Self-Regulatory Organizations; International Securities Exchange, LLC; Order Approving Proposed Rule Change Relating to Fees for the ISE Order Feed, 38587-38589 [2010-16147]
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Federal Register / Vol. 75, No. 127 / Friday, July 2, 2010 / Notices
services are offered to all interested
market participants who request them
and pay the appropriate fees; (2) as
represented by BX, the Exchange has
architected its systems so as to, as much
as possible, reduce or eliminate
differences among users of its systems,
whether co-located or not; and (3) the
Exchange has stated that it has sufficient
space to accommodate new co-locaters
has set forth in the proposed rule
change objective procedures to allocate
space should it become limited in the
future.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,10 that the
proposed rule change (SR–BX–2010–
012) be, and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–16146 Filed 7–1–10; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–62399; File No. SR–ISE–
2010–34]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Order Approving Proposed Rule
Change Relating to Fees for the ISE
Order Feed
June 28, 2010.
emcdonald on DSK2BSOYB1PROD with NOTICES
I. Introduction
On May 11, 2010, the International
Securities Exchange, LLC (‘‘Exchange’’
or ‘‘ISE’’) 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 its
Schedule of Fees to adopt subscription
fees for the sale of a new market data
offering called the ISE Order Feed. The
proposed rule change was published for
comment in the Federal Register on
May 25, 2010.3 The Commission
received no comment letters on the
proposed rule change. This order
approves the proposed rule change.
10 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 62117
(May 18, 2010), 75 FR 29381 (‘‘Notice’’).
11 17
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18:27 Jul 01, 2010
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II. Description of the Proposed Rule
Change
ISE proposes to establish subscription
fees for the sale of the ISE Order Feed,
which provides real-time updates every
time a new limit order that is not
immediately executable at the best bid/
offer (‘‘BBO’’) is placed on the ISE order
book.4 ISE Order Feed contains
information on individual limit orders
including the order type (buy/sell), the
order price, the order size, and customer
indicator (which reflects whether the
order is a customer order), as well as
details for each instrument series,
including the symbols (series and
underlying security), put or call
indicator, the expiration and the strike
price of the series.
The Exchange proposes to charge
distributors 5 of the ISE Order Feed
$2,000 per month and $10 per external
controlled device 6 per month. For
subscribers who redistribute the ISE
Order Feed externally, or redistribute
the ISE Order Feed internally and
externally, the Exchange proposes to
limit for any one month the combined
maximum amount of fees payable to
$2,500. The ISE Order Feed will be
made available to both members and
non-members on a subscription basis.
Upon Commission approval, the
Exchange intends to begin charging the
ISE Order Feed fees on July 1, 2010.
III. Discussion and Commission
Findings
The Commission finds that the
proposed rule change is consistent with
the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.7 In particular, it is consistent
with Section 6(b)(4) of the Act,8 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
4 The ISE Order Feed does not include market
orders, immediate or cancel orders, quotes, or any
non-displayed interest.
5 A ‘‘distributor’’ is any firm that receives the ISE
Order Feed directly from ISE or indirectly through
a ‘‘redistributor’’ and then distributes it either
internally or externally. All distributors will be
required by the Exchange to execute an ISE
distributor agreement. ‘‘Redistributors’’ include
market data vendors and connectivity providers
such as extranets and private network providers.
6 A ‘‘controlled device’’ is as any device that a
distributor of the ISE Order Feed permits to access
the information in the ISE Order Feed.
7 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).
8 15 U.S.C. 78f(b)(4).
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38587
the Act,9 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,10 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.
The Commission has reviewed the
proposal using the approach set forth in
the approval order for SR–NYSEArca2006–21 for non-core market data fees.11
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.’’ 12 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.’’ 13 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.’’ 14
As noted in the NYSE Arca Order, the
standards in Section 6 of the Act do not
differentiate between types of data and
therefore apply to exchange proposals to
distribute both core data and non-core
data.15 All U.S. options exchanges are
required pursuant to the Plan for
Reporting of Consolidated Options Last
Sale Reports and Quotation Information
(‘‘OPRA Plan’’) to provide ‘‘core data’’—
the best-priced quotations and
comprehensive last sale reports—to
9 15
U.S.C. 78f(b)(5).
