Self-Regulatory Organizations; New York Stock Exchange, LLC; Order Approving Proposed Rule Change To Establish the NYSE BBO Service, 31488-31491 [2010-13336]
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Federal Register / Vol. 75, No. 106 / Thursday, June 3, 2010 / Notices
TABLE 1—TRADING CENTERS AND ESTIMATED % OF SHARE VOLUME IN
NMS STOCKS SEPTEMBER 2009—
Continued
Trading venue
Share volume in NMS
stocks
(percent)
200+ Broker-Dealers (Estimated) ...............................
17.5
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.
This compelling 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 seeks to charge unreasonably high
data fees would risk alienating many of
the same customers on whose orders it
depends for competitive survival.21
In addition to the need to attract order
flow, the availability of alternatives to
NYSE Arca Market Data significantly
affect the terms on which NYSE Arca
can distribute this market data.22 In
setting the fees for NYSE Arca Market
Data, NYSE Arca must consider the
extent to which market participants
would choose one or more alternatives
instead of purchasing the exchange’s
data.23 Of course, the most basic source
of information generally available at an
21 See
NYSE Arca Order at 74783.
Richard Posner, Economic Analysis of Law
§ 9.1 (5th ed. 1998) (discussing the theory of
monopolies and pricing). See also U.S. Dep’t of
Justice & Fed’l Trade Comm’n, Horizontal Merger
Guidelines § 1.11 (1992), as revised (1997)
(explaining the importance of alternatives to the
presence of competition and the definition of
markets and market power). Courts frequently refer
to the Department of Justice and Federal Trade
Commission merger guidelines to define product
markets and evaluate market power. See, e.g., FTC
v. Whole Foods Market, Inc., 502 F. Supp. 2d 1
(D.D.C. 2007); FTC v. Arch Coal, Inc., 329 F. Supp.
2d 109 (D.D.C. 2004). In considering antitrust
issues, courts have recognized the value of
competition in producing lower prices. See, e.g.,
Leegin Creative Leather Products v. PSKS, Inc., 127
S. Ct. 2705 (2007); Atlanta Richfield Co. v. United
States Petroleum Co., 495 U.S. 328 (1990);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574 (1986); State Oil Co. v. Khan, 522 U.S.
3 (1997); Northern Pacific Railway Co. v. U.S., 356
U.S. 1 (1958).
23 See NYSE Arca Order at 74783.
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22 See
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exchange is the complete record of an
exchange’s transactions that is provided
in the core data feeds.24 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.25 The
various self-regulatory organizations,
the several Trade Reporting Facilities of
FINRA, and ECNs that produce
proprietary data are all sources of
competition.
In sum, there are a variety of
alternative sources of information that
impose significant competitive
pressures on NYSE Arca in setting the
terms for distributing its NYSE Arca
Market Data. The Commission believes
that the availability of those
alternatives, as well as NYSE Amex’s
compelling need to attract order flow,
imposed significant competitive
pressure on NYSE Amex 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.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,26 that the
proposed rule change (SR–NYSEArca–
2010–23) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–13334 Filed 6–2–10; 8:45 am]
BILLING CODE 8010–01–P
24 Id.
27 17
PO 00000
[Release No. 34–62181; File No. SR–NYSE–
2010–30]
Self-Regulatory Organizations; New
York Stock Exchange, LLC; Order
Approving Proposed Rule Change To
Establish the NYSE BBO Service
May 26, 2010.
I. Introduction
On April 1, 2010, 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
establish the NYSE BBO Service, a
service that will make available the
Exchange’s best bids and offers and to
establish fees for that service. The
proposed rule change was published for
comment in the Federal Register on
April 22, 2010.3 The Commission
received no comment letters on the
proposal. This order approves the
proposed rule change.
II. Description of the Proposal
a. Subscribers and Data Feed Recipients
The NYSE BBO Service is a NYSEonly market data service that allows a
vendor to redistribute on a real-time
basis the same best-bid-and-offer
information that NYSE reports under
the CQ Plan for inclusion in the CQ
Plan’s consolidated quotation
information data stream (‘‘NYSE BBO
Information’’). NYSE BBO Information
would include the best bids and offers
for all securities that are traded on the
Exchange and for which NYSE reports
quotes under the CQ Plan. NYSE will
make the NYSE BBO Service available
over a single datafeed, regardless of the
markets on which the securities are
listed.
