Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to Market Data Fees, 15795-15799 [E9-7836]
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Federal Register / Vol. 74, No. 65 / Tuesday, April 7, 2009 / Notices
structured options that become fungible
with non-flexibly structured options
will cease to be classified as flexibly
structured options. Therefore, such
flexibly structured options will cease to
be subject to automatic exercise at
expiration and will instead be subject to
exercise by exception like the nonflexibly structured options with which
they have become fungible.
OCC believes that the proposed
changes to OCC’s By-Laws and Rules are
consistent with the purposes and
requirements of Section 17A of the Act 6
because they are designed to promote
the prompt and accurate clearance and
settlement of transactions in, including
exercises of, flexibly structured options
and to foster cooperation and
coordination with persons engaged in
the clearance and settlement of such
transactions, to remove impediments to
and perfect the mechanism of a national
system for the prompt and accurate
clearance and settlement of such
transactions, and, in general, to protect
investors and the public interest. It
accomplishes these purposes by
maintaining consistency between OCC’s
By-Laws and Rules and CBOE’s rules as
applied to the clearance and settlement
of flexibly structured options. The
proposed rule change is not inconsistent
with the existing By-Laws and Rules of
OCC, including any rules proposed to be
amended.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
OCC does not believe that the
proposed rule change would impose any
burden on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
OCC has not solicited or received
written comments with respect to the
proposed rule change. OCC will notify
the Commission of any written
comments it receives.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 7 and Rule 19b–4(f)
thereunder because the proposed rule
effects a change in an existing OCC
service that (i) does not adversely affect
the safeguarding of securities or funds
in OCC’s custody or control or for which
OCC is responsible and (ii) does not
significantly affect OCC’s respective
6 15
7 15
U.S.C. 78q–1.
U.S.C. 78a(b)(3)(A).
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rights or obligations or persons using
the service. At any time within 60 days
of the filing of the proposed rule change,
the Commission may summarily
abrogated such rule change if it appears
to the Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomment@sec.gov. Please include File
No. SR–OCC–2009–05 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File No.
SR–OCC–2009–05. This file number
should be included on the subject line
if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. to 3 p.m.
Copies of such filing also will be
available for inspection and copying at
OCC’s principal office and on OCC’s
Web site at https://www.theocc.com/
publications/rules/proposed_changes/
proposed_changes.jsp. All comments
received will be posted without change;
the Commission does not edit personal
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15795
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File No. SR–OCC–2009–
05 and should be submitted on or before
April 28, 2009.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.8
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–7774 Filed 4–6–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59679; File No. SR–ISE–
2007–97]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto
Relating to Market Data Fees
April 1, 2009.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
5, 2007, International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III below, which Items
have been prepared by the Exchange.
On March 9, 2009, the Exchange filed
Amendment No. 1 to the proposed rule
change.3 The Commission is publishing
this notice to solicit comments on the
proposed rule change, as modified by
Amendment No. 1, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing to amend
its Schedule of Fees to establish fees for
a real-time depth of market data
offering. The text of the proposed rule
change is available on the Exchange’s
Web site (https://www.ise.com), at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
8 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 replaced and superseded the
original filing in its entirety.
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of 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
ISE currently creates market data that
consists of options quotes and orders
and all trades that are executed on the
Exchange. ISE also produces a Best Bid/
Offer, or BBO, with the aggregate size
from all outstanding quotes and orders
at the top price level, or the ‘‘top of
book.’’ This ‘‘core’’ 4 data is formatted
according to Options Price Reporting
Authority (‘‘OPRA’’) specification and
sent to OPRA for redistribution to the
public.
In addition to the BBO ‘‘core’’ data,
the Exchange also produces a ‘‘noncore’’ data feed, the ISE Depth of Market
Data Feed (‘‘Depth of Market’’), a service
that aggregates all quotes and orders at
the top five price levels, on both the bid
and offer side of the market. The Depth
of Market offering consists of nonmarketable orders and quotes that a
prospective buyer or seller has chosen
to display. The purpose of this proposed
rule change is to establish fees for the
ISE Depth of Market offering. Depth of
Market, which is distributed in real
time, provides subscribers with a
consolidated view of tradable prices
beyond the BBO. Further, Depth of
Market shows additional liquidity and
enhances transparency for ISE traded
options that is not currently available
through the OPRA feed. The proposed
offering is available to members and
non-members, and to both professional
and non-professional subscribers.
ISE believes that it has consistently
supported the broadest, most effective
dissemination of market information to
4 ‘‘Core’’ data refers to the best-priced quotations
and comprehensive last sale reports of all markets
that the Commission requires a central processor to
consolidate and distribute to the public pursuant to
joint-SRO plans. ‘‘Non-core’’ data refers to products
other than the consolidated products that markets
offer collectively under joint industry plans.
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public investors. Its multiple filings
regarding ‘‘non-core’’ market data have
provided market participants with tools
to enhance their trading opportunities.5
The Exchange proposes to charge
distributors 6 of Depth of Market $5,000
per month. In addition, the Exchange
proposes to charge the distributor a
monthly fee per controlled device 7 of (i)
$50 per controlled device for
Professionals at a distributor where the
data is for internal use only, (ii) $50 per
controlled device for Professionals who
receive the data from a distributor
where the data is further redistributed
externally, and (iii) $5 per controlled
device for Non-Professionals who
receive the data from a distributor. The
Exchange proposes to limit for any one
month the combined maximum amount
of fees payable by a distributor, as
follows: (i) $7,500 for Professionals at a
distributor where the data is for internal
use only, (ii) $12,500 for Professionals
where the data is further redistributed
externally in a controlled device, and
(iii) $10,000 for Non-Professionals who
receive the data in a controlled device
from a distributor. In an effort to
accommodate a distributor’s
development effort to integrate the
Depth of Market offering, the Exchange
proposes to charge distributors a flat fee
of $1,000 for the first month after
connectivity has been established
between ISE and the distributor.