U.S.C. 78f(b)(8).
11 See Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770 (December 9,
2008) (SR–NYSEArca–2006–21) (‘‘NYSE Arca
Order’’).
12 Id. at 74771.
13 Id. at 74782.
14 Id. at 74781.
15 Id. at 74779.
10 15
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Federal Register / Vol. 75, No. 127 / Friday, July 2, 2010 / Notices
OPRA, which data is then distributed to
the public pursuant to the OPRA Plan.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 rely on competitive forces in its
determination of whether an exchange’s
proposal to distribute non-core data
meets the standards of Section 6.19
Because ISE’s instant proposal relates
to the distribution of non-core data, the
Commission will apply the marketbased approach set forth in the NYSE
Arca Order. Pursuant to this approach,
the first step is to determine whether
ISE was subject to significant
competitive forces in setting the terms
of its non-core market data proposal,
including the level of any fees. As in the
NYSE Arca Order, in determining
whether ISE was subject to significant
competitive forces in setting the terms
of its proposal, the Commission has
analyzed ISE’s compelling need to
attract order flow from market
participants, and the availability to
market participants of alternatives to
purchasing ISE’s non-core market data.
The Commission believes that the
options industry currently is subject to
significant competitive forces.20 It is
generally accepted that the start of widespread multiple listing of options across
exchanges in August 1999 greatly
enhanced competition among the
exchanges.21 The launch of four options
exchanges since that time, numerous
market structure innovations, and the
16 See
17 See
OPRA Plan, Sections V(a)–(c).
NYSE Arca Order, supra, note 11, at 74779.
18 Id.
emcdonald on DSK2BSOYB1PROD with NOTICES
19 Id.
20 The Commission has previously stated that the
options industry is subject to significant
competitive forces. See Securities Exchange Act
Release No. 59949 (May 20, 2009), 74FR 25593
(May 28, 2009) (SR–ISE–2007–97) (order approving
the ISE’s proposal establishing fees for a real-time
depth of market data offering).
21 See generally Concept Release: Competitive
Developments in the Options Markets, Securities
Exchange Act Release No. 49175 (February 3, 2004),
69 FR 6124 (February 9, 2004); see also Battalio,
Robert, Hatch, Brian, and Jennings, Robert, Toward
a National Market System for U.S. Exchange-listed
Equity Options, The Journal of Finance 59 (933–
961); De Fontnouvelle, Patrick, Fishe, Raymond P.,
and Harris, Jeffrey H., The Behavior of Bid-Ask
Spreads and Volume in Options Markets During the
Competition for Listings in 1999, The Journal of
Finance 58 (2437–2463); and Mayhew, Stewart,
Competition, Market Structure, and Bid-Ask
Spreads in Stock Option Markets, The Journal of
Finance 57 (931–958).
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18:27 Jul 01, 2010
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start of the options penny pilot 22 have
all further intensified intermarket
competition for order flow.
ISE currently competes with seven
options exchanges for order flow.
Attracting order flow is an essential part
of ISE’s competitive success.23 If ISE
cannot attract order flow to its market,
it will not be able to execute
transactions. If ISE cannot execute
transactions on its market, it will not
generate transaction revenue. If ISE
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.
ISE must compete vigorously for order
flow to maintain its share of trading
volume. This compelling need to attract
order flow imposes significant pressure
on ISE to act reasonably in setting its
fees for ISE market data, particularly
given that the market participants that
will pay such fees often will be the same
market participants from whom ISE
must attract order flow. These market
participants include broker-dealers that
control the handling of a large volume
of customer and proprietary order flow.