The NYSE BBO Service would allow
vendors, broker-dealers, private network
providers and other entities (‘‘NYSEOnly Vendors’’) to make NYSE BBO
Information available on a real-time
basis. NYSE-Only Vendors may
distribute the NYSE BBO Service to
both professional and nonprofessional
subscribers.
The Exchange would make NYSE
BBO Information available through its
new NYSE BBO Service no earlier than
1 15
25 Id.
26 15
SECURITIES AND EXCHANGE
COMMISSION
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 61914
(April 15, 2010), 75 FR 21077.
2 17
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
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Federal Register / Vol. 75, No. 106 / Thursday, June 3, 2010 / Notices
it makes that information available to
the processor under the CQ Plan.
b. Fees
i. Access Fee
For the receipt of access to the NYSE
BBO datafeed, the Exchange proposes to
charge $1500 per month. One $1500
monthly access fee entitles an NYSEOnly Vendor to receive both the NYSE
BBO datafeed as well as the Exchange’s
NYSE Trades datafeed.4 The fee applies
to receipt of NYSE market data within
the NYSE-Only Vendor’s organization or
outside of it.
ii. Professional Subscriber Fees
For the receipt and use of NYSE BBO
Information, the Exchange proposes to
charge $15 per month per professional
subscriber device.
In addition, the Exchange proposes to
offer an alternative methodology to the
traditional device fee. Instead of
charging $15 per month per device, it
proposes to offer NYSE-Only Vendors
the option of paying $15 per month per
‘‘Subscriber Entitlement.’’ The fee
entitles the end-user to receive and use
NYSE BBO Information relating to all
securities traded on NYSE, regardless of
the market on which a security is listed.
For the purpose of calculating
Subscriber Entitlements, the Exchange
proposes to adopt the unit-of-count
methodology approved by the
Commission earlier this year with
respect to its NYSE OpenBook® service
(the ‘‘Unit-of-Count Filing’’).5
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iii. Nonprofessional Subscriber Fee
The Exchange proposes to charge each
NYSE-Only Vendor $5.00 per month for
each nonprofessional subscriber to
whom it provides NYSE BBO
Information. The Exchange proposes to
impose the charge on the NYSE-Only
Vendor, rather than on the
nonprofessional Subscriber. In addition,
the Exchange proposes, to establish as
an alternative to the fixed $5.00
monthly fee, a fee of $.005 for each
response that a NYSE-Only Vendor
disseminates to a nonprofessional
Subscriber’s inquiry for a best bid or
offer under the NYSE BBO service. The
4 The Commission approved the Exchange’s
NYSE Trades service, a NYSE-only market data
service that allows a vendor to redistribute on a
real-time basis the same last sale information that
the Exchange reports to the Consolidated Tape
Association (‘‘CTA’’) for inclusion in CTA’s
consolidated data stream and certain other related
data elements. See Securities Exchange Act Release
No. 59606 (March 19, 2009), 74 FR 13293 (March
26, 2009) (SR–NYSE–2009–04).
5 See Securities Exchange Act Release No. 62038
(May 5, 2010), 75 FR 26825 (May 12, 2010) (SR–
NYSE–2010–22) (approving on a permanent basis
the alternative unit-of-count methodology).
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Exchange proposes to limit a NYSEOnly Vendor’s exposure under this
alternative fee to $5.00 per month, the
same amount as the proposed fixed
monthly nonprofessional Subscriber flat
fee. In order to take advantage of the
per-query fee, a NYSE-Only Vendor
must document in its Exhibit A that it
can: (1) Accurately measure the number
of queries from each nonprofessional
Subscriber and (2) report aggregate
query quantities on a monthly basis.
The Exchange will impose the perquery fee only on the dissemination of
best bids and offers to nonprofessional
Subscribers. The per-query charge is
imposed on NYSE-Only Vendors, not
end-users, and is payable on a monthly
basis. NYSE-Only Vendors may elect to
disseminate the NYSE BBO service
pursuant to the per-query fee rather than
the fixed monthly fee.
