Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Establishing a Fee for Television Distribution of the NYSE Arca Trades Data Product, 42529-42533 [2012-17550]
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Federal Register / Vol. 77, No. 139 / Thursday, July 19, 2012 / Notices
e-Quotes—would further those
legitimate Floor functions. Although not
articulated by the SROs or commenters,
the Commission could envision an
argument that allowing DMMs to see
information about individual Floor
broker e-Quotes, including the identity
of the responsible Floor broker, and
convey that information to other Floor
brokers, could facilitate the bringing
together of buyers and sellers of large
orders on the Floor more efficiently than
through verbal communications.
However, neither the SROs nor the
commenters have offered any specific
explanation, nor has the Commission
been able to otherwise discern, how the
provision of disaggregated pre-trade and
post-trade information about public
orders on the Exchange books, including
the identity of the entering and clearing
firms, would promote a legitimate Floor
function. Nor have the SROs or the
commenters provided any specific
justification for allowing Floor brokers
to pass on to their customers the
identity of the responsible Floor broker
for e-Quotes, or any disaggregated order
information (pre-trade or post trade)
with respect to orders on the Exchange
books that originate off the Exchange
floors.
Although the SROs and commenters
have taken the position that the
disaggregated order information
proposed to be provided would afford
only a slight benefit to Floor members,
given that it must be accessed manually,
they have not clearly explained why
this is the case, particularly with respect
to less liquid securities where order
information is less likely to become
rapidly stale. In addition, neither the
SROs nor the commenters have
articulated a rationale for providing
disaggregated order information—
particularly that relating to public
orders on the Exchange books—
exclusively to DMMs and Floor brokers
and, by extension, exclusively to Floor
broker customers, and not to all
Exchange members and customers.
While the SROs and commenters
believe that the proposals are not
unfairly discriminatory because DMMs
must provide the information to Floor
brokers in a non-discriminatory fashion,
and Floor brokers must do the same
with respect to their customers, they do
not explain why it is not unfairly
discriminatory to offer this information
only through Floor brokers and not
through other Exchange members.
The SROs and commenters point out
that customers can prevent their
disaggregated order information from
being accessed by DMMs and Floor
brokers by submitting a non-displayable
order or, with respect to Floor broker e-
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Quotes, instructing that the information
be withheld from the DMM. They also
note that Floor brokers are not permitted
to trade on a proprietary basis, and that
DMMs are subject to restrictions that
limit their ability to benefit directly
from their receipt of disaggregated order
information by trading proprietarily.
Although these are factors that may
mitigate potential harm that may result
from the proposals, they do not in
themselves offer an affirmative
justification as to why the specific
proposals under consideration would
not permit unfair discrimination, or
would promote just and equitable
principles of trade and protect investors
and the public interest, or would
otherwise be consistent with the Act.
Similarly, while the SROs and
commenters note that specialists
historically were permitted to provide
disaggregated order information to Floor
brokers prior to the Exchanges’
conversion to a more automated
‘‘Hybrid Market,’’ they do not articulate
how this former practice is relevant to
whether the proposed provision of
disaggregated order information to Floor
members in the context of the current
market models of the SROs is consistent
with the Act.
When the Commission is engaged in
rulemaking or the review of a rule filed
by a self-regulatory organization, and is
required to consider or determine
whether an action is necessary or
appropriate in the public interest, the
Commission shall also consider, in
addition to the protection of investors,
whether the action will promote
efficiency, competition, and capital
formation.55 Based on the evidence
presented, the Commission notes that
making the information that is proposed
to be provided under this filing
exclusively available to DMMs and
Floor brokers could have a detrimental
effect on competition between on-Floor
and off-Floor members of the
Exchanges. Moreover, while providing
DMMs and Floor brokers with order
information related to Floor broker
interest may promote efficiency, the
SROs have not demonstrated that other
aspects of these proposals—specifically,
providing DMMs and Floor brokers with
order information about public orders
on the Exchange books—would have a
similar effect.
As noted above, Rule 700(b)(3) of the
Commission’s Rules of Practice states
that ‘‘[t]he burden to demonstrate that a
proposed rule change is consistent with
the Exchange Act and the rules and
regulations issued thereunder * * * is
on the self-regulatory organization that
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55 See
15 U.S.C. 78c(f).
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42529
proposed the rule change’’ and that a
‘‘mere assertion that the proposed rule
change is consistent with those
requirements * * * is not sufficient.’’ 56
For the reasons set forth above, the
Commission does not believe that the
SROs have met their burden to
demonstrate that the proposed rule
changes are consistent with the
requirements of the Act and the rules
and regulations thereunder.
