Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Market Data Fees, 47630-47635 [2011-19856]
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Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 / Notices
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing 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
ISE. 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–2011–44 and should be
submitted by August 26, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–19854 Filed 8–4–11; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–65002; File No. SR–ISE–
2011–50]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change Relating to Market Data Fees
August 1, 2011.
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Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 1,
2011, the 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.
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 proposes to amend its
Schedule of Fees to adopt subscription
fees for the sale of two market data
offerings, the ISE Top Quote Feed and
the ISE Spread Book Feed. The text of
the proposed rule change is available on
the Exchange’s Web site https://
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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 these
statements may be examined at the
places specified in Item IV below. The
self-regulatory organization has
prepared summaries, set forth in
Sections A, B and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
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ISE proposes to amend its Schedule of
Fees to adopt subscription fees for the
sale of two market data offerings, the
ISE Top Quote Feed and the ISE Spread
Book Feed. The Exchange previously
submitted a proposed rule change to
establish the two data feeds.3 The
Exchange proposes to implement the
proposed fees for both market data
offerings on August 1, 2011.
ISE Top Quote Feed
The ISE Top Quote Feed (‘‘Top
Quote’’) is a real-time feed that
aggregates all quotes and orders at the
top price level on the Exchange, on both
the bid and offer side of the market. Top
Quote provides subscribers with a
consolidated view of tradable prices at
the BBO, the same data that is displayed
on the OPRA feed. Top Quote shows
bid/ask quote size for Customer and
Professional Customer option orders for
ISE traded options that are not currently
distinguishable through the OPRA
feed.4 The identification of Customer
orders is useful for market makers and
market participants generally since
3 See
SR–ISE–2011–44.
and Professional Customer orders are
identified in a number of market data offerings
currently sold by other options exchanges on a
subscription basis. See Securities Exchange Act
Release No. 63351 (November 10, 2010), 75 FR
73140 (November 29, 2010) (SR–PHLX–2010–154)
(Notice of Filing and Immediate Effectiveness of
Proposed Rule Change Relating to Fees for the
PHOTO Historical Data Product). See also
Securities Exchange Act Release No. 63997 (March
1, 2011), 76 FR 12388 (March 7, 2011) (SR–CBOE–
2011–014) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change To Codify a
Fee Schedule for the Sale by Market Data Express,
LLC, of a BBO Data Feed for CBOE Listed Options).
4 Customer
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Customer orders take precedence over
all other order types on the ISE. The
Exchange believes it is not
discriminatory or a burden on
competition for these orders to be
identified because doing so increases
the likelihood that these orders will be
executed as they have priority on the
ISE while Professional Customers, i.e.,
persons or entities that (i) Are not a
broker or dealer in securities, and (ii)
place more than 390 orders in listed
options per day on average during a
calendar month for its own beneficial
account(s), do not have priority on the
Exchange.
Top Quote is currently imbedded in
the Exchange’s Depth of Market data
feed offering and is available to
subscribers of the Depth of Market data
feed offering. With this proposed rule
change, the Exchange is offering Top
Quote as a separate subscription-based
data feed. Top Quote will be available
to members and non-members, and to
both professional and non-professional
subscribers.
Proposed Fees for Top Quote
The Exchange proposes to charge
distributors 5 of Top Quote $3,000 per
month. In addition, the Exchange
proposes to charge a monthly controlled
device 6 fee of $20 per controlled device
for Professionals at a distributor where
the data is for internal and/or external
use. There are no monthly controlled
device fees proposed for NonProfessionals subscribers to Top Quote.
Further, the Exchange proposes to adopt
an enterprise license fee, regardless of
the number of controlled devices, as
follows: (i) $4,000 for Professionals at a
distributor where the data is for internal
use only, (ii) $5,000 for Professionals at
a distributor where the data is for
internal and/or external use in a
controlled device and (iii) $3,000 per
month for Non-Professionals.
ISE Spread Book Feed
The ISE Spread Book Feed (‘‘Spread
Feed’’) is a real-time feed that consists
5 ISE proposes that a ‘‘distributor’’ be defined as
any firm that receives a ISE data feed directly from
ISE or indirectly through a vendor and then
distributes it either internally or externally. Further,
ISE proposes that all distributors execute an ISE
distributor agreement.
6 ISE proposes that a ‘‘controlled device’’ be
defined as any device that a distributor of the ISE
Top Quote Feed permits to: (a) Access the
information in the Top Quote Feed offering, or (b)
communicate with the distributor so as to cause the
distributor to access the information in the Top
Quote Feed offering. If a controlled device is part
of an electronic network between computers used
for investment, trading or order routing activities,
the burden will be on the distributor to demonstrate
that the particular controlled device should not be
subject to the proposed fees.
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of options quotes and orders for all
complex orders (i.e., spreads, buywrites, delta neutral strategies, etc.)
aggregated at the top price level on both
the bid and offer side of the market as
well as all aggregated quotes and orders
for complex orders at the top five price
levels on both the bid and offer side of
the market. In addition, the Spread Feed
provides real-time updates every time a
new complex limit order that is not
immediately executable at the BBO is
placed on the ISE complex order book.
The Spread Feed shows bid/ask quote
size for Customer and Professional
Customer option orders for ISE traded
options. As noted above, since Customer
orders take precedence over all other
order types, the identification of these
orders in the Spread Feed is useful
information for market makers and
market participants generally. Again,
the Exchange believes it is not
discriminatory or a burden on
competition for these orders to be
identified because doing so increases
the likelihood that these orders will be
executed as they have priority on the
ISE while Professional Customers, i.e.,
persons or entities that (i) Are not a
broker or dealer in securities, and (ii)
place more than 390 orders in listed
options per day on average during a
calendar month for its own beneficial
account(s), do not have priority on the
Exchange.
The Exchange further notes that ISE
Market Makers currently receive a
spread book data feed as part of their
membership. Pursuant to this proposed
rule change, however, all recipients,
including ISE Market Makers, will be
subject to the proposed fees to access
the Spread Feed. The Spread Feed will
be available to members and nonmembers and to both professional and
non-professional subscribers and will
not be available on a non-subscription
basis.
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Proposed Fees for Spread Feed
The Exchange proposes to charge
distributors of Spread Feed $3,000 per
month. In addition, the Exchange
proposes to charge a monthly controlled
device 7 fee of $25 per controlled device
for Professionals at a distributor where
the data is for internal and/or external
7 ISE proposes that a ‘‘controlled device’’ be
defined as any device that a distributor of the ISE
Spread Feed permits to: (a) Access the information
in the Spread Feed offering, or (b) communicate
with the distributor so as to cause the distributor
to access the information in the Spread Feed
offering. If a controlled device is part of an
electronic network between computers used for
investment, trading or order routing activities, the
burden will be on the distributor to demonstrate
that the particular controlled device should not be
subject to the proposed fees.
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15:16 Aug 04, 2011
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use. There are no monthly controlled
device fees proposed for NonProfessionals subscribers to the Spread
Feed. Further, the Exchange proposes to
adopt an enterprise license fee,
regardless of the number of controlled
devices, as follows: (i) $4,250 for
Professionals at a distributor where the
data is for internal use only, (ii) $5,500
for Professionals at a distributor where
the data is for internal and/or external
use in a controlled device, and (iii)
$3,000 for Non-Professionals.