In establishing a nonprofessional
Subscriber fee for the NYSE BBO
Service, the Exchange proposes to apply
the same criteria for qualification as a
‘‘nonprofessional subscriber’’ as the CTA
and CQ Plan Participants use. Similar to
the CTA and CQ Plans, classification as
a nonprofessional subscriber is subject
to Exchange review and requires the
subscriber to attest to his or her
nonprofessional subscriber status. A
‘‘nonprofessional subscriber’’ is a natural
person who uses the data solely for his
personal, non-business use and who is
neither:
A. Registered or qualified with the
Securities and Exchange 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 adviser’’
as that term is defined in Section
202(a)(11) of the Investment Advisors
Act of 1940 (whether or not registered
or qualified under that act), nor
C. Employed by a bank or other
organization exemption from
registration under Federal and/or state
securities laws to perform functions that
would require him/her to be so
registered or qualified if he/she were to
perform such function for an
organization not so exempt.
c. Justification of Fees
The Exchange believes that the
proposed monthly access fee,
professional subscriber fee and
nonprofessional subscriber fee for the
NYSE BBO Service will enable NYSEOnly Vendors and their subscribers to
contribute to the Exchange’s operating
costs in a manner that is appropriate for
the distribution of NYSE BBO
Information in the form taken by the
PO 00000
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31489
proposed services. In setting the level of
the proposed fees, the Exchange
considered several factors, including:
(i) NYSE’s expectation that the NYSE
BBO Service is likely to be a premium
service, used by investors most
concerned with receiving NYSE BBO
Information on a low latency basis;
(ii) The fees that the CQ Plan
Participants, Nasdaq, NYSE Amex and
NYSE Arca are charging for similar
services (or that NYSE anticipates they
will soon propose to charge);
(iii) Consultation with some of the
entities that the Exchange anticipates
will be the most likely to take advantage
of the proposed service;
(iv) The contribution of market data
revenues that the Exchange believes is
appropriate for entities that are most
likely to take advantage of the proposed
service;
(v) The contribution that revenues
accruing from the proposed fee will
make to meet the overall costs of the
Exchange’s operations;
(vi) The savings in administrative and
reporting costs that the NYSE BBO
Service will provide to NYSE-Only
Vendors (relative to counterpart services
under the CQ Plan); and
(vii) The fact that the proposed fees
provide alternatives to existing fees
under the CQ Plan, alternatives that
vendors will purchase only if they
determine that the perceived benefits
outweigh the cost.
d. Administrative Requirements
The Exchange will require each
NYSE-Only Vendor to enter into a
vendor agreement just as the CTA and
CQ Plans require recipients of the
Network A datafeeds to enter (the
‘‘Consolidated Vendor Form’’). The
agreement will authorize the NYSEOnly Vendor to provide NYSE BBO
Information to its customers or to
distribute the data internally.
In addition, the Exchange will require
each professional end-user that receives
NYSE BBO Information from a vendor
or broker-dealer to enter into the form
of professional subscriber agreement
into which the CTA and CQ Plans
require end users of Network A data to
enter. It will also require NYSE-Only
Vendors to subject nonprofessional
subscribers to the same contract
requirements as the CTA and CQ Plan
Participants require of Network A
nonprofessional subscribers.
III. Discussion
After careful consideration, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
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a national securities exchange.6 In
particular, it is consistent with Section
6(b)(4) of the Act,7 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,8 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,9 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,10 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.11
The Commission has reviewed the
proposal using the approach set forth in
the NYSE Arca Order for non-core
market data fees.12 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
6 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).
7 15 U.S.C. 78f(b)(4).
8 15 U.S.C. 78f(b)(5).
9 15 U.S.C. 78f(b)(8).
10 17 CFR 242.603(a).
11 NYSE is an exclusive processor of the NYSE
BBO service 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.
12 Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770 (December 9,
2008) (SR–NYSEArca–2006–21) (‘‘NYSE Arca
Order’’). In the NYSE Arca Order, the Commission
describes in great detail the competitive factors that
apply to non-core market data products. The
Commission hereby incorporates by reference the
data and analysis from the NYSE Arca Order into
this order.
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data are equitable, fair and reasonable,
and not unreasonably
discriminatory.’’ 13 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.’’ 14 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.’’ 15
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.16 In
contrast, individual exchanges and
other market participants distribute
non-core data voluntarily.17 The
mandatory nature of the core data
disclosure regime leaves little room for
competitive forces to determine
products and fees.18 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 603.19 Because NYSE’s instant
proposal relates to the distribution of
non-core data, the Commission will
apply the market-based approach set
forth in the NYSE Arca Order.
The Exchange proposes to establish a
service that would allow a vendor to
redistribute best bids and offers for all
13 Id.
at 74771.
at 74782.
15 Id. at 74781.
16 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.’’)