Further, the Exchange proposes to waive
all user fees during this one month
period.
In differentiating between
Professional and Non-Professional
subscribers, the Exchange proposes to
apply the same criteria for qualification
5 See Securities Exchange Act Release Nos. 53212
(February 2, 2006), 71 FR 6803 (February 9, 2006)
(Notice of Filing and Immediate Effectiveness of
Proposed Rule Change Establishing Fees for
Historical Options Tick Market Data); 53390
(February 28, 2006), 71 FR 11457 (March 7, 2006)
(Order Granting Accelerated Approval of a
Proposed Rule Change Establishing Fees for
Historical Options Tick Market Data for NonMembers); 53756 (May 3, 2006), 71 FR 27526 (May
11, 2006) (Order Granting Approval of a Proposed
Rule Change Establishing Fees for Enhanced
Sentiment Market Data); 56254 (August 15, 2007),
72 FR 47104 (August 22, 2007) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
Relating to ISE Open/Close Trade Profile Fees;
56315 (August 24, 2007), 72 FR 50148 (August 30,
2007) (Order Approving a Proposed Rule Change
Relating to ISEE Select Market Data Fees).
6 ISE proposes that a ‘‘distributor’’ be defined as
any firm that receives an ISE data feed directly from
ISE or indirectly through a ‘‘redistributor’’ and then
distributes it either internally or externally. Further,
ISE proposes that all distributors execute an ISE
distributor agreement. ‘‘Redistributors’’ include
market data vendors and connectivity providers
such as extranets and private network providers.
7 ISE proposes that a ‘‘controlled device’’ be
defined as any device that a distributor of the ISE
Depth of Market permits to access the information
in the Depth of Market offering.
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as a Non-Professional subscriber as the
Consolidated Tape Association (‘‘CTA’’)
Plan and Consolidated Quotation
System Plan Participants use.
Accordingly, a ‘‘Non-Professional
Subscriber’’ is an authorized end-user of
Depth of Market data who is a natural
person and who is neither: (a)
Registered or qualified with the
Securities and Exchange Commission
(the ‘‘Commission’’), the Commodities
Futures Trading Commission, any state
securities agency, any securities
exchange or association, or any
commodities or futures contract market
or association; (b) engaged as an
‘‘investment advisor’’ as that term is
defined Section 202(a)(11) of the
Investment Advisers Act of 1940
(whether or not registered or qualified
under that act); nor (c) employed by a
bank or other organization exempt 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 functions for an
organization not so exempt. A
‘‘Professional Subscriber’’ is an
authorized end-user of Depth of Market
that has not qualified as a NonProfessional Subscriber.
Under the proposal, the Exchange
would apply one device fee in respect
of professional subscribers to Depth of
Market and a different, lower device fee
in respect of non-professional
subscribers. The use of a lower fee for
non-professional subscribers than for
professional subscribers has a long
history. CTA first adopted a nonprofessional subscriber fee 25 years
ago.8 Since then, individual investors
have had broadened access to real-time
market information. The Exchange
believes that a non-professional
subscriber fee for Depth of Market will
likely lead to greater access by
individual investors to Depth of Market
information and thereby to further the
statutory goals expressed in Section
11A(a)(1)(c) of the Securities Exchange
Act of 1934 (the ‘‘Exchange Act’’).
Further, Section 603(a)(2) of
Regulation NMS requires markets to
distribute market data ‘‘on terms that are
not unreasonably discriminatory.’’
Given the differences in data usage
between professional subscribers and
non-professional subscribers and the
industry’s long acceptance of different
fees for professional subscribers and
non-professional subscribers, the
Exchange believes that the proposed
8 See the Sixth Substantive Amendment and
Sixth Charges Amendment to the CTA Plan, File
No. S7–433, Release Nos. 34–20002 (July 22, 1983),
34–20239 (September 30, 1983) and 34–20386
(November 17, 1983).
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non-professional subscriber fee does not
unreasonably discriminate against the
professional subscriber fee.
The Exchange believes the proposed
fees for Depth of Market comport with
the standard that the Commission
established for determining whether
market data fees relating to non-core
market data products are fair and
reasonable. In its recent ‘‘Order Setting
Aside Action by Delegated Authority
and Approving Proposed Rule Change
Relating to NYSE Arca Data’’ (the
‘‘NYSE ArcaBook Approval Order’’),9
the Commission reiterated its position
from its release approving Regulation
NMS that it should ‘‘allow market
forces, rather than regulatory
requirements, to determine what, if any,
additional quotations outside the NBBO
are displayed to investors.’’10
The Commission went on to state that:
The Exchange Act and its legislative
history strongly support the Commission’s
reliance on competition, whenever possible,
in meeting its regulatory responsibilities for
overseeing the SROs and the national market
system. Indeed, competition among multiple
markets and market participants trading the
same products is the hallmark of the national
market system.11
The Commission then articulated the
standard that it will apply in assessing
the fairness and reasonableness of
market data fees for non-core products,
as follows:
With respect to non-core data, * * * the
Commission has maintained a market-based
approach that leaves a much fuller
opportunity for competitive forces to work.