IV. Conclusion
For the foregoing reasons, the
Commission does not find that the
proposed rule changes are consistent
with the Act and the rules and
regulations thereunder applicable to a
national securities exchange, and, in
particular, with Section 6(b)(5) of the
Act.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,57 that the
proposed rule changes (SR–NYSE–
2011–56 and SR–NYSEAmex–2011–86)
be, and hereby are, disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.58
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–17551 Filed 7–18–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67436; File No. SR–
NYSEArca–2012–73]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Establishing a Fee for
Television Distribution of the NYSE
Arca Trades Data Product
July 13, 2012.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b-4 thereunder,3
notice is hereby given that, on July 3,
2012, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the self-regulatory
organization. The Commission is
publishing this notice to solicit
56 17
CFR 201.700(b)(3).
U.S.C. 78s(b)(2).
58 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
57 15
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Federal Register / Vol. 77, No. 139 / Thursday, July 19, 2012 / Notices
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 establish a
fee for television distribution of the
NYSE Arca Trades data product. The
text of the proposed rule change is
available on the Exchange’s Web site at
www.nyse.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
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to establish a
fee for television distribution of the
NYSE Arca Trades data product.
In 2009, the Commission approved
the NYSE Arca Trades data product and
its fees.4 NYSE Arca Trades is a NYSE
Arca-only market data service that
allows a vendor to redistribute on a realtime basis the same last sale information
that the Exchange reports under the
Consolidated Tape Association (‘‘CTA’’)
Plan and the NASDAQ Unlisted Trading
Privileges Plan (‘‘NASDAQ UTP Plan’’)
for including in those plans’
consolidated data streams and certain
other related data elements (‘‘NYSE
Arca Last Sale Information’’).
In 2010, the Commission approved
changes to the fees for NYSE Arca
Trades that modified the professional
subscriber fee to consolidate the perdisplay device fee for NYSE Arca Last
Sale Information relating to Network A
and Network B Eligible Securities and
securities listed on NASDAQ and
provide an alternative to the per-device
fee based on the number of ‘‘Subscriber
Entitlements,’’ rather the basis of the
4 See Securities Exchange Act Release No. 59598
(Mar. 18, 2009); 74 FR 12919 (Mar. 25, 2009) (SR–
NYSEArca–2009–05).
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number of devices.5 The Exchange
charges the datafeed recipients (a) an
access fee of $750 per month (the
‘‘Access Fee’’), and (b) at the election of
the vendor, either (i) a device fee for
professional subscribers of $10.00 per
month or (ii) a fee based on the number
of ‘‘Subscriber Entitlements ’’ (the latter
two fees together, ‘‘User Fees’’).6
The Exchange proposes to add a new
fee category for NYSE Arca Trades to
provide television broadcasters 7 with
an alternative enterprise fee (the
‘‘Broadcast Fee’’). For the receipt of
access to and the ability to display the
datafeeds of the NYSE Arca Trades
service by a television broadcaster, the
Exchange proposes to charge a flat fee
of $20,000 per month.8 Broadcasters
will not be required to track the number
of viewers.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 9 in general and with Section
6(b)(4) and 6(b)(5) of the Act 10 in
particular in that it provides an
equitable allocation of reasonable fees
among users and recipients of the data
and is not designed to permit unfair
discrimination among customers,
issuers, and brokers. The proposed
Broadcast Fee is reasonable, equitable,
and not unfairly discriminatory because
it will provide a convenient and easyto-administer way for a television
broadcaster to display real-time NYSE
Arca-only data on television, thereby
providing public investors and other
market participants who watch the
broadcaster’s channel with another
means to obtain current market data.
The Exchange believes that the
Broadcast Fee will be attractive to
television broadcasters because it will
enable them to provide market data to
their viewers that will complement the
broadcasters’ news reporting services
without the added administrative
burden and cost of keeping track of the
number of viewers of the datafeed. The
proposed distribution method differs,
however, from other distribution
5 See Securities Exchange Act Release No. 62188
(May 27, 2010); 75 FR 31484 (June 3, 2010) (SR–
NYSEArca–2010–23).
6 Id. at 31485–31486.
7 Television broadcast can be through cable,
satellite, or traditional means.
8 Although the Broadcast Fee will not vary based
on the amount of time that the datafeed is displayed
during the day or the number of channels the
broadcaster utilizes, it will be prorated if a
television broadcaster initiates the service during
the middle of a month.