Multi-Product Subscription Discount
The Exchange currently offers two
real-time market data feed offerings, the
ISE Depth of Market Data Feed 8 and the
ISE Order Feed.9 With the addition of
the Spread Feed and Top Quote, the
Exchange will have four fee-liable realtime market data feed offerings. In order
to encourage subscriptions to multiple
market data feeds, ISE proposes to adopt
a multi-product subscription discount,
as follows: Ten percent (10%) discount
for subscribers who subscribe to two
feeds and twenty percent (20%)
discount for subscribers who subscribe
to three feeds.
2. Basis
The basis under the Securities
Exchange Act of 1934 (the ‘‘Act’’) for
this proposed rule change is the
requirement under Section 6(b)(4) that
an exchange have an equitable
allocation of reasonable dues, fees and
other charges among its members and
other persons using its facilities. The
Exchange believes that the proposed
rule change is consistent with the
provisions of Section 6 of the Act,10 in
general, and with Sections 6(b)(4) of the
Act,11 in particular, in that it provides
for the equitable allocation of reasonable
dues, fees and other charges among
members and issuers and other persons
using any facility or system which ISE
operates or controls.
The Exchange believes that the
proposed rule change is also consistent
with Section 6(b)(8) of the Act 12 in that
it does not impose any burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Act. The fees charged
would be the same for all market
participants, and therefore do not
8 See Securities Exchange Act Release No. 59949
(May 20, 2009), 74 FR 25593 (May 28, 2009) (SR–
ISE–2007–97) (Order Approving Proposed Rule
Change Relating to Market Data Fees).
9 See Securities Exchange Act Release No. 62399
(June 28, 2010), 75 FR 38587 (July 2, 2010) (SR–
ISE–2010–34) (Order Approving Proposed Rule
Change Relating to Fees for the ISE Order Feed).
10 15 U.S.C. 78f.
11 15 U.S.C. 78f(b)(4).
12 15 U.S.C. 78f(b)(8).
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unreasonably discriminate among
market participants.
The Commission concluded that
Regulation NMS—by deregulating the
market in proprietary data—would itself
further the Act’s goals of facilitating
efficiency and competition:
[E]fficiency is promoted when brokerdealers who do not need the data beyond the
prices, sizes, market center identifications of
the NBBO and consolidated last sale
information are not required to receive (and
pay for) such data. The Commission also
believes that efficiency is promoted when
broker-dealers may choose to receive (and
pay for) additional market data based on their
own internal analysis of the need for such
data.13
By removing ‘‘unnecessary regulatory
restrictions’’ on the ability of exchanges
to sell their own data, Regulation NMS
advanced the goals of the Act and the
principles reflected in its legislative
history. If the free market should
determine whether proprietary data is
sold to broker-dealers at all, it follows
that the price at which such data is sold
should be set by the market as well.
On July 21, 2010, President Barack
Obama signed into law H.R. 4173, the
Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010
(‘‘Dodd-Frank Act’’), which amended
Section 19 of the Act. Among other
things, Section 916 of the Dodd-Frank
Act amended paragraph (A) of Section
19(b)(3) of the Act by inserting the
phrase ‘‘on any person, whether or not
the person is a member of the selfregulatory organization’’ after ‘‘due, fee
or other charge imposed by the selfregulatory organization.’’ As a result, all
SRO rule proposals establishing or
changing dues, fees, or other charges are
immediately effective upon filing
regardless of whether such dues, fees, or
other charges are imposed on members
of the SRO, non-members, or both.
Section 916 further amended paragraph
(C) of Section 19(b)(3) of the Exchange
Act to read, in pertinent part, ‘‘At any
time within the 60-day period beginning
on the date of filing of such a proposed
rule change in accordance with the
provisions of paragraph (1) [of Section
19(b)], the Commission summarily may
temporarily suspend the change in the
rules of the self-regulatory organization
made thereby, 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 this title. If the Commission
takes such action, the Commission shall
institute proceedings under paragraph
13 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
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(2)(B) [of Section 19(b)] to determine
whether the proposed rule should be
approved or disapproved.’’
ISE believes that these amendments to
Section 19 of the Act reflect Congress’s
intent to allow the Commission to rely
upon the forces of competition to ensure
that fees for market data are reasonable
and equitably allocated. Although
Section 19(b) had formerly authorized
immediate effectiveness for a ‘‘due, fee
or other charge imposed by the selfregulatory organization,’’ the
Commission adopted a policy and
subsequently a rule stipulating that fees
for data and other products available to
persons that are not members of the selfregulatory organization must be
approved by the Commission after first
being published for comment. At the
time, the Commission supported the
adoption of the policy and the rule by
pointing out that unlike members,
whose representation in self-regulatory
organization governance was mandated
by the Act, non-members should be
given the opportunity to comment on
fees before being required to pay them,
and that the Commission should
specifically approve all such fees. ISE
believes that the amendment to Section
19 reflects Congress’s conclusion that
the evolution of self-regulatory
organization governance and
competitive market structure have
rendered the Commission’s prior policy
on non-member fees obsolete.
Specifically, many exchanges have
evolved from member-owned not-forprofit corporations into for-profit
investor-owned corporations (or
subsidiaries of investor-owned
corporations). Accordingly, exchanges
no longer have narrow incentives to
manage their affairs for the exclusive
benefit of their members, but rather
have incentives to maximize the appeal
of their products to all customers,
whether members or nonmembers, so as
to broaden distribution and grow
revenues. Moreover, we believe that the
change also reflects an endorsement of
the Commission’s determinations that
reliance on competitive markets is an
appropriate means to ensure equitable
and reasonable prices. Simply put, the
change reflects a presumption that all
fee changes should be permitted to take
effect immediately, since the level of all
fees are constrained by competitive
forces.
The recent decision of the United
States Court of Appeals for the District
of Columbia Circuit in NetCoaliton v.
SEC, No. 09–1042 (DC Cir. 2010),
although reviewing a Commission
decision made prior to the effective date
of the Dodd-Frank Act, upheld the
Commission’s reliance upon
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competitive markets to set reasonable
and equitably allocated fees for market
data. ‘‘In fact, the legislative history
indicates that the Congress intended
that the market system ‘evolve through
the interplay of competitive forces as
unnecessary regulatory restrictions are
removed’ and that the SEC wield its
regulatory power ‘in those situations
where competition may not be
sufficient,’ such as in the creation of a
‘consolidated transactional reporting
system.’ ’’ 14
The court’s conclusions about
Congressional intent are therefore
reinforced by the Dodd-Frank Act
amendments, which create a
presumption that exchange fees,
including market data fees, may take
effect immediately, without prior
Commission approval, and that the
Commission should take action to
suspend a fee change and institute a
proceeding to determine whether the fee
change should be approved or
disapproved only where the
Commission has concerns that the
change may not be consistent with the
Act.
The Exchange believes that the
proposed market data fees are consistent
with the requirements of the Act for
several reasons. First, the Exchange
notes that the categories of Top Quote
and Spread Feed market data and fees
compare favorably with similar
products offered by other markets such
as NASDAQ Stock Market
(‘‘NASDAQ’’), NASDAQ OMX PHLX
(‘‘Phlx’’), and Chicago Board Options
Exchange (‘‘CBOE’’). For example,
NASDAQ offers a market data product
that is similar to Top Quote: a data feed
that shows the top of the market entitled
Best of NASDAQ Options (‘‘BONOSM).15
Phlx also offers a market data feed,
entitled Top of Phlx Options (‘‘TOPO’’),
which is similar to Top Quote. TOPO
shows orders and quotes at the top of
the market, as well as trades.16 Lastly,
a subsidiary of CBOE for which CBOE
charges fees offers a market data product
that is similar to Spread Feed. The
14 NetCoaltion, at 15 (quoting H.R. Rep. No. 94–
229, at 92 (1975), as reprinted in 1975 U.S.C.C.A.N.