This market-based approach to non-core data
has two parts. The first is to ask whether the
exchange was subject to significant
competitive forces in setting the terms of its
proposal for non-core data, including the
level of any fees. If an exchange was subject
to significant competitive forces in setting the
terms of a proposal, the Commission will
approve the 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.12
The options industry is subject to
significant competitive forces and the
introduction of the Depth of Market
offering is just one response to that
competition. The options Exchanges
compete intensely for order flow. The
primary purpose of any ‘‘non-core’’ data
offering by an Exchange is to attract
order flow. Attracting order flow is a
significant concern of any exchange, be
it an equity, options or futures
exchange. ‘‘If an exchange cannot attract
orders, it will not be able to execute
transactions. If it cannot execute
transactions, it will not generate
transaction revenue. If an exchange
cannot attract orders or execute
transactions, it will not have market
data to distribute,’’ 13 or to monetize.
ISE currently competes with six other
options exchanges for order flow and
‘‘the competition is fierce.’’ 14 The
number of registered options exchanges
in the United States has increased 75%
since ISE itself became an exchange in
2000. Although ISE’s total volume
increased in 2008 over 2007, its market
share suffered a decline. The table
below details market share among the
options exchanges in all listed products
from 2006 through 2008, showing
increases and decreases in market share
quarter-by-quarter.
QUARTERLY MARKET SHARE BASED ON AVERAGE DAILY VOLUME
Period
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
06
06
06
06
07
07
07
07
08
08
08
08
..............................
..............................
..............................
..............................
..............................
..............................
..............................
..............................
..............................
..............................
..............................
..............................
ISE
30.46
29.05
29.59
27.86
27.76
28.20
28.11
28.25
29.40
28.79
27.55
26.81
%
AMEX
10.05
9.62
9.66
9.56
9.60
8.88
8.02
7.49
6.02
6.16
5.54
5.46
▼
▼
▼
▼
▼
▼
▼
%
▼
▼
▼
▼
▼
▼
▼
▼
▼
BOX
5.04
4.92
4.64
4.07
4.08
4.32
4.88
4.71
4.66
5.16
4.87
5.29
%
CBOE
▼
▼
▼
▼
▼
▼
▼
31.79
35.25
33.81
32.24
33.73
33.92
34.05
30.77
31.97
32.28
34.04
34.88
%
▼
▼
▼
Despite the frequent variations in
market share, no single exchange has
more than approximately one-third the
market share. Given the current
competitive pressures in the options
industry, no exchange can take any of
its share of trading for granted. ‘‘Even
the most dominant exchanges are
subject to severe pressure in the current
market environment.’’ 15 In order for ISE
to maintain its market share, it must
compete vigorously for order flow.
Given the portability of order flow from
one exchange to another, a pricing
misstep can easily result in loss of order
flow, customers and ultimately,
revenue.
Moreover, absent certain exclusively
licensed monopolistic products, market
participants have the ability to send
their order to any of the seven options
exchanges since nearly all underlying
securities whose options are available
for trading are offered at each of the
seven exchanges. For example, of the
more than 2,000 underlying securities
whose options are traded on ISE, only
41 products (two percent) are singlylisted on ISE, which collectively
represents less than .02 percent of ISE’s
total contract volume. Of those 41
products, 16 are proprietary ISE index
options, all of which are available for
licensing by ISE to any other exchange;
9 See Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770 (December 9,
2008) (SR–NYSEArca–2006–21).
10 See Regulation NMS Release, 70 FR at 37566–
37567 (addressing differences in distribution
standards between core data and non-core data).
11 NYSE ArcaBook Approval Order at pp. 46–47.
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NYSEArca
9.98
8.46
9.29
10.96
11.40
10.81
10.60
13.71
13.44
11.37
11.27
10.45
%
PHLX
▼
▼
▼
▼
▼
▼
▼
▼
12.68
12.70
13.01
15.30
13.42
13.88
14.34
15.06
14.50
15.61
15.50
15.51
%
▼
▼
▼
▼
NSDQ
%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0.63
1.23
1.60
four are index products that ISE has
non-exclusively licensed from index
providers and which are available to
other exchanges to license; 10 are
Exchange Traded Funds that other
exchanges have chosen not to list; and
the remaining 11 products are equities
that either the other exchanges have
chosen not to list or are in the process
of being de-listed and thus are available
for closing only transactions on ISE.
With regards to the 16 proprietary
index options, ISE notes that they are
traded exclusively on ISE not due to any
type of monopoly control, but rather
due to lack of interest by other
exchanges. ISE further notes that when
12 Id.
at pp. 48–49.
at p. 51.
14 Id. at p. 52.
15 Id. at p. 53.
13 Id.
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another exchange has shown interest in
trading a proprietary ISE product, the
Exchange has licensed the trading in
that product to other exchanges. For
example, NYSE Arca recently signed a
license agreement with ISE to list and
trade ISE’s foreign currency options and
that ISE proprietary product is now
multiply listed. Although this
introduces competition for order flow,
ISE believes options that are listed on
multiple exchanges provide investors
with better markets for execution and
lower fees. It also tends to raise overall
industry trading volume in the product.
We are ready, willing, and able to
license our proprietary index products
for trading on other exchanges on
commercially reasonable terms.
The Exchange further notes that there
are a number of alternative ‘‘non-core’’
products available to investors. The ISE
Depth of Market does not provide a
complete picture of the full market for
options on a security. Rather, an
investor has a number of different
information sources to choose from in
determining which exchange has the
best market. The other exchanges, all of
whom can produce their own depth of
market products, as well independent
distribution of order data by securities
firms and data vendors, all pose a
competitive threat. Moreover, the
Exchange believes that the great
majority of investors do not believe that
it is necessary to purchase a depth-ofbook product.