17 See NYSE Arca Order at 74779.
18 Id.
19 Id.
14 Id.
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securities that are traded on the
Exchange and for which NYSE reports
quotes under the CQ Plan. The
Exchange proposes to establish a
monthly vendor fee and an alternative
fee rate that uses the unit-of-count
methodology. The Exchange represents
that this change would provide
investors with a less expensive
alternative to access bids and offer
calculations than the CQ Plan’s
consolidated data.
The proposal before the Commission
relates to fees for NYSE BBO
Information which is a non-core, market
data product. As in the Commission’s
NYSE Arca Order analysis, at least two
broad types of significant competitive
forces applied to NYSE in setting the
terms of this proposal: (i) NYSE’s
compelling need to attract order flow
from market participants; and (ii) the
availability to market participants of
alternatives to purchasing NYSE’s BBO
Information.
Attracting order flow is the core
competitive concern of any equity
exchange, including NYSE. Attracting
order flow is an essential part of NYSE’s
competitive success. If NYSE cannot
attract order flow to its market, it will
not be able to execute transactions. If
NYSE cannot execute transactions on its
market, it will not generate transaction
revenue. If NYSE cannot attract orders
or execute transactions on its market, it
will not have market data to distribute,
for a fee or otherwise, and will not earn
market data revenue and thus not be
competitive with other exchanges that
have this ability. Table 1 below provides
a useful recent snapshot of the state of
competition in the U.S. equity markets
in the month of September 2009:20
TABLE 1—TRADING CENTERS AND ESTIMATED % OF SHAREVOLUME IN
NMS STOCKS SEPTEMBER 2009
Trading Venue
Share Volume in NMS
Stocks
Registered Exchanges:
NASDAQ ...............................
19.4
NYSE ....................................
14.7
NYSE Arca ............................
13.2
BATS .....................................
9.5
NASDAQ OMX BX ................
3.3
20 The Commission recently published estimated
trading percentages in NMS Stocks in its Concept
Release on Equity Market Structure. See Securities
Exchange Act Release No. 61358 (January 14, 2010),
75 FR 3594, 3597 n. 21 (January 21, 2010) (File No.
S7–02–10).
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Federal Register / Vol. 75, No. 106 / Thursday, June 3, 2010 / Notices
to which market participants would
choose one or more alternatives instead
of purchasing the exchange’s data.23 Of
course, the most basic source of
information generally available at an
exchange is the complete record of an
Share VolTrading Venue
ume in NMS exchange’s transactions that is provided
Stocks
in the core data feeds.24 In this respect,
the core data feeds that include an
Other Registered Exchanges
3.7 exchange’s own transaction information
are a significant alternative to the
ECNs:
5 ECNS .................................
10.8 exchange’s market data product.25 The
Dark Pools:
various self-regulatory organizations,
32 Dark Pools (Estimated) ....
7.9 the several Trade Reporting Facilities of
Broker-Dealer Internatization:
FINRA, and ECNs that produce
200+ Broker-Dealers (Estimated) ...............................
17.5 proprietary data are all sources of
competition.
The market share percentages in Table
In sum, there are a variety of
1 strongly indicate that NYSE must
alternative sources of information that
compete vigorously for order flow to
impose significant competitive
maintain its share of trading volume.
pressures on the NYSE in setting the
This compelling need to attract order
terms for distributing its NYSE BBO
flow imposes significant pressure on
Information. The Commission believes
NYSE to act reasonably in setting its
that the availability of those
fees for NYSE market data, particularly
alternatives, as well as the NYSE’s
given that the market participants that
compelling need to attract order flow,
must pay such fees often will be the
imposed significant competitive
same market participants from whom
pressure on the NYSE to act equitably,
NYSE must attract order flow. These
market participants particularly include fairly, and reasonably in setting the
the large broker-dealer firms that control terms of its proposal.
the handling of a large volume of
Because the NYSE was subject to
customer and proprietary order flow.
significant competitive forces in setting
Given the portability of order flow from the terms of the proposal, the
one trading venue to another, any
Commission will approve the proposal
exchange that seeks to charge
in the absence of a substantial
unreasonably high data fees would risk
countervailing basis to find that its
alienating many of the same customers
terms nevertheless fail to meet an
on whose orders it depends for
applicable requirement of the Act or the
competitive survival.21
rules thereunder. An analysis of the
In addition to the need to attract order proposal does not provide such a basis.
flow, the availability of alternatives to
V. Conclusion
NYSE’s BBO Information data
significantly affect the terms on which
It is therefore ordered, pursuant to
NYSE can distribute this market data.22
Section 19(b)(2) of the Act,26 that the
In setting the fees for its NYSE BBO
Service, NYSE must consider the extent proposed rule change (SR–NYSE–2010–
30) be, and hereby is, approved.