321, 323).
15 BONO has a monthly base access fee of $1,500
plus a $5 user fee for internal use professionals; a
monthly base access fee of $2,000 plus (i) a $5 user
fee for internal use professionals or, (ii) $1 user fee
for internal use non-professionals. NASDAQ also
has a monthly enterprise license fee of $2,500. See
Securities Exchange Act Release No. 64652 (June
13, 2011), 76 FR 35498 (June 17, 2011) (SR–
NASDAQ–2011–075).
16 TOPO has a monthly fee of $2,000 per firm for
internal use and a monthly fee of $2,500 per firm
for internal and external use. See Securities
Exchange Act Release No. 60459 (August 7, 2009),
74 FR 41466 (August 17, 2009) (SR–PHLX–2009–
54).
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CBOE BBO Data Feed includes, among
other things, customer versus noncustomer contracts at the BBO and BBO
data and last sale data for complex
strategies (e.g., spreads, straddles, buywrites, etc.).17
The Exchange also believes that the
proposed fee for Top Quote and Spread
Feed are consistent with the
requirements of the Act because
competition provides an effective
constraint on the market data fees that
the Exchange has the ability and the
incentive to charge. ISE has a
compelling need to attract order flow
from market participants in order to
maintain its share of trading volume.
This compelling need to attract order
flow imposes significant pressure on ISE
to act reasonably in setting the fees for
its market data offerings, 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
market data fees would risk alienating
many of the same customers on whose
orders it depends for competitive
survival. ISE currently competes with
eight options exchanges for order
flow.18
ISE is constrained in pricing Top
Quote and Spread Feed by the
availability to market participants of
alternatives to purchasing these
products. ISE must consider the extent
to which market participants would
choose one or more alternatives instead
of purchasing the Exchange’s data. For
example, although Top Quote is
separate from the core data feed made
available by OPRA, all the information
available in Top Quote is included in
the core data feed. The core OPRA data
is widely distributed and relatively
17 The subsidiary is identified as Market Data
Express, LLC (‘‘MDX’’) by CBOE, which indicates
that the feed will also provide data regarding
contingency orders and complex strategies, the
latter being comparable to the Spread Feed
proposed by this rule filing. The monthly fee
charged by CBOE for the data is $3,500 plus a $25
per user or device fee. See Securities Exchange Act
Release No. 63997 (March 1, 2011), 76 FR 12388
(March 7, 2011) (SR–CBOE–2011–014) (Notice of
Filing and Immediate Effectiveness of Proposed
Rule Change To Codify a Fee Schedule for the Sale
by Market Data Express, LLC, of a BBO Data Feed
for CBOE Listed Options).
18 The Commission has previously made a finding
that the options industry is subject to significant
competitive forces. See Securities Exchange Act
Release No. 59949 (May 20, 2009), 74 FR 25593
(May 28, 2009) (SR–ISE–2009–97) (order approving
ISE’s proposal to establish fees for a real-time depth
of market offering).
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inexpensive, thus constraining ISE’s
ability to price Top Quote. In this
respect, the OPRA data feed, which
includes the Exchange’s transaction
information, is a significant alternative
to the Exchange’s product. Further,
other options exchanges have produced
their own products and thus are sources
of potential competition for both Top
Quote and Spread Feed. As noted above,
NASDAQ, Phlx and CBOE all offer
market data products that compete with
either Top Quote and Spread Feed or
both.
For the reasons cited above, the
Exchange believes that the proposed
fees for Top Quote and Spread Feed are
equitable, fair, reasonable and not
unreasonably discriminatory. The
Exchange further believes that the
continued availability of Top Quote and
Spread Feed data feeds enhances
transparency, fosters competition among
orders and markets, and enables buyers
and sellers to obtain better prices. In
addition, the Exchange believes that no
substantial countervailing basis exists to
support a finding that the proposed
terms and fees for these products fail to
meet the requirements of the Act.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
ISE does not believe that the proposed
rule change will result in any burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act, as amended.
Notwithstanding its determination that
the Commission may rely upon
competition to establish fair and
equitably allocated fees for market data,
the NetCoaltion court found that the
Commission had not, in that case,
compiled a record that adequately
supported its conclusion that the market
for the data at issue in the case was
competitive.
For the reasons discussed above, ISE
believes that the Dodd-Frank Act
amendments to Section 19 materially
alter the scope of the Commission’s
review of future market data filings, by
creating a presumption that all fees may
take effect immediately, without prior
analysis by the Commission of the
competitive environment. Even in the
absence of this important statutory
change, however, ISE believes that a
record may readily be established to
demonstrate the competitive nature of
the market in question.
As recently noted by a number of
exchanges,19 there is intense
19 See Securities Exchange Act Release Nos.
63084 (October 13, 2010), 75 FR 64379 (October 19,
2010) (Notice of Filing and Immediate Effectiveness
of Proposed Rule Change To Revise an Optional
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competition between trading platforms
that provide transaction execution and
routing services and proprietary data
products. Transaction execution and
proprietary data products are
complementary in that market data is
both an input and a byproduct of the
execution service. In fact, market data
and trade execution are a paradigmatic
example of joint products with joint
costs. The decision whether and on
which platform to post an order will
depend on the attributes of the platform
where the order can be posted,
including the execution fees, data
quality and price and distribution of its
data products. Without the prospect of
a taking order seeing and reacting to a
posted order on a particular platform,
the posting of the order would
accomplish little. Without trade
executions, exchange data products
cannot exist. Data products are valuable
to many end users only insofar as they
provide information that end users
expect will assist them or their
customers in making trading decisions.
The costs of producing market data
include not only the costs of the data
distribution infrastructure, but also the
costs of designing, maintaining, and
operating the exchange’s transaction
execution platform and the cost of
regulating the exchange to ensure its fair
operation and maintain investor
confidence. The total return that a
trading platform earns reflects the
revenues it receives from both products
and the joint costs it incurs. Moreover,
an exchange’s customers view the costs
of transaction executions and of data as
a unified cost of doing business with the
exchange. A broker-dealer will direct
orders to a particular exchange only if
the expected revenues from executing
trades on the exchange exceed net
transaction execution costs and the cost
of data that the broker-dealer chooses to
buy to support its trading decisions (or
those of its customers). The choice of
data products is, in turn, a product of
the value of the products in making
profitable trading decisions. If the cost
of the product exceeds its expected
value, the broker-dealer will choose not
to buy it.
Moreover, as a broker-dealer chooses
to direct fewer orders to a particular
exchange, the value of the product to
that broker-dealer decrease, for two
reasons. First, the product will contain
less information, because executions of
Depth Data Enterprise License Fee for Broker-Dealer
Distribution of Depth-of-Book Data) (SR–NASDAQ–
2010–125); and 62887 (September 10, 2010), 75 FR
57092 (September 17, 2010) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change
Relating to Market Data Feeds) (SR–PHLX–2010–
121).
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47633
the broker-dealer’s orders will not be
reflected in it. Second, and perhaps
more important, the product will be less
valuable to that broker-dealer because it
does not provide information about the
venue to which it is directing its orders.