Currently, of nearly 200 firms that are
members of the Exchange, less than 15
percent currently access Depth of
Market, which the Exchange is offering
at no cost, pending approval of this
proposed rule change. The lack of
committed members affirms the
Exchange’s view that Depth of Market,
while it may serve a beneficial purpose
and would be ‘nice to have’, does not
contain information that is so critical
that it would adversely impact trading
decisions made by investors. Further,
while Depth of Market is available to
non-professional or ‘‘retail’’ subscribers,
the Exchange, despite the low level of
subscription by professional
subscribers, believes that Depth of
Market is primarily a product for market
professionals, who have access to other
sources of market data and will
purchase Depth of Market only if they
determine that the perceived benefits
outweigh the costs. The Exchange
believes the Commission concurs with
this sentiment, when it said in the
NYSE ArcaBook Approval Order, ‘‘the
fact that 95% of the professional users
of [Nasdaq] core data choose not to
purchase the depth-of-book order data
of a major exchange strongly suggests
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that no exchange has monopoly pricing
power for its depth-of-book order
data.’’ 16
In sum, the availability of alternative
sources of information coupled with the
Exchange’s critical need to attract order
flow impose significant competitive
pressure on ISE to act equitably, fairly,
and reasonably in setting fees for Depth
of Market. The introduction of this new
market data offering is, in part, a
response to that pressure. For the
reasons cited above, the Exchange
believes that the Depth of Market
offering, including the proposed fees, is
equitable, fair, reasonable and not
unreasonably discriminatory. In
addition, the Exchange believes that no
substantial countervailing basis exists to
support a finding that the proposed
terms and fees for Depth of Market fails
to meet the requirement of the Exchange
Act.
2. Statutory Basis
The basis under the Exchange Act for
this proposed rule change is the
requirement under Section 6(b)(4),17
that an exchange have an equitable
allocation of reasonable dues, fees and
other charges among its members and
other persons using its facilities; with
Section 6(b)(5) 18 of the Act, 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 with Section
6(b)(8) 19 of the Act, which requires that
the rules of a national securities
exchange not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. The Exchange
developed and conducted a
comprehensive survey of a cross-section
of participants in the financial services
industry regarding their level of interest
in a number of proprietary ‘‘non-core’’
market data offerings. Based on the
results of that survey, the Exchange
developed a business plan to create and
offer a number of proprietary market
data products targeted to potential user
groups, e.g., individual investors,
institutional investors, broker-dealers,
etc. The Exchange also retained a
consultant to validate the business plan
and to provide advice on the structure
and amount of fees to charge for these
16 Id.
at p. 64.
U.S.C. 78f(b)(4).
18 15 U.S.C. 78f(b)(5).
19 15 U.S.C. 78f(b)(8).
17 15
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products. Based on all of this
information, the Exchange established a
pricing structure for its Depth of Market
offering for professional and nonprofessional subscribers. The Exchange
believes the proposed rule filing
provides market participants with
added transparency to help improve
trading efficiency.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The proposed rule change does not
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve the proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act. In
particular, the Commission notes that
unlike the market data fees approved by
the Commission in the NYSE ArcaBook
Approval Order, ISE’s fees would apply
to securities that are traded only on ISE.
Would the inclusion of data for such
products in the ISE Depth of Market
feed undermine a finding, consistent
with the approach set forth in the NYSE
ArcaBook Approval Order, that ISE was
subject to significant competitive forces
in setting the terms of its fee proposal
for non-core data products? Should the
Commission evaluate those singly-listed
securities for which another exchange
would be required to obtain a license to
E:\FR\FM\07APN1.SGM
07APN1
Federal Register / Vol. 74, No. 65 / Tuesday, April 7, 2009 / Notices
trade differently than singly-listed
securities that do not require a license?
Does it matter whether any such
required license must be obtained from
ISE or a third party? ISE represents that
it would license its proprietary index
products to any other exchange on
commercially reasonable terms. How
should this representation be factored
into the Commission’s evaluation? What
impact, if any, would the trading
volume represented by such singlylisted securities have on the analysis?
Are there any factors with respect to
singly-listed securities that would
impact an analysis of whether ISE’s
proposed fees are consistent with the
Act?
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–ISE–2007–97 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549.
All submissions should refer to File
Number SR–ISE–2007–97. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of such filing also will be
available for inspection and copying at
the principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
VerDate Nov<24>2008
17:13 Apr 06, 2009
Jkt 217001
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–ISE–2007–97 and should be
submitted on or before April 28, 2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–7836 Filed 4–6–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59683; File No. SR–NYSE–
2009–12]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Approving a Proposed Rule Change
Amending Its Limited Liability
Company Operating Agreement and
the Bylaws of Its Wholly-Owned
Subsidiary NYSE Market, Inc. To
Eliminate, in Each Case, a
Requirement That Not Less Than Two
Members of the Board of Directors
Must Qualify as ‘‘Non-Affiliated
Directors’’ and a Related Requirement
That Not Less Than Two Members of
the Board of Directors Must Qualify as
‘‘Fair Representation Candidates’’
April 1, 2009.