Given the portability of order flow from
one exchange to another, any exchange
that sought to charge unreasonably high
data fees would risk alienating many of
the same customers on whose orders it
depends for competitive survival.24
In addition to the need to attract order
flow, the availability of alternatives to
the ISE Order Feed significantly affects
the terms on which ISE can distribute
this market data.25 In setting the fees for
the ISE Order Feed, ISE must consider
the extent to which market participants
would choose one or more alternatives
instead of purchasing its data.26 The
most basic source of information
concerning the depth generally available
at an exchange is the complete record of
an exchange’s transactions that is
provided in the core data feeds.27 In this
e.g., Securities Exchange Act Release Nos.
55162 (January 24, 2007), 72 FR 4738 (February 1,
2007) (SR–Amex–2006–106); 55073 (January 9,
2007), 72 FR 4741 (February 1, 2007) (SR–BSE–
2006–48); 55154 (January 23, 2007), 72 FR 4743
(February 1, 2007) (SR–CBOE–2006–92); 55161
(January 24, 2007), 72 FR 4754 (February 1, 2007)
(SR–Phlx–2006–62); 55156 (January 23, 2007), 72
FR 4759 (February 1, 2007) (SR–NYSEArca–2006–
73); and 55153 (January 23, 2007), 72 FR 4553
(January 31, 2007) (SR–Phlx–2006–74).
23 ISE states in its filing that it ‘‘has a compelling
need to attract order flow from market participants
in order to maintain its share of trading volume.’’
See Notice, supra note 3, at 29382.
24 Id. at 29383.
25 See NYSE Arca Order, supra note 11, at 74784.
26 Id. at 74783.
27 Id.
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22 See,
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respect, the core data feeds that include
an exchange’s own transaction
information are a significant alternative
to the exchange’s market data product.28
Further, other options exchanges can
produce their own market data
products, and thus are sources of
potential competition for ISE.29 In
addition, one or more securities firms
could act independently and distribute
their own order data, with or without a
fee.30
The Commission believes that there
are a number of alternative sources of
information that impose significant
competitive pressures on ISE in setting
the terms for distributing the ISE Order
Feed. The Commission believes that the
availability of those alternatives, as well
as ISE’s compelling need to attract order
flow, imposed significant competitive
pressure on ISE to act equitably, fairly,
and reasonably in setting the terms of its
proposal.
Because ISE 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 the terms of the proposal fail to
meet the applicable requirements of the
Act or the rules thereunder. An analysis
of the proposal does not provide such a
basis. Further, the Commission did not
receive any comment letters raising
concerns of a substantial countervailing
basis that the terms of the proposal
failed to meet the requirements of the
Act or the rules thereunder.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–ISE–2010–34)
be, and it hereby is, approved.
28 Id. Information on transactions executed on ISE
is available through OPRA.
29 In its filing, ISE states that ‘‘[o]ther exchanges,
including some who may enjoy greater market share
than ISE, are potential competitors as they too sell
similar market data offerings that market
participants may choose to purchase instead. For
example, NASDAQ OMX PHLX (‘‘PHLX’’) has filed
a proposed rule change to adopt fees for a market
data product that includes a data feed that is similar
to the ISE Order Feed. See Securities Exchange Act
Release No. 61878 (April 8, 2010), 75 FR 20023
(April 16, 2010) (SR–PHLX–2010–48). The PHLX’
Specialized Order Feed, which PHLX has proposed
to integrate into its TOPO Plus Orders market data
offering, includes ‘real-time information to keep
track of single order book(s).’ ’’ See Notice, supra
note 3, at 29383.
30 Id.
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Federal Register / Vol. 75, No. 127 / Friday, July 2, 2010 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–16147 Filed 7–1–10; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34—62239; File No. SR—
NYSEAMEX—2010—48]
Self–Regulatory Organizations; NYSE
Amex LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Deleting Rule 405(4)–
NYSE Amex Equities to Correspond
with Rule Changes of the Financial
Industry Regulatory Authority, Inc.
June 8, 2010.
Correction
In notice document 2010–14360
beginning on page 33880 in the issue of
Tuesday, June 15, 2010, make the
following correction:
On page 33880, in the first column,
the docket number is corrected to read
as it appears above.