Data from the competing venue to
which the broker-dealer is directing
orders will become correspondingly
more valuable. Thus, a supercompetitive increase in the fees charged
for either transactions or data has the
potential to impair revenues from both
products. ‘‘No one disputes that
competition for order flow is ‘fierce.’ ’’ 20
However, the existence of fierce
competition for order flow implies a
high degree of price sensitivity on the
part of broker-dealers with order flow,
since they may readily reduce costs by
directing orders toward the lowest-cost
trading venues. A broker-dealer that
shifted its order flow from one platform
to another in response to order
execution price differentials would both
reduce the value of that platform’s
market data and reduce its own need to
consume data from the disfavored
platform. Similarly, if a platform
increases its market data fees, the
change will affect the overall cost of
doing business with the platform, and
affected broker-dealers will assess
whether they can lower their trading
costs by directing orders elsewhere and
thereby lessening the need for the more
expensive data.
Analyzing the cost of market data
distribution in isolation from the cost of
all of the inputs supporting the creation
of market data will inevitably
underestimate the cost of the data. Thus,
because it is impossible to create data
without a fast, technologically robust,
and well-regulated execution system,
system costs and regulatory costs affect
the price of market data. It would be
equally misleading, however, to
attribute all of the exchange’s costs to
the market data portion of an exchange’s
joint product. Rather, all of the
exchange’s costs are incurred for the
unified purposes of attracting order
flow, executing and/or routing orders,
and generating and selling data about
market activity. The total return that an
exchange earns reflects the revenues it
receives from the joint products and the
total costs of the joint products.
Competition among trading platforms
can be expected to constrain the
aggregate return each platform earns
from the sale of its joint products, but
different platforms may choose from a
range of possible, and equally
reasonable, pricing strategies as the
means of recovering total costs. For
20 NetCoalition,
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at 24.
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example, some platform may choose to
pay rebates to attract orders, charge
relatively low prices for market
information (or provide information free
of charge) and charge relatively high
prices for accessing posted liquidity.
Other platforms may choose a strategy
of paying lower rebates (or no rebates)
to attract orders, setting relatively high
prices for market information, and
setting relatively low prices for
accessing posted liquidity. In this
environment, there is no economic basis
for regulating maximum prices for one
of the joint products in an industry in
which suppliers face competitive
constraints with regard to the joint
offering.
The market for market data products
is competitive and inherently
contestable because there is fierce
competition for the inputs necessary to
the creation of proprietary data and
strict pricing discipline for the
proprietary products themselves.
Numerous exchanges compete with
each other for listings, trades, and
market data itself, providing virtually
limitless opportunities for entrepreneurs
who wish to produce and distribute
their own market data. This proprietary
data is produced by each individual
exchange, as well as other entities, in a
vigorously competitive market.
Broker-dealers currently have
numerous alternative venues for their
order flow, including numerous selfregulatory organization (‘‘SRO’’)
markets, as well as internalizing brokerdealers (‘‘BDs’’) and various forms of
alternative trading systems (‘‘ATSs’’),
including dark pools and electronic
communication networks (‘‘ECNs’’).
Each SRO market competes to produce
transaction reports via trade executions,
and two FINRA-regulated Trade
Reporting Facilities (‘‘TRFs’’) compete
to attract internalized transaction
reports. Competitive markets for order
flow, executions, and transaction
reports provide pricing discipline for
the inputs of proprietary data products.
The large number of SROs, TRFs, BDs,
and ATSs that currently produce
proprietary data or are currently capable
of producing it provides further pricing
discipline for proprietary data products.
Each SRO, TRF, ATS, and BD is
currently permitted to produce
proprietary data products, and many
currently do or have announced plans to
do so, including NASDAQ, NYSE,
NYSE Amex, NYSEArca, and BATS.
Any ATS or BD can combine with any
other ATS, BD, or multiple ATSs or BDs
to produce joint proprietary data
products. Additionally, order routers
and market data vendors can facilitate
single or multiple broker-dealers’
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production of proprietary data products.
The potential sources of proprietary
products are virtually limitless. The fact
that proprietary data from ATSs, BDs,
and vendors can by-pass SROs is
significant in two respects. First, nonSROs can compete directly with SROs
for the production and sale of
proprietary data products, as BATS and
Arca did before registering as exchanges
by publishing proprietary book data on
the Internet. Second, because a single
order or transaction report can appear in
an SRO proprietary product, a non-SRO
proprietary product, or both, the data
available in proprietary products is
exponentially greater than the actual
number of orders and transaction
reports that exist in the marketplace.
Market data vendors provide another
form of price discipline for proprietary
data products because they control the
primary means of access to end users.
Vendors impose price restraints based
upon their business models. For
example, vendors such as Bloomberg
and Reuters that assess a surcharge on
data they sell may refuse to offer
proprietary products that end users will
not purchase in sufficient numbers.
Internet portals, such as Google, impose
a discipline by providing only data that
will enable them to attract ‘‘eyeballs’’
that contribute to their advertising
revenue. Retail broker-dealers, such as
Schwab and Fidelity, offer their
customers proprietary data only if it
promotes trading and generates
sufficient commission revenue.
Although the business models may
differ, these vendors’ pricing discipline
is the same: they can simply refuse to
purchase any proprietary data product
that fails to provide sufficient value.
NASDAQ and other producers of
proprietary data products must
understand and respond to these
varying business models and pricing
disciplines in order to market
proprietary data products successfully.
Competition among platforms has
driven ISE continually to improve its
platform data offerings and to cater to
customers’ data needs. For example, ISE
has developed and maintained multiple
delivery mechanisms that enable
customers to receive data in the form
and manner they prefer and at the
lowest cost to them. ISE offers front end
applications such as its PrecISE Trade
application which helps customers
utilize data. ISE offers data via multiple
extranet providers, thereby helping to
reduce network and total cost for its
data products. ISE also offers an
enterprise license option to help reduce
the administrative burden and costs to
firms that purchase market data. Despite
PO 00000
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these enhancements and a dramatic
increase in message traffic, ISE’s fees for
market data have, for the most part,
remained flat.
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
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act 21 and Rule
19b–4(f)(2) 22 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
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. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule change
should be approved or 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.
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
No. SR–ISE–2011–50 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
Number SR–ISE–2011–50. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
21 15
22 17
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CFR 240.19b–4(f)(2).
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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 Web site viewing and
printing 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
ISE. 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–2011–50 and should be
submitted by August 26, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–19856 Filed 8–4–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65001; File No. SR–BX–
2011–050]
Self-Regulatory Organizations;
NASDAQ OMX BX; Notice of Filing and
Immediate Effectiveness of a Proposal
to Amend Chapter VI, Section 15
(Automatic Quote Cancellation) of the
BOX Trading Rules
erowe on DSKG8SOYB1PROD with NOTICES
August 1, 2011.
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 July 28,
2011, NASDAQ OMX BX (the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
23 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
by the Exchange. The Exchange has
designated the proposed rule change as
constituting a non-controversial rule
change under Rule 19b–4(f)(6) under the
Act,3 which renders the proposal
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 the Substance
of the Proposed Rule Change
The Exchange proposes to amend
Chapter VI, Section 15 (Automatic
Quote Cancellation) of the Rules of the
Boston Options Exchange Group, LLC
(‘‘BOX’’) to provide additional
flexibility for BOX Market Makers to
manage their risk. BOX will notify its
Options Participants by Information
Circular when the implementation
schedule is finalized.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
nasdaqomxbx.cchwallstreet.com/
NASDAQOMXBX/Filings, at the
principal office of the Exchange, at the
Commission’s Public Reference Room,
and on the Commission’s Web site at
https://www.sec.gov.