I. Introduction
On February 2, 2009, 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
amend: (i) its Second Amended and
Restated Operating Agreement (‘‘NYSE
Operating Agreement’’); and (ii) the
bylaws of its wholly-owned subsidiary
NYSE Market, Inc. (‘‘NYSE Market’’)
(‘‘NYSE Market Bylaws’’), to eliminate
the requirement that not less than two
members of the board of directors of
NYSE (‘‘NYSE Board’’) and of NYSE
Market (‘‘NYSE Market Board’’),
respectively, must qualify as ‘‘nonaffiliated directors’’ and the requirement
that not less than two members of such
boards must qualify as ‘‘fair
representation candidates’’ (as each of
those terms is defined in the NYSE
Operating Agreement and NYSE Market
Bylaws, respectively). The requirements
that at least 20% of NYSE Board’s
20 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00111
Fmt 4703
Sfmt 4703
15799
directors and NYSE Market Board’s
directors must be ‘‘non-affiliated
directors’’ and ‘‘fair representation
candidates’’ would remain in place. The
proposed rule change was published for
comment in the Federal Register on
February 20, 2009.3 The Commission
received no comments on the proposal.
II. Description of the Proposal
The Exchange proposes that its parent
company, NYSE Group, Inc., as the sole
member of the Exchange, amend the
NYSE Operating Agreement to eliminate
the requirements that: (i) not less than
two members of NYSE Board must be
persons who are not members of the
board of directors of NYSE Euronext
(‘‘NYSE Euronext Board’’), and who
qualify as independent under the
independence policy of the NYSE
Euronext Board (‘‘NYSE non-affiliated
directors’’); and (ii) not less than two
members of the NYSE Board must be
‘‘fair representation candidates’’ (as
defined in the NYSE Operating
Agreement). In each case, however, the
current requirements that a minimum of
20% of NYSE Board’s directors must be
NYSE non-affiliated directors and that a
minimum of 20% of NYSE Board’s
directors must be fair representation
candidates would continue to apply.4
The Exchange also proposes that the
Exchange, as the sole stockholder of
NYSE Market, amend the NYSE Market
Bylaws to eliminate the requirements
that: (i) not less than two members of
the NYSE Market Board must be persons
who are not members of the NYSE
Euronext Board, although such directors
need not be independent (‘‘NYSE
Market non-affiliated directors’’); and
(ii) not less than two members of the
NYSE Market Board must be ‘‘fair
representation candidates’’ (as defined
in the NYSE Market Bylaws). In each
case, however, the current requirements
that a minimum of 20% of NYSE Market
Board’s directors must be NYSE Market
non-affiliated directors and that a
minimum of 20% of NYSE Market
Board’s directors must be fair
representation candidates would
continue to apply.5
The Exchange also proposes to specify
in the NYSE Operating Agreement and
the NYSE Market Bylaws that, for
purposes of calculating the minimum
number of non-affiliated directors and
3 See Securities Exchange Act Release No. 59400
(February 12, 2009), 74 FR 7945.
4 The Exchange has represented that fair
representation candidates on the NYSE Board
qualify as NYSE non-affiliated directors.
5 The Exchange has represented that fair
representation candidates on the NYSE Market
Board qualify as NYSE Market non-affiliated
directors.
E:\FR\FM\07APN1.SGM
07APN1
]]>Agencies
[Federal Register Volume 74, Number 65 (Tuesday, April 7, 2009)]
[Notices]
[Pages 15795-15799]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-7836]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59679; File No. SR-ISE-2007-97]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1
Thereto Relating to Market Data Fees
April 1, 2009.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 5, 2007, International Securities Exchange, LLC (the
``Exchange'' or the ``ISE'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the
Exchange. On March 9, 2009, the Exchange filed Amendment No. 1 to the
proposed rule change.\3\ The Commission is publishing this notice to
solicit comments on the proposed rule change, as modified by Amendment
No. 1, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 replaced and superseded the original filing
in its entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is proposing to amend its Schedule of Fees to
establish fees for a real-time depth of market data offering. The text
of the proposed rule change is available on the Exchange's Web site
(https://www.ise.com), at the principal office of the Exchange, and at
the Commission's Public Reference Room.
[[Page 15796]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of 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
ISE currently creates market data that consists of options quotes
and orders and all trades that are executed on the Exchange. ISE also
produces a Best Bid/Offer, or BBO, with the aggregate size from all
outstanding quotes and orders at the top price level, or the ``top of
book.'' This ``core'' \4\ data is formatted according to Options Price
Reporting Authority (``OPRA'') specification and sent to OPRA for
redistribution to the public.
---------------------------------------------------------------------------
\4\ ``Core'' data refers to the best-priced quotations and
comprehensive last sale reports of all markets that the Commission
requires a central processor to consolidate and distribute to the
public pursuant to joint-SRO plans. ``Non-core'' data refers to
products other than the consolidated products that markets offer
collectively under joint industry plans.
---------------------------------------------------------------------------
In addition to the BBO ``core'' data, the Exchange also produces a
``non-core'' data feed, the ISE Depth of Market Data Feed (``Depth of
Market''), a service that aggregates all quotes and orders at the top
five price levels, on both the bid and offer side of the market. The
Depth of Market offering consists of non-marketable orders and quotes
that a prospective buyer or seller has chosen to display. The purpose
of this proposed rule change is to establish fees for the ISE Depth of
Market offering. Depth of Market, which is distributed in real time,
provides subscribers with a consolidated view of tradable prices beyond
the BBO. Further, Depth of Market shows additional liquidity and
enhances transparency for ISE traded options that is not currently
available through the OPRA feed. The proposed offering is available to
members and non-members, and to both professional and non-professional
subscribers.