TABLE 1—TRADING CENTERS AND ESTIMATED % OF SHAREVOLUME IN
NMS STOCKS SEPTEMBER 2009—
Continued
21 See
NYSE Arca Order at 74783.
Richard Posner, Economic Analysis of Law
§ 9.1 (5th ed. 1998) (discussing the theory of
monopolies and pricing). See also U.S. Dep’t of
Justice & Fed’l Trade Comm’n, Horizontal Merger
Guidelines § 1.11 (1992), as revised (1997)
(explaining the importance of alternatives to the
presence of competition and the definition of
markets and market power). Courts frequently refer
to the Department of Justice and Federal Trade
Commission merger guidelines to define product
markets and evaluate market power. See, e.g., FTC
v. Whole Foods Market, Inc., 502 F. Supp. 2d 1
(D.D.C. 2007); FTC v. Arch Coal, Inc., 329 F. Supp.
2d 109 (D.D.C. 2004). In considering antitrust
issues, courts have recognized the value of
competition in producing lower prices. See, e.g.,
Leegin Creative Leather Products v. PSKS, Inc., 127
S. Ct. 2705 (2007); Atlanta Richfield Co. v. United
States Petroleum Co., 495 U.S. 328 (1990);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574 (1986); State Oil Co. v. Khan, 522 U.S.
3 (1997); Northern Pacific Railway Co. v. U.S., 356
U.S. 1 (1958).
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22 See
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18:21 Jun 02, 2010
Jkt 220001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–13336 Filed 6–2–10; 8:45 am]
BILLING CODE 8010–01–P
23 See
NYSE Arca Order at 74783.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62177; File No. SR–BATS–
2010–013]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend BATS Rule
19.5, entitled ‘‘Minimum Participation
Requirement for Opening Trading of
Option Series’’
May 26, 2010.
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 May 13,
2010, BATS Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BATS’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Exchange has
designated this proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A) of the
Act 3 and Rule 19b–4(f)(6)(iii)
thereunder,4 which renders it effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange is proposing to amend
BATS Rule 19.5, entitled ‘‘Minimum
Participation Requirement for Opening
Trading of Option Series.’’ The text of
the proposed rule change is available at
the Exchange’s Web site at https://
www.batstrading.com, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
24 Id.
1 15
25 Id.
2 17
26 15
27 17
PO 00000
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
Frm 00080
Fmt 4703
Sfmt 4703
31491
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(6)(iii).
E:\FR\FM\03JNN1.SGM
03JNN1
]]>Agencies
[Federal Register Volume 75, Number 106 (Thursday, June 3, 2010)]
[Notices]
[Pages 31488-31491]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-13336]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62181; File No. SR-NYSE-2010-30]
Self-Regulatory Organizations; New York Stock Exchange, LLC;
Order Approving Proposed Rule Change To Establish the NYSE BBO Service
May 26, 2010.
I. Introduction
On April 1, 2010, 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 establish the NYSE BBO Service, a service that
will make available the Exchange's best bids and offers and to
establish fees for that service. The proposed rule change was published
for comment in the Federal Register on April 22, 2010.\3\ The
Commission received no comment letters on the proposal. This order
approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 61914 (April 15,
2010), 75 FR 21077.
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II. Description of the Proposal
a. Subscribers and Data Feed Recipients
The NYSE BBO Service is a NYSE-only market data service that allows
a vendor to redistribute on a real-time basis the same best-bid-and-
offer information that NYSE reports under the CQ Plan for inclusion in
the CQ Plan's consolidated quotation information data stream (``NYSE
BBO Information''). NYSE BBO Information would include the best bids
and offers for all securities that are traded on the Exchange and for
which NYSE reports quotes under the CQ Plan. NYSE will make the NYSE
BBO Service available over a single datafeed, regardless of the markets
on which the securities are listed.
The NYSE BBO Service would allow vendors, broker-dealers, private
network providers and other entities (``NYSE-Only Vendors'') to make
NYSE BBO Information available on a real-time basis. NYSE-Only Vendors
may distribute the NYSE BBO Service to both professional and
nonprofessional subscribers.