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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to reflect in the BOX Trading
Rules that BOX Market Makers will be
able to establish new risk control
parameters to better manage their
quotations and related risk. Specifically,
the Exchange proposes to amend
Chapter VI, Section 15, Automatic
Quote Cancellation. As explained
below, the proposed functionality is
substantially similar to that currently
1 15
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47635
existing on the International Securities
Exchange, LLC (‘‘ISE’’).
Chapter VI, Section 6 of the BOX
Trading Rules requires BOX Market
Makers to enter and maintain
continuous quotations for the options
classes to which they are appointed. To
comply with this requirement, each
Market Maker may employ its own
proprietary quotation and risk
management system to determine the
prices and sizes at which it quotes. As
Market Makers are required to
continuously quote in assigned options,
quoting across many series in an option
creates the possibility of ‘‘rapid fire’’
executions that can create large and
unintended principal positions that
expose the Market Maker to unnecessary
market risk. The proposed functionality
enhancements to Automatic Quote
Cancellation will provide BOX Market
Makers protection from the risk of
multiple executions across multiple
series of an option, and is intended to
assist them in managing their market
risk. BOX Market Makers will not be
required to use the proposed
functionality and can program their own
systems to perform similar functions if
they prefer.
The risk to Market Makers is not
limited to a single option series. Market
Makers have exposure in all series of a
particular options class in which they
are appointed, requiring them to offset
or hedge their overall position in each
option to minimize risk. By limiting a
Market Maker’s exposure across series,
BOX believes that a Market Maker will
be better able to provide quotations at
better prices. BOX believes that the
proposed functionality should help
BOX Market Makers, as key liquidity
providers, to better manage their risk,
aiding them in providing deeper and
more liquid markets, beneficial to all
BOX market participants.
Pursuant to the amended Chapter VI,
Section 15 of the BOX Trading Rules,
Automatic Quote Cancellation permits
each Market Maker to establish specific
parameters that, if triggered, will cause
the BOX Trading Host to cancel the
Market Maker’s quotes in the specified
class(es). To enable Automatic Quote
Cancellation, a Market Maker must send
an Automatic Quote Cancellation
enabling message to the BOX Trading
Host, including specific information
setting forth the parameters the Market
Maker would like to establish. Unless
enabled, Automatic Quote Cancellation
is disabled for all options classes.
The Market Maker may establish
triggering parameters for when the
Market Maker’s quotes may be
cancelled. The parameters the Market
Maker may set include a time period of
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]]>Agencies
[Federal Register Volume 76, Number 151 (Friday, August 5, 2011)]
[Notices]
[Pages 47630-47635]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-19856]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65002; File No. SR-ISE-2011-50]
Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule
Change Relating to Market Data Fees
August 1, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 1, 2011, the 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. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend its Schedule of Fees to adopt
subscription fees for the sale of two market data offerings, the ISE
Top Quote Feed and the ISE Spread Book Feed. 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.
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 self-regulatory organization has prepared summaries,
set forth in Sections A, B and C below, of the most significant aspects
of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
ISE proposes to amend its Schedule of Fees to adopt subscription
fees for the sale of two market data offerings, the ISE Top Quote Feed
and the ISE Spread Book Feed. The Exchange previously submitted a
proposed rule change to establish the two data feeds.\3\ The Exchange
proposes to implement the proposed fees for both market data offerings
on August 1, 2011.
---------------------------------------------------------------------------
\3\ See SR-ISE-2011-44.
---------------------------------------------------------------------------
ISE Top Quote Feed
The ISE Top Quote Feed (``Top Quote'') is a real-time feed that
aggregates all quotes and orders at the top price level on the
Exchange, on both the bid and offer side of the market. Top Quote
provides subscribers with a consolidated view of tradable prices at the
BBO, the same data that is displayed on the OPRA feed. Top Quote shows
bid/ask quote size for Customer and Professional Customer option orders
for ISE traded options that are not currently distinguishable through
the OPRA feed.\4\ The identification of Customer orders is useful for
market makers and market participants generally since Customer orders
take precedence over all other order types on the ISE. The Exchange
believes it is not discriminatory or a burden on competition for these
orders to be identified because doing so increases the likelihood that
these orders will be executed as they have priority on the ISE while
Professional Customers, i.e., persons or entities that (i) Are not a
broker or dealer in securities, and (ii) place more than 390 orders in
listed options per day on average during a calendar month for its own
beneficial account(s), do not have priority on the Exchange.
---------------------------------------------------------------------------
\4\ Customer and Professional Customer orders are identified in
a number of market data offerings currently sold by other options
exchanges on a subscription basis. See Securities Exchange Act
Release No. 63351 (November 10, 2010), 75 FR 73140 (November 29,
2010) (SR-PHLX-2010-154) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change Relating to Fees for the PHOTO
Historical Data Product). See also Securities Exchange Act Release
No. 63997 (March 1, 2011), 76 FR 12388 (March 7, 2011) (SR-CBOE-
2011-014) (Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Codify a Fee Schedule for the Sale by Market Data
Express, LLC, of a BBO Data Feed for CBOE Listed Options).
---------------------------------------------------------------------------
Top Quote is currently imbedded in the Exchange's Depth of Market
data feed offering and is available to subscribers of the Depth of
Market data feed offering. With this proposed rule change, the Exchange
is offering Top Quote as a separate subscription-based data feed. Top
Quote will be available to members and non-members, and to both
professional and non-professional subscribers.
Proposed Fees for Top Quote
The Exchange proposes to charge distributors \5\ of Top Quote
$3,000 per month. In addition, the Exchange proposes to charge a
monthly controlled device \6\ fee of $20 per controlled device for
Professionals at a distributor where the data is for internal and/or
external use. There are no monthly controlled device fees proposed for
Non-Professionals subscribers to Top Quote. Further, the Exchange
proposes to adopt an enterprise license fee, regardless of the number
of controlled devices, as follows: (i) $4,000 for Professionals at a
distributor where the data is for internal use only, (ii) $5,000 for
Professionals at a distributor where the data is for internal and/or
external use in a controlled device and (iii) $3,000 per month for Non-
Professionals.
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\5\ ISE proposes that a ``distributor'' be defined as any firm
that receives a ISE data feed directly from ISE or indirectly
through a vendor and then distributes it either internally or
externally. Further, ISE proposes that all distributors execute an
ISE distributor agreement.
\6\ ISE proposes that a ``controlled device'' be defined as any
device that a distributor of the ISE Top Quote Feed permits to: (a)
Access the information in the Top Quote Feed offering, or (b)
communicate with the distributor so as to cause the distributor to
access the information in the Top Quote Feed offering. If a
controlled device is part of an electronic network between computers
used for investment, trading or order routing activities, the burden
will be on the distributor to demonstrate that the particular
controlled device should not be subject to the proposed fees.
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ISE Spread Book Feed
The ISE Spread Book Feed (``Spread Feed'') is a real-time feed that
consists
[[Page 47631]]
of options quotes and orders for all complex orders (i.e., spreads,
buy-writes, delta neutral strategies, etc.) aggregated at the top price
level on both the bid and offer side of the market as well as all
aggregated quotes and orders for complex orders at the top five price
levels on both the bid and offer side of the market. In addition, the
Spread Feed provides real-time updates every time a new complex limit
order that is not immediately executable at the BBO is placed on the
ISE complex order book. The Spread Feed shows bid/ask quote size for
Customer and Professional Customer option orders for ISE traded
options. As noted above, since Customer orders take precedence over all
other order types, the identification of these orders in the Spread
Feed is useful information for market makers and market participants
generally. Again, the Exchange believes it is not discriminatory or a
burden on competition for these orders to be identified because doing
so increases the likelihood that these orders will be executed as they
have priority on the ISE while Professional Customers, i.e., persons or
entities that (i) Are not a broker or dealer in securities, and (ii)
place more than 390 orders in listed options per day on average during
a calendar month for its own beneficial account(s), do not have
priority on the Exchange.
