state of
competition in the U.S. equity markets in the month of January 2009:
\19\
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\19\ Source: ArcaVision (available at https://www.arcavision.com).
[[Page 12921]]
Table 1
[Reported Share Volume in U.S.-Listed Equities during January 2009 (%)]
----------------------------------------------------------------------------------------------------------------
Trading venue All stocks NYSE-listed NASDAQ- listed
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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
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The market share percentages in Table 1 strongly indicate that NYSE
Arca must compete vigorously for order flow to maintain its share of
trading volume. The need to attract order flow imposes significant
pressure on NYSE Arca to act reasonably in setting its fees for NYSE
Arca market data, particularly given that the market participants that
must pay such fees often will be the same market participants from whom
NYSE Arca 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. Moreover, distributing data widely among
investors, and thereby promoting familiarity with the exchange and its
services, is an important exchange strategy for attracting order
flow.\20\
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\20\ See NYSE Arca Order at 74784 nn. 218-219 and accompanying
text (noting exchange strategy of offering data for free as a means
to gain visibility in the marketplace).
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In addition to the need to attract order flow, the availability of
alternatives to NYSE Arca Trades significantly affect the terms on
which NYSE Arca can distribute this market data.\21\ In setting the
fees for its NYSE Arca Trades, the Exchange must consider the extent to
which market participants would choose one or more alternatives instead
of purchasing the Exchange's data.\22\ 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.\23\ In this respect, the core data feeds that include an
exchange's own transaction information are a significant alternative to
the exchange's market data product.\24\
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\21\ 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
Raliway Co. v. U.S., 356 U.S. 1 (1958).
\22\ See NYSE Arca Order at 74783.
\23\ Id.
\24\ Id.
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The various self-regulatory organizations, the several Trade
Reporting Facilities of FINRA, and ECNs that produce proprietary data,
as well as the core data feed, are all sources of competition in non-
core data products. As Table 1 illustrates, share volume in U.S.-listed
equities is widely dispersed among trading venues, and these venues are
able to offer competitive data products as alternatives to NYSE Arca
Trades. The Commission believes that the availability of those
alternatives, as well as the NYSE Arca's compelling need to attract
order flow, imposed significant competitive pressure on the NYSE Arca
to act equitably, fairly, and reasonably in setting the terms of its
proposal.
Because NYSE Arca 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. No comments were submitted on this proposal, and
the Commission notes that the proposal does not unreasonably
discriminate among types of users.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\25\ that the proposed rule change (SR-NYSEArca-2009-05), be, and
it hereby is, approved.
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\25\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-6465 Filed 3-24-09; 8:45 am]
BILLING CODE 8010-01-P