The Exchange would make NYSE BBO Information available through its
new NYSE BBO Service no earlier than
[[Page 31489]]
it makes that information available to the processor under the CQ Plan.
b. Fees
i. Access Fee
For the receipt of access to the NYSE BBO datafeed, the Exchange
proposes to charge $1500 per month. One $1500 monthly access fee
entitles an NYSE-Only Vendor to receive both the NYSE BBO datafeed as
well as the Exchange's NYSE Trades datafeed.\4\ The fee applies to
receipt of NYSE market data within the NYSE-Only Vendor's organization
or outside of it.
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\4\ The Commission approved the Exchange's NYSE Trades service,
a NYSE-only market data service that allows a vendor to redistribute
on a real-time basis the same last sale information that the
Exchange reports to the Consolidated Tape Association (``CTA'') for
inclusion in CTA's consolidated data stream and certain other
related data elements. See Securities Exchange Act Release No. 59606
(March 19, 2009), 74 FR 13293 (March 26, 2009) (SR-NYSE-2009-04).
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ii. Professional Subscriber Fees
For the receipt and use of NYSE BBO Information, the Exchange
proposes to charge $15 per month per professional subscriber device.
In addition, the Exchange proposes to offer an alternative
methodology to the traditional device fee. Instead of charging $15 per
month per device, it proposes to offer NYSE-Only Vendors the option of
paying $15 per month per ``Subscriber Entitlement.'' The fee entitles
the end-user to receive and use NYSE BBO Information relating to all
securities traded on NYSE, regardless of the market on which a security
is listed. For the purpose of calculating Subscriber Entitlements, the
Exchange proposes to adopt the unit-of-count methodology approved by
the Commission earlier this year with respect to its NYSE
OpenBook[supreg] service (the ``Unit-of-Count Filing'').\5\
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\5\ See Securities Exchange Act Release No. 62038 (May 5, 2010),
75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22) (approving on a
permanent basis the alternative unit-of-count methodology).
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iii. Nonprofessional Subscriber Fee
The Exchange proposes to charge each NYSE-Only Vendor $5.00 per
month for each nonprofessional subscriber to whom it provides NYSE BBO
Information. The Exchange proposes to impose the charge on the NYSE-
Only Vendor, rather than on the nonprofessional Subscriber. In
addition, the Exchange proposes, to establish as an alternative to the
fixed $5.00 monthly fee, a fee of $.005 for each response that a NYSE-
Only Vendor disseminates to a nonprofessional Subscriber's inquiry for
a best bid or offer under the NYSE BBO service. The Exchange proposes
to limit a NYSE-Only Vendor's exposure under this alternative fee to
$5.00 per month, the same amount as the proposed fixed monthly
nonprofessional Subscriber flat fee. In order to take advantage of the
per-query fee, a NYSE-Only Vendor must document in its Exhibit A that
it can: (1) Accurately measure the number of queries from each
nonprofessional Subscriber and (2) report aggregate query quantities on
a monthly basis.
The Exchange will impose the per-query fee only on the
dissemination of best bids and offers to nonprofessional Subscribers.
The per-query charge is imposed on NYSE-Only Vendors, not end-users,
and is payable on a monthly basis. NYSE-Only Vendors may elect to
disseminate the NYSE BBO service pursuant to the per-query fee rather
than the fixed monthly fee.
In establishing a nonprofessional Subscriber fee for the NYSE BBO
Service, the Exchange proposes to apply the same criteria for
qualification as a ``nonprofessional subscriber'' as the CTA and CQ
Plan Participants use. Similar to the CTA and CQ Plans, classification
as a nonprofessional subscriber is subject to Exchange review and
requires the subscriber to attest to his or her nonprofessional
subscriber status. A ``nonprofessional subscriber'' is a natural person
who uses the data solely for his personal, non-business use and who is
neither:
A. Registered or qualified with the Securities and Exchange
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 adviser'' as that term is defined in
Section 202(a)(11) of the Investment Advisors Act of 1940 (whether or
not registered or qualified under that act), nor
C. Employed by a bank or other organization exemption from
registration under Federal and/or state securities laws to perform
functions that would require him/her to be so registered or qualified
if he/she were to perform such function for an organization not so
exempt.