The Exchange further notes that ISE Market Makers currently receive
a spread book data feed as part of their membership. Pursuant to this
proposed rule change, however, all recipients, including ISE Market
Makers, will be subject to the proposed fees to access the Spread Feed.
The Spread Feed will be available to members and non-members and to
both professional and non-professional subscribers and will not be
available on a non-subscription basis.
Proposed Fees for Spread Feed
The Exchange proposes to charge distributors of Spread Feed $3,000
per month. In addition, the Exchange proposes to charge a monthly
controlled device \7\ fee of $25 per controlled device for
Professionals at a distributor where the data is for internal and/or
external use. There are no monthly controlled device fees proposed for
Non-Professionals subscribers to the Spread Feed. Further, the Exchange
proposes to adopt an enterprise license fee, regardless of the number
of controlled devices, as follows: (i) $4,250 for Professionals at a
distributor where the data is for internal use only, (ii) $5,500 for
Professionals at a distributor where the data is for internal and/or
external use in a controlled device, and (iii) $3,000 for Non-
Professionals.
---------------------------------------------------------------------------
\7\ ISE proposes that a ``controlled device'' be defined as any
device that a distributor of the ISE Spread Feed permits to: (a)
Access the information in the Spread Feed offering, or (b)
communicate with the distributor so as to cause the distributor to
access the information in the Spread Feed offering. If a controlled
device is part of an electronic network between computers used for
investment, trading or order routing activities, the burden will be
on the distributor to demonstrate that the particular controlled
device should not be subject to the proposed fees.
---------------------------------------------------------------------------
Multi-Product Subscription Discount
The Exchange currently offers two real-time market data feed
offerings, the ISE Depth of Market Data Feed \8\ and the ISE Order
Feed.\9\ With the addition of the Spread Feed and Top Quote, the
Exchange will have four fee-liable real-time market data feed
offerings. In order to encourage subscriptions to multiple market data
feeds, ISE proposes to adopt a multi-product subscription discount, as
follows: Ten percent (10%) discount for subscribers who subscribe to
two feeds and twenty percent (20%) discount for subscribers who
subscribe to three feeds.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 59949 (May 20,
2009), 74 FR 25593 (May 28, 2009) (SR-ISE-2007-97) (Order Approving
Proposed Rule Change Relating to Market Data Fees).
\9\ See Securities Exchange Act Release No. 62399 (June 28,
2010), 75 FR 38587 (July 2, 2010) (SR-ISE-2010-34) (Order Approving
Proposed Rule Change Relating to Fees for the ISE Order Feed).
---------------------------------------------------------------------------
2. Basis
The basis under the Securities Exchange Act of 1934 (the ``Act'')
for this proposed rule change is the requirement under Section 6(b)(4)
that an exchange have an equitable allocation of reasonable dues, fees
and other charges among its members and other persons using its
facilities. The Exchange believes that the proposed rule change is
consistent with the provisions of Section 6 of the Act,\10\ in general,
and with Sections 6(b)(4) of the Act,\11\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and issuers and other persons using any
facility or system which ISE operates or controls.
---------------------------------------------------------------------------
\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is also
consistent with Section 6(b)(8) of the Act \12\ in that it does not
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The fees charged would be the
same for all market participants, and therefore do not unreasonably
discriminate among market participants.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
The Commission concluded that Regulation NMS--by deregulating the
market in proprietary data--would itself further the Act's goals of
facilitating efficiency and competition:
[E]fficiency is promoted when broker-dealers who do not need the
data beyond the prices, sizes, market center identifications of the
NBBO and consolidated last sale information are not required to
receive (and pay for) such data. The Commission also believes that
efficiency is promoted when broker-dealers may choose to receive
(and pay for) additional market data based on their own internal
analysis of the need for such data.\13\
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\13\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
By removing ``unnecessary regulatory restrictions'' on the ability of
exchanges to sell their own data, Regulation NMS advanced the goals of
the Act and the principles reflected in its legislative history. If the
free market should determine whether proprietary data is sold to
broker-dealers at all, it follows that the price at which such data is
sold should be set by the market as well.
On July 21, 2010, President Barack Obama signed into law H.R. 4173,
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
(``Dodd-Frank Act''), which amended Section 19 of the Act. Among other
things, Section 916 of the Dodd-Frank Act amended paragraph (A) of
Section 19(b)(3) of the Act by inserting the phrase ``on any person,
whether or not the person is a member of the self-regulatory
organization'' after ``due, fee or other charge imposed by the self-
regulatory organization.'' As a result, all SRO rule proposals
establishing or changing dues, fees, or other charges are immediately
effective upon filing regardless of whether such dues, fees, or other
charges are imposed on members of the SRO, non-members, or both.
Section 916 further amended paragraph (C) of Section 19(b)(3) of the
Exchange Act to read, in pertinent part, ``At any time within the 60-
day period beginning on the date of filing of such a proposed rule
change in accordance with the provisions of paragraph (1) [of Section
19(b)], the Commission summarily may temporarily suspend the change in
the rules of the self-regulatory organization made thereby, 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 this title. If the Commission takes
such action, the Commission shall institute proceedings under paragraph
[[Page 47632]]
(2)(B) [of Section 19(b)] to determine whether the proposed rule should
be approved or disapproved.''
ISE believes that these amendments to Section 19 of the Act reflect
Congress's intent to allow the Commission to rely upon the forces of
competition to ensure that fees for market data are reasonable and
equitably allocated. Although Section 19(b) had formerly authorized
immediate effectiveness for a ``due, fee or other charge imposed by the
self-regulatory organization,'' the Commission adopted a policy and
subsequently a rule stipulating that fees for data and other products
available to persons that are not members of the self-regulatory
organization must be approved by the Commission after first being
published for comment. At the time, the Commission supported the
adoption of the policy and the rule by pointing out that unlike
members, whose representation in self-regulatory organization
governance was mandated by the Act, non-members should be given the
opportunity to comment on fees before being required to pay them, and
that the Commission should specifically approve all such fees. ISE
believes that the amendment to Section 19 reflects Congress's
conclusion that the evolution of self-regulatory organization
governance and competitive market structure have rendered the
Commission's prior policy on non-member fees obsolete. Specifically,
many exchanges have evolved from member-owned not-for-profit
corporations into for-profit investor-owned corporations (or
subsidiaries of investor-owned corporations). Accordingly, exchanges no
longer have narrow incentives to manage their affairs for the exclusive
benefit of their members, but rather have incentives to maximize the
appeal of their products to all customers, whether members or
nonmembers, so as to broaden distribution and grow revenues. Moreover,
we believe that the change also reflects an endorsement of the
Commission's determinations that reliance on competitive markets is an
appropriate means to ensure equitable and reasonable prices. Simply
put, the change reflects a presumption that all fee changes should be
permitted to take effect immediately, since the level of all fees are
constrained by competitive forces.