[FR Doc. C1–2010–14360 Filed 7–1–10; 8:45 am]
BILLING CODE 1505–01–D
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34—62161; File No. SR—
ODD—2010—01]
Self-Regulatory Organizations; The
Options Clearing Corporation; Order
Granting Approval of Accelerated
Delivery of Supplement to the Options
Disclosure Document Reflecting
Certain Changes to Disclosure
Regarding Options on Conventional
Index-Linked Securities and
Amendment to the Options Disclosure
Document Inside Front Cover
May 24, 2010.
emcdonald on DSK2BSOYB1PROD with NOTICES
Culturally Significant Objects Imported
for Exhibition Determinations: ‘‘The
Origins of Writing in the Ancient
Middle East’’
SUMMARY: Notice is hereby given of the
following determinations: Pursuant to
the authority vested in me by the Act of
October 19, 1965 (79 Stat. 985; 22 U.S.C.
2459), Executive Order 12047 of March
27, 1978, the Foreign Affairs Reform and
Restructuring Act of 1998 (112 Stat.
2681, et seq.; 22 U.S.C. 6501 note, et
seq.), Delegation of Authority No. 234 of
October 1, 1999, Delegation of Authority
No. 236 of October 19, 1999, as
amended, and Delegation of Authority
No. 257 of April 15, 2003 [68 FR 19875],
I hereby determine that the objects to be
included in the exhibition ‘‘The Origins
of Writing in the Ancient Middle East,’’
imported from abroad for temporary
exhibition within the United States, are
of cultural significance. The objects are
imported pursuant to a loan agreement
with the foreign owner or custodian. I
also determine that the exhibition or
display of the exhibit objects at The
Oriental Institute Museum, Chicago, IL,
from on or about September 26, 2010,
until on or about March 6, 2011, and at
possible additional exhibitions or
venues yet to be determined, is in the
national interest. I have ordered that
Public Notice of these Determinations
be published in the Federal Register.
FOR FURTHER INFORMATION CONTACT: For
further information, including a list of
the exhibit objects, contact Julie
Simpson, Attorney-Adviser, Office of
the Legal Adviser, U.S. Department of
State (telephone: 202–632–6467). The
mailing address is U.S. Department of
State, SA–5, L/PD, Fifth Floor (Suite
5H03), Washington, DC 20522–0505.
Dated: June 21, 2010.
Maura M. Pally,
Deputy Assistant Secretary for Professional
and Cultural Exchanges, Bureau of
Educational and Cultural Affairs, Department
of State.
BILLING CODE 4710–05–P
In notice document 2010–12986
beginning on page 30451 in the issue of
Tuesday, June 1, 2010, make the
following correction:
On page 30451, in the first column,
the docket number is corrected to read
as set forth above.
[FR Doc. C1–2010–12986 Filed 7–1–10; 8:45 am]
CFR 200.30–3(a)(12).
18:27 Jul 01, 2010
DEPARTMENT OF STATE
[Public Notice: 7072]
Culturally Significant Objects Imported
for Exhibition Determinations: ‘‘Venice:
Canaletto and His Rivals’’
SUMMARY: Notice is hereby given of the
following determinations: Pursuant to
the authority vested in me by the Act of
BILLING CODE 1505–01–D
VerDate Mar<15>2010
[Public Notice: 7074]
[FR Doc. 2010–16207 Filed 7–1–10; 8:45 am]
Correction
31 17
DEPARTMENT OF STATE
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38589
October 19, 1965 (79 Stat. 985; 22 U.S.C.
2459), Executive Order 12047 of March
27, 1978, the Foreign Affairs Reform and
Restructuring Act of 1998 (112 Stat.
2681, et seq.; 22 U.S.C. 6501 note, et
seq.), Delegation of Authority No. 234 of
October 1, 1999, Delegation of Authority
No. 236 of October 19, 1999, as
amended, and Delegation of Authority
No. 257 of April 15, 2003 [68 FR 19875],
I hereby determine that the objects to be
included in the exhibition ‘‘Venice:
Canaletto and His Rivals,’’ imported
from abroad for temporary exhibition
within the United States, are of cultural
significance. The objects are imported
pursuant to loan agreements with the
foreign owners or custodians. I also
determine that the exhibition or display
of the exhibit objects at the National
Gallery of Art, Washington, DC, from on
or about February 20, 2011, until on or
about May 30, 2011, and at possible
additional exhibitions or venues yet to
be determined, is in the national
interest. I have ordered that Public
Notice of these Determinations be
published in the Federal Register.