c. Justification of Fees
The Exchange believes that the proposed monthly access fee,
professional subscriber fee and nonprofessional subscriber fee for the
NYSE BBO Service will enable NYSE-Only Vendors and their subscribers to
contribute to the Exchange's operating costs in a manner that is
appropriate for the distribution of NYSE BBO Information in the form
taken by the proposed services. In setting the level of the proposed
fees, the Exchange considered several factors, including:
(i) NYSE's expectation that the NYSE BBO Service is likely to be a
premium service, used by investors most concerned with receiving NYSE
BBO Information on a low latency basis;
(ii) The fees that the CQ Plan Participants, Nasdaq, NYSE Amex and
NYSE Arca are charging for similar services (or that NYSE anticipates
they will soon propose to charge);
(iii) Consultation with some of the entities that the Exchange
anticipates will be the most likely to take advantage of the proposed
service;
(iv) The contribution of market data revenues that the Exchange
believes is appropriate for entities that are most likely to take
advantage of the proposed service;
(v) The contribution that revenues accruing from the proposed fee
will make to meet the overall costs of the Exchange's operations;
(vi) The savings in administrative and reporting costs that the
NYSE BBO Service will provide to NYSE-Only Vendors (relative to
counterpart services under the CQ Plan); and
(vii) The fact that the proposed fees provide alternatives to
existing fees under the CQ Plan, alternatives that vendors will
purchase only if they determine that the perceived benefits outweigh
the cost.
d. Administrative Requirements
The Exchange will require each NYSE-Only Vendor to enter into a
vendor agreement just as the CTA and CQ Plans require recipients of the
Network A datafeeds to enter (the ``Consolidated Vendor Form''). The
agreement will authorize the NYSE-Only Vendor to provide NYSE BBO
Information to its customers or to distribute the data internally.
In addition, the Exchange will require each professional end-user
that receives NYSE BBO Information from a vendor or broker-dealer to
enter into the form of professional subscriber agreement into which the
CTA and CQ Plans require end users of Network A data to enter. It will
also require NYSE-Only Vendors to subject nonprofessional subscribers
to the same contract requirements as the CTA and CQ Plan Participants
require of Network A nonprofessional subscribers.
III. Discussion
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to
[[Page 31490]]
a national securities exchange.\6\ In particular, it is consistent with
Section 6(b)(4) of the Act,\7\ 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,\8\ 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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\6\ 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).
\7\ 15 U.S.C. 78f(b)(4).
\8\ 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,\9\ 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,\10\ 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.\11\
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\9\ 15 U.S.C. 78f(b)(8).
\10\ 17 CFR 242.603(a).
\11\ NYSE is an exclusive processor of the NYSE BBO service
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.\12\ 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.''
\13\ 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.'' \14\ 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.'' \15\
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\12\ Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE
Arca Order''). In the NYSE Arca Order, the Commission describes in
great detail the competitive factors that apply to non-core market
data products. The Commission hereby incorporates by reference the
data and analysis from the NYSE Arca Order into this order.
\13\ Id. at 74771.
\14\ Id. at 74782.
\15\ 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.\16\ In
contrast, individual exchanges and other market participants distribute
non-core data voluntarily.\17\ The mandatory nature of the core data
disclosure regime leaves little room for competitive forces to
determine products and fees.\18\ 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.\19\ Because NYSE's
instant proposal relates to the distribution of non-core data, the
Commission will apply the market-based approach set forth in the NYSE
Arca Order.
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\16\ 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.'')
\17\ See NYSE Arca Order at 74779.
\18\ Id.
\19\ Id.
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The Exchange proposes to establish a service that would allow a
vendor to redistribute best bids and offers for all securities that are
traded on the Exchange and for which NYSE reports quotes under the CQ
Plan. The Exchange proposes to establish a monthly vendor fee and an
alternative fee rate that uses the unit-of-count methodology. The
Exchange represents that this change would provide investors with a
less expensive alternative to access bids and offer calculations than
the CQ Plan's consolidated data.
The proposal before the Commission relates to fees for NYSE BBO
Information which is a non-core, market data product. As in the
Commission's NYSE Arca Order analysis, at least two broad types of
significant competitive forces applied to NYSE in setting the terms of
this proposal: (i) NYSE's compelling need to attract order flow from
market participants; and (ii) the availability to market participants
of alternatives to purchasing NYSE's BBO Information.