The recent decision of the United States Court of Appeals for the
District of Columbia Circuit in NetCoaliton v. SEC, No. 09-1042 (DC
Cir. 2010), although reviewing a Commission decision made prior to the
effective date of the Dodd-Frank Act, upheld the Commission's reliance
upon competitive markets to set reasonable and equitably allocated fees
for market data. ``In fact, the legislative history indicates that the
Congress intended that the market system `evolve through the interplay
of competitive forces as unnecessary regulatory restrictions are
removed' and that the SEC wield its regulatory power `in those
situations where competition may not be sufficient,' such as in the
creation of a `consolidated transactional reporting system.' '' \14\
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\14\ NetCoaltion, at 15 (quoting H.R. Rep. No. 94-229, at 92
(1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323).
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The court's conclusions about Congressional intent are therefore
reinforced by the Dodd-Frank Act amendments, which create a presumption
that exchange fees, including market data fees, may take effect
immediately, without prior Commission approval, and that the Commission
should take action to suspend a fee change and institute a proceeding
to determine whether the fee change should be approved or disapproved
only where the Commission has concerns that the change may not be
consistent with the Act.
The Exchange believes that the proposed market data fees are
consistent with the requirements of the Act for several reasons. First,
the Exchange notes that the categories of Top Quote and Spread Feed
market data and fees compare favorably with similar products offered by
other markets such as NASDAQ Stock Market (``NASDAQ''), NASDAQ OMX PHLX
(``Phlx''), and Chicago Board Options Exchange (``CBOE''). For example,
NASDAQ offers a market data product that is similar to Top Quote: a
data feed that shows the top of the market entitled Best of NASDAQ
Options (``BONO\SM\).\15\ Phlx also offers a market data feed, entitled
Top of Phlx Options (``TOPO''), which is similar to Top Quote. TOPO
shows orders and quotes at the top of the market, as well as
trades.\16\ Lastly, a subsidiary of CBOE for which CBOE charges fees
offers a market data product that is similar to Spread Feed. The CBOE
BBO Data Feed includes, among other things, customer versus non-
customer contracts at the BBO and BBO data and last sale data for
complex strategies (e.g., spreads, straddles, buy-writes, etc.).\17\
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\15\ BONO has a monthly base access fee of $1,500 plus a $5 user
fee for internal use professionals; a monthly base access fee of
$2,000 plus (i) a $5 user fee for internal use professionals or,
(ii) $1 user fee for internal use non-professionals. NASDAQ also has
a monthly enterprise license fee of $2,500. See Securities Exchange
Act Release No. 64652 (June 13, 2011), 76 FR 35498 (June 17, 2011)
(SR-NASDAQ-2011-075).
\16\ TOPO has a monthly fee of $2,000 per firm for internal use
and a monthly fee of $2,500 per firm for internal and external use.
See Securities Exchange Act Release No. 60459 (August 7, 2009), 74
FR 41466 (August 17, 2009) (SR-PHLX-2009-54).
\17\ The subsidiary is identified as Market Data Express, LLC
(``MDX'') by CBOE, which indicates that the feed will also provide
data regarding contingency orders and complex strategies, the latter
being comparable to the Spread Feed proposed by this rule filing.
The monthly fee charged by CBOE for the data is $3,500 plus a $25
per user or device fee. See Securities Exchange Act Release No.
63997 (March 1, 2011), 76 FR 12388 (March 7, 2011) (SR-CBOE-2011-
014) (Notice of Filing and Immediate Effectiveness of Proposed Rule
Change To Codify a Fee Schedule for the Sale by Market Data Express,
LLC, of a BBO Data Feed for CBOE Listed Options).
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The Exchange also believes that the proposed fee for Top Quote and
Spread Feed are consistent with the requirements of the Act because
competition provides an effective constraint on the market data fees
that the Exchange has the ability and the incentive to charge. ISE has
a compelling need to attract order flow from market participants in
order to maintain its share of trading volume. This compelling need to
attract order flow imposes significant pressure on ISE to act
reasonably in setting the fees for its market data offerings,
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 market
data fees would risk alienating many of the same customers on whose
orders it depends for competitive survival. ISE currently competes with
eight options exchanges for order flow.\18\
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\18\ The Commission has previously made a finding that the
options industry is subject to significant competitive forces. See
Securities Exchange Act Release No. 59949 (May 20, 2009), 74 FR
25593 (May 28, 2009) (SR-ISE-2009-97) (order approving ISE's
proposal to establish fees for a real-time depth of market
offering).
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ISE is constrained in pricing Top Quote and Spread Feed by the
availability to market participants of alternatives to purchasing these
products. ISE must consider the extent to which market participants
would choose one or more alternatives instead of purchasing the
Exchange's data. For example, although Top Quote is separate from the
core data feed made available by OPRA, all the information available in
Top Quote is included in the core data feed. The core OPRA data is
widely distributed and relatively
[[Page 47633]]
inexpensive, thus constraining ISE's ability to price Top Quote. In
this respect, the OPRA data feed, which includes the Exchange's
transaction information, is a significant alternative to the Exchange's
product. Further, other options exchanges have produced their own
products and thus are sources of potential competition for both Top
Quote and Spread Feed. As noted above, NASDAQ, Phlx and CBOE all offer
market data products that compete with either Top Quote and Spread Feed
or both.
For the reasons cited above, the Exchange believes that the
proposed fees for Top Quote and Spread Feed are equitable, fair,
reasonable and not unreasonably discriminatory. The Exchange further
believes that the continued availability of Top Quote and Spread Feed
data feeds enhances transparency, fosters competition among orders and
markets, and enables buyers and sellers to obtain better prices. In
addition, the Exchange believes that no substantial countervailing
basis exists to support a finding that the proposed terms and fees for
these products fail to meet the requirements of the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
ISE does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. Notwithstanding its
determination that the Commission may rely upon competition to
establish fair and equitably allocated fees for market data, the
NetCoaltion court found that the Commission had not, in that case,
compiled a record that adequately supported its conclusion that the
market for the data at issue in the case was competitive.
For the reasons discussed above, ISE believes that the Dodd-Frank
Act amendments to Section 19 materially alter the scope of the
Commission's review of future market data filings, by creating a
presumption that all fees may take effect immediately, without prior
analysis by the Commission of the competitive environment. Even in the
absence of this important statutory change, however, ISE believes that
a record may readily be established to demonstrate the competitive
nature of the market in question.
As recently noted by a number of exchanges,\19\ there is intense
competition between trading platforms that provide transaction
execution and routing services and proprietary data products.
Transaction execution and proprietary data products are complementary
in that market data is both an input and a byproduct of the execution
service. In fact, market data and trade execution are a paradigmatic
example of joint products with joint costs. The decision whether and on
which platform to post an order will depend on the attributes of the
platform where the order can be posted, including the execution fees,
data quality and price and distribution of its data products. Without
the prospect of a taking order seeing and reacting to a posted order on
a particular platform, the posting of the order would accomplish
little. Without trade executions, exchange data products cannot exist.
Data products are valuable to many end users only insofar as they
provide information that end users expect will assist them or their
customers in making trading decisions.
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\19\ See Securities Exchange Act Release Nos. 63084 (October 13,
2010), 75 FR 64379 (October 19, 2010) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change To Revise an
Optional Depth Data Enterprise License Fee for Broker-Dealer
Distribution of Depth-of-Book Data) (SR-NASDAQ-2010-125); and 62887
(September 10, 2010), 75 FR 57092 (September 17, 2010) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating
to Market Data Feeds) (SR-PHLX-2010-121).