ISE believes that it has consistently supported the broadest, most
effective dissemination of market information to public investors. Its
multiple filings regarding ``non-core'' market data have provided
market participants with tools to enhance their trading
opportunities.\5\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release Nos. 53212 (February 2,
2006), 71 FR 6803 (February 9, 2006) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change Establishing Fees for
Historical Options Tick Market Data); 53390 (February 28, 2006), 71
FR 11457 (March 7, 2006) (Order Granting Accelerated Approval of a
Proposed Rule Change Establishing Fees for Historical Options Tick
Market Data for Non-Members); 53756 (May 3, 2006), 71 FR 27526 (May
11, 2006) (Order Granting Approval of a Proposed Rule Change
Establishing Fees for Enhanced Sentiment Market Data); 56254 (August
15, 2007), 72 FR 47104 (August 22, 2007) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Relating to ISE
Open/Close Trade Profile Fees; 56315 (August 24, 2007), 72 FR 50148
(August 30, 2007) (Order Approving a Proposed Rule Change Relating
to ISEE Select Market Data Fees).
---------------------------------------------------------------------------
The Exchange proposes to charge distributors \6\ of Depth of Market
$5,000 per month. In addition, the Exchange proposes to charge the
distributor a monthly fee per controlled device \7\ of (i) $50 per
controlled device for Professionals at a distributor where the data is
for internal use only, (ii) $50 per controlled device for Professionals
who receive the data from a distributor where the data is further
redistributed externally, and (iii) $5 per controlled device for Non-
Professionals who receive the data from a distributor. The Exchange
proposes to limit for any one month the combined maximum amount of fees
payable by a distributor, as follows: (i) $7,500 for Professionals at a
distributor where the data is for internal use only, (ii) $12,500 for
Professionals where the data is further redistributed externally in a
controlled device, and (iii) $10,000 for Non-Professionals who receive
the data in a controlled device from a distributor. In an effort to
accommodate a distributor's development effort to integrate the Depth
of Market offering, the Exchange proposes to charge distributors a flat
fee of $1,000 for the first month after connectivity has been
established between ISE and the distributor. Further, the Exchange
proposes to waive all user fees during this one month period.
---------------------------------------------------------------------------
\6\ ISE proposes that a ``distributor'' be defined as any firm
that receives an ISE data feed directly from ISE or indirectly
through a ``redistributor'' and then distributes it either
internally or externally. Further, ISE proposes that all
distributors execute an ISE distributor agreement.
``Redistributors'' include market data vendors and connectivity
providers such as extranets and private network providers.
\7\ ISE proposes that a ``controlled device'' be defined as any
device that a distributor of the ISE Depth of Market permits to
access the information in the Depth of Market offering.
---------------------------------------------------------------------------
In differentiating between Professional and Non-Professional
subscribers, the Exchange proposes to apply the same criteria for
qualification as a Non-Professional subscriber as the Consolidated Tape
Association (``CTA'') Plan and Consolidated Quotation System Plan
Participants use. Accordingly, a ``Non-Professional Subscriber'' is an
authorized end-user of Depth of Market data who is a natural person and
who is neither: (a) Registered or qualified with the Securities and
Exchange Commission (the ``Commission''), the Commodities Futures
Trading Commission, any state securities agency, any securities
exchange or association, or any commodities or futures contract market
or association; (b) engaged as an ``investment advisor'' as that term
is defined Section 202(a)(11) of the Investment Advisers Act of 1940
(whether or not registered or qualified under that act); nor (c)
employed by a bank or other organization exempt 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 functions for an organization not so exempt. A
``Professional Subscriber'' is an authorized end-user of Depth of
Market that has not qualified as a Non-Professional Subscriber.
Under the proposal, the Exchange would apply one device fee in
respect of professional subscribers to Depth of Market and a different,
lower device fee in respect of non-professional subscribers. The use of
a lower fee for non-professional subscribers than for professional
subscribers has a long history. CTA first adopted a non-professional
subscriber fee 25 years ago.\8\ Since then, individual investors have
had broadened access to real-time market information. The Exchange
believes that a non-professional subscriber fee for Depth of Market
will likely lead to greater access by individual investors to Depth of
Market information and thereby to further the statutory goals expressed
in Section 11A(a)(1)(c) of the Securities Exchange Act of 1934 (the
``Exchange Act'').
---------------------------------------------------------------------------
\8\ See the Sixth Substantive Amendment and Sixth Charges
Amendment to the CTA Plan, File No. S7-433, Release Nos. 34-20002
(July 22, 1983), 34-20239 (September 30, 1983) and 34-20386
(November 17, 1983).
---------------------------------------------------------------------------
Further, Section 603(a)(2) of Regulation NMS requires markets to
distribute market data ``on terms that are not unreasonably
discriminatory.'' Given the differences in data usage between
professional subscribers and non-professional subscribers and the
industry's long acceptance of different fees for professional
subscribers and non-professional subscribers, the Exchange believes
that the proposed
[[Page 15797]]
non-professional subscriber fee does not unreasonably discriminate
against the professional subscriber fee.
The Exchange believes the proposed fees for Depth of Market comport
with the standard that the Commission established for determining
whether market data fees relating to non-core market data products are
fair and reasonable. In its recent ``Order Setting Aside Action by
Delegated Authority and Approving Proposed Rule Change Relating to NYSE
Arca Data'' (the ``NYSE ArcaBook Approval Order''),\9\ the Commission
reiterated its position from its release approving Regulation NMS that
it should ``allow market forces, rather than regulatory requirements,
to determine what, if any, additional quotations outside the NBBO are
displayed to investors.''\10\
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\10\ See Regulation NMS Release, 70 FR at 37566-37567
(addressing differences in distribution standards between core data
and non-core data).