FOR FURTHER INFORMATION CONTACT: For
further information, including a list of
the exhibit objects, contact Paul W.
Manning, Attorney-Adviser, Office of
the Legal Adviser, U.S. Department of
State (telephone: 202–632–6469). The
mailing address is U.S. Department of
State, SA–5, L/PD, Fifth Floor (Suite
5H03), Washington, DC 20522–0505.
Dated: June 25, 2010.
Maura M. Pally,
Deputy Assistant Secretary for Professional
and Cultural Exchanges, Bureau of
Educational and Cultural Affairs, Department
of State.
[FR Doc. 2010–16211 Filed 7–1–10; 8:45 am]
BILLING CODE 4710–05–P
DEPARTMENT OF STATE
[Public Notice: 7073]
Culturally Significant Objects Imported
for Exhibition Determinations:
‘‘Salvador Dali: The Late Work’’
SUMMARY: Notice is hereby given of the
following determinations: Pursuant to
the authority vested in me by the Act of
October 19, 1965 (79 Stat. 985; 22 U.S.C.
2459), Executive Order 12047 of March
27, 1978, the Foreign Affairs Reform and
Restructuring Act of 1998 (112 Stat.
2681, et seq.; 22 U.S.C. 6501 note, et
seq.), Delegation of Authority No. 234 of
October 1, 1999, Delegation of Authority
No. 236 of October 19, 1999, as
amended, and Delegation of Authority
No. 257 of April 15, 2003 [68 FR 19875],
I hereby determine that the objects to be
E:\FR\FM\02JYN1.SGM
02JYN1
]]>Agencies
[Federal Register Volume 75, Number 127 (Friday, July 2, 2010)]
[Notices]
[Pages 38587-38589]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-16147]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62399; File No. SR-ISE-2010-34]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Order Approving Proposed Rule Change Relating to Fees for the ISE
Order Feed
June 28, 2010.
I. Introduction
On May 11, 2010, the International Securities Exchange, LLC
(``Exchange'' or ``ISE'') 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 its Schedule of Fees to
adopt subscription fees for the sale of a new market data offering
called the ISE Order Feed. The proposed rule change was published for
comment in the Federal Register on May 25, 2010.\3\ The Commission
received no comment letters on the proposed rule change. This order
approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 62117 (May 18,
2010), 75 FR 29381 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
ISE proposes to establish subscription fees for the sale of the ISE
Order Feed, which provides real-time updates every time a new limit
order that is not immediately executable at the best bid/offer
(``BBO'') is placed on the ISE order book.\4\ ISE Order Feed contains
information on individual limit orders including the order type (buy/
sell), the order price, the order size, and customer indicator (which
reflects whether the order is a customer order), as well as details for
each instrument series, including the symbols (series and underlying
security), put or call indicator, the expiration and the strike price
of the series.
---------------------------------------------------------------------------
\4\ The ISE Order Feed does not include market orders, immediate
or cancel orders, quotes, or any non-displayed interest.
---------------------------------------------------------------------------
The Exchange proposes to charge distributors \5\ of the ISE Order
Feed $2,000 per month and $10 per external controlled device \6\ per
month. For subscribers who redistribute the ISE Order Feed externally,
or redistribute the ISE Order Feed internally and externally, the
Exchange proposes to limit for any one month the combined maximum
amount of fees payable to $2,500. The ISE Order Feed will be made
available to both members and non-members on a subscription basis. Upon
Commission approval, the Exchange intends to begin charging the ISE
Order Feed fees on July 1, 2010.