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The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's transaction execution
platform and the cost of regulating the exchange to ensure its fair
operation and maintain investor confidence. The total return that a
trading platform earns reflects the revenues it receives from both
products and the joint costs it incurs. Moreover, an exchange's
customers view the costs of transaction executions and of data as a
unified cost of doing business with the exchange. A broker-dealer will
direct orders to a particular exchange only if the expected revenues
from executing trades on the exchange exceed net transaction execution
costs and the cost of data that the broker-dealer chooses to buy to
support its trading decisions (or those of its customers). The choice
of data products is, in turn, a product of the value of the products in
making profitable trading decisions. If the cost of the product exceeds
its expected value, the broker-dealer will choose not to buy it.
Moreover, as a broker-dealer chooses to direct fewer orders to a
particular exchange, the value of the product to that broker-dealer
decrease, for two reasons. First, the product will contain less
information, because executions of the broker-dealer's orders will not
be reflected in it. Second, and perhaps more important, the product
will be less valuable to that broker-dealer because it does not provide
information about the venue to which it is directing its orders. Data
from the competing venue to which the broker-dealer is directing orders
will become correspondingly more valuable. Thus, a super-competitive
increase in the fees charged for either transactions or data has the
potential to impair revenues from both products. ``No one disputes that
competition for order flow is `fierce.' '' \20\ However, the existence
of fierce competition for order flow implies a high degree of price
sensitivity on the part of broker-dealers with order flow, since they
may readily reduce costs by directing orders toward the lowest-cost
trading venues. A broker-dealer that shifted its order flow from one
platform to another in response to order execution price differentials
would both reduce the value of that platform's market data and reduce
its own need to consume data from the disfavored platform. Similarly,
if a platform increases its market data fees, the change will affect
the overall cost of doing business with the platform, and affected
broker-dealers will assess whether they can lower their trading costs
by directing orders elsewhere and thereby lessening the need for the
more expensive data.
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\20\ NetCoalition, at 24.
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Analyzing the cost of market data distribution in isolation from
the cost of all of the inputs supporting the creation of market data
will inevitably underestimate the cost of the data. Thus, because it is
impossible to create data without a fast, technologically robust, and
well-regulated execution system, system costs and regulatory costs
affect the price of market data. It would be equally misleading,
however, to attribute all of the exchange's costs to the market data
portion of an exchange's joint product. Rather, all of the exchange's
costs are incurred for the unified purposes of attracting order flow,
executing and/or routing orders, and generating and selling data about
market activity. The total return that an exchange earns reflects the
revenues it receives from the joint products and the total costs of the
joint products.
Competition among trading platforms can be expected to constrain
the aggregate return each platform earns from the sale of its joint
products, but different platforms may choose from a range of possible,
and equally reasonable, pricing strategies as the means of recovering
total costs. For
[[Page 47634]]
example, some platform may choose to pay rebates to attract orders,
charge relatively low prices for market information (or provide
information free of charge) and charge relatively high prices for
accessing posted liquidity. Other platforms may choose a strategy of
paying lower rebates (or no rebates) to attract orders, setting
relatively high prices for market information, and setting relatively
low prices for accessing posted liquidity. In this environment, there
is no economic basis for regulating maximum prices for one of the joint
products in an industry in which suppliers face competitive constraints
with regard to the joint offering.
The market for market data products is competitive and inherently
contestable because there is fierce competition for the inputs
necessary to the creation of proprietary data and strict pricing
discipline for the proprietary products themselves. Numerous exchanges
compete with each other for listings, trades, and market data itself,
providing virtually limitless opportunities for entrepreneurs who wish
to produce and distribute their own market data. This proprietary data
is produced by each individual exchange, as well as other entities, in
a vigorously competitive market.
Broker-dealers currently have numerous alternative venues for their
order flow, including numerous self-regulatory organization (``SRO'')
markets, as well as internalizing broker-dealers (``BDs'') and various
forms of alternative trading systems (``ATSs''), including dark pools
and electronic communication networks (``ECNs''). Each SRO market
competes to produce transaction reports via trade executions, and two
FINRA-regulated Trade Reporting Facilities (``TRFs'') compete to
attract internalized transaction reports. Competitive markets for order
flow, executions, and transaction reports provide pricing discipline
for the inputs of proprietary data products. The large number of SROs,
TRFs, BDs, and ATSs that currently produce proprietary data or are
currently capable of producing it provides further pricing discipline
for proprietary data products. Each SRO, TRF, ATS, and BD is currently
permitted to produce proprietary data products, and many currently do
or have announced plans to do so, including NASDAQ, NYSE, NYSE Amex,
NYSEArca, and BATS.
Any ATS or BD can combine with any other ATS, BD, or multiple ATSs
or BDs to produce joint proprietary data products. Additionally, order
routers and market data vendors can facilitate single or multiple
broker-dealers' production of proprietary data products. The potential
sources of proprietary products are virtually limitless. The fact that
proprietary data from ATSs, BDs, and vendors can by-pass SROs is
significant in two respects. First, non-SROs can compete directly with
SROs for the production and sale of proprietary data products, as BATS
and Arca did before registering as exchanges by publishing proprietary
book data on the Internet. Second, because a single order or
transaction report can appear in an SRO proprietary product, a non-SRO
proprietary product, or both, the data available in proprietary
products is exponentially greater than the actual number of orders and
transaction reports that exist in the marketplace. Market data vendors
provide another form of price discipline for proprietary data products
because they control the primary means of access to end users. Vendors
impose price restraints based upon their business models. For example,
vendors such as Bloomberg and Reuters that assess a surcharge on data
they sell may refuse to offer proprietary products that end users will
not purchase in sufficient numbers. Internet portals, such as Google,
impose a discipline by providing only data that will enable them to
attract ``eyeballs'' that contribute to their advertising revenue.
Retail broker-dealers, such as Schwab and Fidelity, offer their
customers proprietary data only if it promotes trading and generates
sufficient commission revenue. Although the business models may differ,
these vendors' pricing discipline is the same: they can simply refuse
to purchase any proprietary data product that fails to provide
sufficient value. NASDAQ and other producers of proprietary data
products must understand and respond to these varying business models
and pricing disciplines in order to market proprietary data products
successfully.
Competition among platforms has driven ISE continually to improve
its platform data offerings and to cater to customers' data needs. For
example, ISE has developed and maintained multiple delivery mechanisms
that enable customers to receive data in the form and manner they
prefer and at the lowest cost to them. ISE offers front end
applications such as its PrecISE Trade application which helps
customers utilize data. ISE offers data via multiple extranet
providers, thereby helping to reduce network and total cost for its
data products. ISE also offers an enterprise license option to help
reduce the administrative burden and costs to firms that purchase
market data. Despite these enhancements and a dramatic increase in
message traffic, ISE's fees for market data have, for the most part,
remained flat.
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \21\ and Rule 19b-4(f)(2) \22\ thereunder.
At any time within 60 days of the filing of the proposed rule change,
the Commission summarily may temporarily suspend 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. If the Commission takes such
action, the Commission shall institute proceedings to determine whether
the proposed rule change should be approved or disapproved.
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\21\ 15 U.S.C. 78s(b)(3)(A)(ii).
\22\ 17 CFR 240.19b-4(f)(2).
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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 rule-comments@sec.gov. Please include
File No. SR-ISE-2011-50 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 Number SR-ISE-2011-50. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your
[[Page 47635]]
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 Web site viewing and printing 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 ISE. 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-2011-50 and should be submitted by August 26, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19856 Filed 8-4-11; 8:45 am]
BILLING CODE 8011-01-P