---------------------------------------------------------------------------
The Commission went on to state that:
The Exchange Act and its legislative history strongly support
the Commission's reliance on competition, whenever possible, in
meeting its regulatory responsibilities for overseeing the SROs and
the national market system. Indeed, competition among multiple
markets and market participants trading the same products is the
hallmark of the national market system.\11\
---------------------------------------------------------------------------
\11\ NYSE ArcaBook Approval Order at pp. 46-47.
The Commission then articulated the standard that it will apply in
assessing the fairness and reasonableness of market data fees for non-
---------------------------------------------------------------------------
core products, as follows:
With respect to non-core data, * * * the Commission has
maintained a market-based approach that leaves a much fuller
opportunity for competitive forces to work. This market-based
approach to non-core data has two parts. The first is to ask whether
the exchange was subject to significant competitive forces in
setting the terms of its proposal for non-core data, including the
level of any fees. If an exchange was subject to significant
competitive forces in setting the terms of a proposal, the
Commission will approve the 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.\12\
---------------------------------------------------------------------------
\12\ Id. at pp. 48-49.
The options industry is subject to significant competitive forces
and the introduction of the Depth of Market offering is just one
response to that competition. The options Exchanges compete intensely
for order flow. The primary purpose of any ``non-core'' data offering
by an Exchange is to attract order flow. Attracting order flow is a
significant concern of any exchange, be it an equity, options or
futures exchange. ``If an exchange cannot attract orders, it will not
be able to execute transactions. If it cannot execute transactions, it
will not generate transaction revenue. If an exchange cannot attract
orders or execute transactions, it will not have market data to
distribute,'' \13\ or to monetize.
---------------------------------------------------------------------------
\13\ Id. at p. 51.
---------------------------------------------------------------------------
ISE currently competes with six other options exchanges for order
flow and ``the competition is fierce.'' \14\ The number of registered
options exchanges in the United States has increased 75% since ISE
itself became an exchange in 2000. Although ISE's total volume
increased in 2008 over 2007, its market share suffered a decline. The
table below details market share among the options exchanges in all
listed products from 2006 through 2008, showing increases and decreases
in market share quarter-by-quarter.
---------------------------------------------------------------------------
\14\ Id. at p. 52.
Quarterly Market Share Based on Average Daily Volume
--------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------
Period ISE %
AMEX %
BOX %
CBOE %
NYSEArca %
PHLX %
NSDQ %
--------------------------------------------------------------------------------------------------------------------------------------------------------
Q1 06.............................. 30.46 10.05 [dtri 5.04 [dtri 31.79 9.98 [dtri 12.68 [dtri n/a
f] f] f] f]
Q2 06.............................. 29.05 [dtri 9.62 [dtri 4.92 [dtri 35.25 8.46 [dtri 12.70 n/a
f] f] f] f]
Q3 06.............................. 29.59 9.66 4.64 [dtri 33.81 [dtri 9.29 13.01 n/a
f] f]
Q4 06.............................. 27.86 [dtri 9.56 [dtri 4.07 [dtri 32.24 [dtri 10.96 15.30 n/a
f] f] f] f]
Q1 07.............................. 27.76 [dtri 9.60 4.08 33.73 11.40 13.42 [dtri n/a
f] f]
Q2 07.............................. 28.20 8.88 [dtri 4.32 33.92 10.81 [dtri 13.88 n/a
f] f]
Q3 07.............................. 28.11 [dtri 8.02 [dtri 4.88 34.05 10.60 [dtri 14.34 n/a
f] f] f]
Q4 07.............................. 28.25 7.49 [dtri 4.71 [dtri 30.77 [dtri 13.71 15.06 n/a
f] f] f]
Q1 08.............................. 29.40 6.02 [dtri 4.66 [dtri 31.97 13.44 [dtri 14.50 [dtri n/a
f] f] f] f]
Q2 08.............................. 28.79 [dtri 6.16 5.16 32.28 11.37 [dtri 15.61 0.63
f] f]
Q3 08.............................. 27.55 [dtri 5.54 [dtri 4.87 [dtri 34.04 11.27 [dtri 15.50 [dtri 1.23
f] f] f] f] f]
Q4 08.............................. 26.81 [dtri 5.46 [dtri 5.29 34.88 10.45 [dtri 15.51 1.60
f] f] f]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Despite the frequent variations in market share, no single exchange
has more than approximately one-third the market share. Given the
current competitive pressures in the options industry, no exchange can
take any of its share of trading for granted. ``Even the most dominant
exchanges are subject to severe pressure in the current market
environment.'' \15\ In order for ISE to maintain its market share, it
must compete vigorously for order flow. Given the portability of order
flow from one exchange to another, a pricing misstep can easily result
in loss of order flow, customers and ultimately, revenue.
---------------------------------------------------------------------------
\15\ Id. at p. 53.
---------------------------------------------------------------------------
Moreover, absent certain exclusively licensed monopolistic
products, market participants have the ability to send their order to
any of the seven options exchanges since nearly all underlying
securities whose options are available for trading are offered at each
of the seven exchanges. For example, of the more than 2,000 underlying
securities whose options are traded on ISE, only 41 products (two
percent) are singly-listed on ISE, which collectively represents less
than .02 percent of ISE's total contract volume. Of those 41 products,
16 are proprietary ISE index options, all of which are available for
licensing by ISE to any other exchange; four are index products that
ISE has non-exclusively licensed from index providers and which are
available to other exchanges to license; 10 are Exchange Traded Funds
that other exchanges have chosen not to list; and the remaining 11
products are equities that either the other exchanges have chosen not
to list or are in the process of being de-listed and thus are available
for closing only transactions on ISE.