---------------------------------------------------------------------------
\5\ A ``distributor'' is any firm that receives the ISE Order
Feed directly from ISE or indirectly through a ``redistributor'' and
then distributes it either internally or externally. All
distributors will be required by the Exchange to execute an ISE
distributor agreement. ``Redistributors'' include market data
vendors and connectivity providers such as extranets and private
network providers.
\6\ A ``controlled device'' is as any device that a distributor
of the ISE Order Feed permits to access the information in the ISE
Order Feed.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\7\ In
particular, it is consistent with Section 6(b)(4) of the Act,\8\ 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,\9\ 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,\10\ 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.
---------------------------------------------------------------------------
\7\ 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).
\8\ 15 U.S.C. 78f(b)(4).
\9\ 15 U.S.C. 78f(b)(5).
\10\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
The Commission has reviewed the proposal using the approach set
forth in the approval order for SR-NYSEArca-2006-21 for non-core market
data fees.\11\ 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.'' \12\ 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.'' \13\ 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.'' \14\
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\11\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE
Arca Order'').
\12\ Id. at 74771.
\13\ Id. at 74782.
\14\ Id. at 74781.
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As noted in the NYSE Arca Order, the standards in Section 6 of the
Act do not differentiate between types of data and therefore apply to
exchange proposals to distribute both core data and non-core data.\15\
All U.S. options exchanges are required pursuant to the Plan for
Reporting of Consolidated Options Last Sale Reports and Quotation
Information (``OPRA Plan'') to provide ``core data''--the best-priced
quotations and comprehensive last sale reports--to
[[Page 38588]]
OPRA, which data is then distributed to the public pursuant to the OPRA
Plan.\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 rely on
competitive forces in its determination of whether an exchange's
proposal to distribute non-core data meets the standards of Section
6.\19\
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\15\ Id. at 74779.
\16\ See OPRA Plan, Sections V(a)-(c).
\17\ See NYSE Arca Order, supra, note 11, at 74779.
\18\ Id.
\19\ Id.
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Because ISE'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. Pursuant to this approach, the first step
is to determine whether ISE was subject to significant competitive
forces in setting the terms of its non-core market data proposal,
including the level of any fees. As in the NYSE Arca Order, in
determining whether ISE was subject to significant competitive forces
in setting the terms of its proposal, the Commission has analyzed ISE's
compelling need to attract order flow from market participants, and the
availability to market participants of alternatives to purchasing ISE's
non-core market data.
The Commission believes that the options industry currently is
subject to significant competitive forces.\20\ It is generally accepted
that the start of wide-spread multiple listing of options across
exchanges in August 1999 greatly enhanced competition among the
exchanges.\21\ The launch of four options exchanges since that time,
numerous market structure innovations, and the start of the options
penny pilot \22\ have all further intensified intermarket competition
for order flow.
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\20\ The Commission has previously stated that the options
industry is subject to significant competitive forces. See
Securities Exchange Act Release No. 59949 (May 20, 2009), 74FR 25593
(May 28, 2009) (SR-ISE-2007-97) (order approving the ISE's proposal
establishing fees for a real-time depth of market data offering).
\21\ See generally Concept Release: Competitive Developments in
the Options Markets, Securities Exchange Act Release No. 49175
(February 3, 2004), 69 FR 6124 (February 9, 2004); see also
Battalio, Robert, Hatch, Brian, and Jennings, Robert, Toward a
National Market System for U.S. Exchange-listed Equity Options, The
Journal of Finance 59 (933-961); De Fontnouvelle, Patrick, Fishe,
Raymond P., and Harris, Jeffrey H., The Behavior of Bid-Ask Spreads
and Volume in Options Markets During the Competition for Listings in
1999, The Journal of Finance 58 (2437-2463); and Mayhew, Stewart,
Competition, Market Structure, and Bid-Ask Spreads in Stock Option
Markets, The Journal of Finance 57 (931-958).