Attracting order flow is the core competitive concern of any equity
exchange, including NYSE. Attracting order flow is an essential part of
NYSE's competitive success. If NYSE cannot attract order flow to its
market, it will not be able to execute transactions. If NYSE cannot
execute transactions on its market, it will not generate transaction
revenue. If NYSE cannot attract orders or execute transactions on its
market, it will not have market data to distribute, for a fee or
otherwise, and will not earn market data revenue and thus not be
competitive with other exchanges that have this ability. Table 1 below
provides a useful recent snapshot of the state of competition in the
U.S. equity markets in the month of September 2009:\20\
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\20\ The Commission recently published estimated trading
percentages in NMS Stocks in its Concept Release on Equity Market
Structure. See Securities Exchange Act Release No. 61358 (January
14, 2010), 75 FR 3594, 3597 n. 21 (January 21, 2010) (File No. S7-
02-10).
Table 1--Trading Centers and Estimated % of ShareVolume in NMS Stocks
September 2009
------------------------------------------------------------------------
Share
Trading Venue Volume in
NMS Stocks
------------------------------------------------------------------------
Registered Exchanges:
NASDAQ................................................... 19.4
NYSE..................................................... 14.7
NYSE Arca................................................ 13.2
BATS..................................................... 9.5
NASDAQ OMX BX............................................ 3.3
[[Page 31491]]
Other Registered Exchanges............................... 3.7
ECNs:
5 ECNS................................................... 10.8
Dark Pools:
32 Dark Pools (Estimated)................................ 7.9
Broker-Dealer Internatization:
200+ Broker-Dealers (Estimated).......................... 17.5
------------------------------------------------------------------------
The market share percentages in Table 1 strongly indicate that NYSE
must compete vigorously for order flow to maintain its share of trading
volume. This compelling need to attract order flow imposes significant
pressure on NYSE to act reasonably in setting its fees for NYSE market
data, particularly given that the market participants that must pay
such fees often will be the same market participants from whom NYSE
must attract order flow. These market participants particularly include
the large broker-dealer firms that control the handling of a large
volume of customer and proprietary order flow. Given the portability of
order flow from one trading venue to another, any exchange that seeks
to charge unreasonably high data fees would risk alienating many of the
same customers on whose orders it depends for competitive survival.\21\
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\21\ See NYSE Arca Order at 74783.
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In addition to the need to attract order flow, the availability of
alternatives to NYSE's BBO Information data significantly affect the
terms on which NYSE can distribute this market data.\22\ In setting the
fees for its NYSE BBO Service, NYSE must consider the extent to which
market participants would choose one or more alternatives instead of
purchasing the exchange's data.\23\ 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.\24\ 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.\25\ The various self-regulatory
organizations, the several Trade Reporting Facilities of FINRA, and
ECNs that produce proprietary data are all sources of competition.
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\22\ See Richard Posner, Economic Analysis of Law Sec. 9.1 (5th
ed. 1998) (discussing the theory of monopolies and pricing). See
also U.S. Dep't of Justice & Fed'l Trade Comm'n, Horizontal Merger
Guidelines Sec. 1.11 (1992), as revised (1997) (explaining the
importance of alternatives to the presence of competition and the
definition of markets and market power). Courts frequently refer to
the Department of Justice and Federal Trade Commission merger
guidelines to define product markets and evaluate market power. See,
e.g., FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1 (D.D.C.
2007); FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004). In
considering antitrust issues, courts have recognized the value of
competition in producing lower prices. See, e.g., Leegin Creative
Leather Products v. PSKS, Inc., 127 S. Ct. 2705 (2007); Atlanta
Richfield Co. v. United States Petroleum Co., 495 U.S. 328 (1990);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574
(1986); State Oil Co. v. Khan, 522 U.S. 3 (1997); Northern Pacific
Railway Co. v. U.S., 356 U.S. 1 (1958).
\23\ See NYSE Arca Order at 74783.
\24\ Id.
\25\ Id.
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In sum, there are a variety of alternative sources of information
that impose significant competitive pressures on the NYSE in setting
the terms for distributing its NYSE BBO Information. The Commission
believes that the availability of those alternatives, as well as the
NYSE's compelling need to attract order flow, imposed significant
competitive pressure on the NYSE to act equitably, fairly, and
reasonably in setting the terms of its proposal.
Because the NYSE was subject to significant competitive forces in
setting the terms of the proposal, the Commission will approve the
proposal in the absence of a substantial countervailing basis to find
that its terms nevertheless fail to meet an applicable requirement of
the Act or the rules thereunder. An analysis of the proposal does not
provide such a basis.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\26\ that the proposed rule change (SR-NYSE-2010-30) be, and hereby
is, approved.
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\26\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-13336 Filed 6-2-10; 8:45 am]
BILLING CODE 8010-01-P