With regards to the 16 proprietary index options, ISE notes that
they are traded exclusively on ISE not due to any type of monopoly
control, but rather due to lack of interest by other exchanges. ISE
further notes that when
[[Page 15798]]
another exchange has shown interest in trading a proprietary ISE
product, the Exchange has licensed the trading in that product to other
exchanges. For example, NYSE Arca recently signed a license agreement
with ISE to list and trade ISE's foreign currency options and that ISE
proprietary product is now multiply listed. Although this introduces
competition for order flow, ISE believes options that are listed on
multiple exchanges provide investors with better markets for execution
and lower fees. It also tends to raise overall industry trading volume
in the product. We are ready, willing, and able to license our
proprietary index products for trading on other exchanges on
commercially reasonable terms.
The Exchange further notes that there are a number of alternative
``non-core'' products available to investors. The ISE Depth of Market
does not provide a complete picture of the full market for options on a
security. Rather, an investor has a number of different information
sources to choose from in determining which exchange has the best
market. The other exchanges, all of whom can produce their own depth of
market products, as well independent distribution of order data by
securities firms and data vendors, all pose a competitive threat.
Moreover, the Exchange believes that the great majority of investors do
not believe that it is necessary to purchase a depth-of-book product.
Currently, of nearly 200 firms that are members of the Exchange,
less than 15 percent currently access Depth of Market, which the
Exchange is offering at no cost, pending approval of this proposed rule
change. The lack of committed members affirms the Exchange's view that
Depth of Market, while it may serve a beneficial purpose and would be
`nice to have', does not contain information that is so critical that
it would adversely impact trading decisions made by investors. Further,
while Depth of Market is available to non-professional or ``retail''
subscribers, the Exchange, despite the low level of subscription by
professional subscribers, believes that Depth of Market is primarily a
product for market professionals, who have access to other sources of
market data and will purchase Depth of Market only if they determine
that the perceived benefits outweigh the costs. The Exchange believes
the Commission concurs with this sentiment, when it said in the NYSE
ArcaBook Approval Order, ``the fact that 95% of the professional users
of [Nasdaq] core data choose not to purchase the depth-of-book order
data of a major exchange strongly suggests that no exchange has
monopoly pricing power for its depth-of-book order data.'' \16\
---------------------------------------------------------------------------
\16\ Id. at p. 64.
---------------------------------------------------------------------------
In sum, the availability of alternative sources of information
coupled with the Exchange's critical need to attract order flow impose
significant competitive pressure on ISE to act equitably, fairly, and
reasonably in setting fees for Depth of Market. The introduction of
this new market data offering is, in part, a response to that pressure.
For the reasons cited above, the Exchange believes that the Depth of
Market offering, including the proposed fees, is equitable, fair,
reasonable and not unreasonably discriminatory. In addition, the
Exchange believes that no substantial countervailing basis exists to
support a finding that the proposed terms and fees for Depth of Market
fails to meet the requirement of the Exchange Act.
2. Statutory Basis
The basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(4),\17\ that an exchange have an
equitable allocation of reasonable dues, fees and other charges among
its members and other persons using its facilities; with Section
6(b)(5) \18\ of the Act, 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 with
Section 6(b)(8) \19\ of the Act, which requires that the rules of a
national securities exchange not impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act. The
Exchange developed and conducted a comprehensive survey of a cross-
section of participants in the financial services industry regarding
their level of interest in a number of proprietary ``non-core'' market
data offerings. Based on the results of that survey, the Exchange
developed a business plan to create and offer a number of proprietary
market data products targeted to potential user groups, e.g.,
individual investors, institutional investors, broker-dealers, etc. The
Exchange also retained a consultant to validate the business plan and
to provide advice on the structure and amount of fees to charge for
these products. Based on all of this information, the Exchange
established a pricing structure for its Depth of Market offering for
professional and non-professional subscribers. The Exchange believes
the proposed rule filing provides market participants with added
transparency to help improve trading efficiency.
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\17\ 15 U.S.C. 78f(b)(4).
\18\ 15 U.S.C. 78f(b)(5).
\19\ 15 U.S.C. 78f(b)(8).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. In particular, the Commission notes
that unlike the market data fees approved by the Commission in the NYSE
ArcaBook Approval Order, ISE's fees would apply to securities that are
traded only on ISE. Would the inclusion of data for such products in
the ISE Depth of Market feed undermine a finding, consistent with the
approach set forth in the NYSE ArcaBook Approval Order, that ISE was
subject to significant competitive forces in setting the terms of its
fee proposal for non-core data products? Should the Commission evaluate
those singly-listed securities for which another exchange would be
required to obtain a license to
[[Page 15799]]
trade differently than singly-listed securities that do not require a
license? Does it matter whether any such required license must be
obtained from ISE or a third party? ISE represents that it would
license its proprietary index products to any other exchange on
commercially reasonable terms. How should this representation be
factored into the Commission's evaluation? What impact, if any, would
the trading volume represented by such singly-listed securities have on
the analysis? Are there any factors with respect to singly-listed
securities that would impact an analysis of whether ISE's proposed fees
are consistent with the Act?
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-ISE-2007-97 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549.
All submissions should refer to File Number SR-ISE-2007-97. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-ISE-2007-97 and should be
submitted on or before April 28, 2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-7836 Filed 4-6-09; 8:45 am]
BILLING CODE 8010-01-P