\22\ See, e.g., Securities Exchange Act Release Nos. 55162
(January 24, 2007), 72 FR 4738 (February 1, 2007) (SR-Amex-2006-
106); 55073 (January 9, 2007), 72 FR 4741 (February 1, 2007) (SR-
BSE-2006-48); 55154 (January 23, 2007), 72 FR 4743 (February 1,
2007) (SR-CBOE-2006-92); 55161 (January 24, 2007), 72 FR 4754
(February 1, 2007) (SR-Phlx-2006-62); 55156 (January 23, 2007), 72
FR 4759 (February 1, 2007) (SR-NYSEArca-2006-73); and 55153 (January
23, 2007), 72 FR 4553 (January 31, 2007) (SR-Phlx-2006-74).
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ISE currently competes with seven options exchanges for order flow.
Attracting order flow is an essential part of ISE's competitive
success.\23\ If ISE cannot attract order flow to its market, it will
not be able to execute transactions. If ISE cannot execute transactions
on its market, it will not generate transaction revenue. If ISE 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.
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\23\ ISE states in its filing that it ``has a compelling need to
attract order flow from market participants in order to maintain its
share of trading volume.'' See Notice, supra note 3, at 29382.
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ISE must compete vigorously for order flow to maintain its share of
trading volume. This compelling need to attract order flow imposes
significant pressure on ISE to act reasonably in setting its fees for
ISE market data, particularly given that the market participants that
will pay such fees often will be the same market participants from whom
ISE must attract order flow. These market participants include broker-
dealers that control the handling of a large volume of customer and
proprietary order flow. Given the portability of order flow from one
exchange to another, any exchange that sought to charge unreasonably
high data fees would risk alienating many of the same customers on
whose orders it depends for competitive survival.\24\
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\24\ Id. at 29383.
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In addition to the need to attract order flow, the availability of
alternatives to the ISE Order Feed significantly affects the terms on
which ISE can distribute this market data.\25\ In setting the fees for
the ISE Order Feed, ISE must consider the extent to which market
participants would choose one or more alternatives instead of
purchasing its data.\26\ The most basic source of information
concerning the depth generally available at an exchange is the complete
record of an exchange's transactions that is provided in the core data
feeds.\27\ 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.\28\ Further, other options
exchanges can produce their own market data products, and thus are
sources of potential competition for ISE.\29\ In addition, one or more
securities firms could act independently and distribute their own order
data, with or without a fee.\30\
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\25\ See NYSE Arca Order, supra note 11, at 74784.
\26\ Id. at 74783.
\27\ Id.
\28\ Id. Information on transactions executed on ISE is
available through OPRA.
\29\ In its filing, ISE states that ``[o]ther exchanges,
including some who may enjoy greater market share than ISE, are
potential competitors as they too sell similar market data offerings
that market participants may choose to purchase instead. For
example, NASDAQ OMX PHLX (``PHLX'') has filed a proposed rule change
to adopt fees for a market data product that includes a data feed
that is similar to the ISE Order Feed. See Securities Exchange Act
Release No. 61878 (April 8, 2010), 75 FR 20023 (April 16, 2010) (SR-
PHLX-2010-48). The PHLX' Specialized Order Feed, which PHLX has
proposed to integrate into its TOPO Plus Orders market data
offering, includes `real-time information to keep track of single
order book(s).' '' See Notice, supra note 3, at 29383.
\30\ Id.
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The Commission believes that there are a number of alternative
sources of information that impose significant competitive pressures on
ISE in setting the terms for distributing the ISE Order Feed. The
Commission believes that the availability of those alternatives, as
well as ISE's compelling need to attract order flow, imposed
significant competitive pressure on ISE to act equitably, fairly, and
reasonably in setting the terms of its proposal.
Because ISE 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 the terms of the proposal fail to meet the applicable requirements
of the Act or the rules thereunder. An analysis of the proposal does
not provide such a basis. Further, the Commission did not receive any
comment letters raising concerns of a substantial countervailing basis
that the terms of the proposal failed to meet the requirements of the
Act or the rules thereunder.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-ISE-2010-34) be, and it hereby is,
approved.
[[Page 38589]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
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\31\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-16147 Filed 7-1-10; 8:45 am]
BILLING CODE 8010-01-P