9 15 U.S.C. 78f(b).
10 15 U.S.C. 78f(b)(4) and (5).
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methods in that the data will be
available in temporary, view-only mode
on television screens.11 Other available
distribution methods for NYSE Arca
Trades and alternative data products
may allow the end-user to download
and analyze last sale data in order to
make trading decisions. For these
reasons, the Exchange believes that
establishing a different pricing scheme
for television broadcasters is justified.
The Exchange also believes that its
pricing is reasonable in light of other
similar products. By way of comparison,
for example, the television ticker
display fee for CTA Network A market
data (i.e., consolidated last sale data for
securities listed on the New York Stock
Exchange) is based on the number of
viewers of the ticker, and is capped at
$125,000 month, and the television
ticker display fee for NASDAQ
securities, similarly based on the
number of households reached by the
broadcaster, is capped at $50,000. Both
of these products require the
broadcaster to track the number of
viewers of the ticker.12
The existence of alternatives to the
NYSE Arca Trades data product,
including real-time consolidated data,
free delayed consolidated data, and
proprietary last sale data from other
sources, ensures that the Exchange
cannot set unreasonable fees, or fees
that are unreasonably discriminatory,
when vendors and subscribers can elect
such alternatives. The recent decision of
the United States Court of Appeals for
the District of Columbia Circuit in
NetCoalition v. SEC, No. 09–1042 (DC
Cir. 2010), upheld the Commission’s
reliance upon the existence of
competitive market mechanisms to set
reasonable and equitably allocated fees
for proprietary 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.’
NetCoalition at 15 (quoting H.R. Rep.
No. 94–229 at 92 (1975), as reprinted in
1975 U.S.C.C.A.N. 321, 323). The court
agreed with the Commission’s
conclusion that ‘‘Congress intended that
‘competitive forces should dictate the
services and practices that constitute the
11 A television broadcaster could elect to combine
for broadcast the NYSE Arca Trades data with other
data available to it for broadcast.
12 The Network A Rate Schedule is available at
https://www.nyxdata.com/CTA. See also NASDAQ
Rule 7039, which sets forth fees for the distribution
of NASDAQ Last Sale Data Products via Television.
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Federal Register / Vol. 77, No. 139 / Thursday, July 19, 2012 / Notices
U.S. national market system for trading
equity securities.’ ’’ 13
As explained below in the Exchange’s
Statement on Burden on Competition,
the Exchange believes that there is
substantial evidence of competition in
the marketplace for data and that the
Commission can rely upon such
evidence in concluding that the fees
established in this filing are the product
of competition and therefore satisfy the
relevant statutory standards.14
As the NetCoalition decision noted,
the Commission is not required to
undertake a cost-of-service or
ratemaking approach, and the Exchange
incorporates by reference into this
proposed rule change its analysis of this
topic in another recent rule filing.15
For these reasons, the Exchange
believes that the proposed fee is
reasonable, equitable, and not unfairly
discriminatory.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. An
exchange’s ability to price its datafeed
products is constrained by (1)
competition among exchanges and other
trading platforms that compete with one
another in a variety of dimensions, (2)
the existence of inexpensive real-time
consolidated data and free delayed
consolidated data, and (3) the inherent
contestability of the market for
proprietary last sale data.
The market for proprietary last sale
data products is currently 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.
It is common for broker-dealers to
further exploit this competition by
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13 NetCoalition
at 16.
14 Section 916 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010
(‘‘Dodd-Frank Act’’) amended paragraph (A) of
Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3), to
make clear that all exchange fees for market data
may be filed by exchanges on an immediately
effective basis.
15 See Securities Exchange Act Release No. 63291
(Nov. 9, 2010), 75 FR 70311 (Nov. 17, 2010) (SR–
NYSEArca-2010–97).
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sending their order flow and transaction
reports to multiple markets, rather than
providing them all to a single market.
As a recent Commission Concept
Release noted, the ‘‘current market
structure can be described as dispersed
and complex’’ with ‘‘trading volume
* * * dispersed among many highly
automated trading centers that compete
for order flow in the same stocks’’ and
‘‘trading centers offer[ing] a wide range
of services that are designed to attract
different types of market participants
with varying trading needs.’’ 16
Competitive markets for order flow,
executions, and transaction reports
provide pricing discipline for the inputs
of proprietary data products and
therefore constrain markets from
overpricing proprietary market data.
The U.S. Department of Justice recently
acknowledged the aggressive
competition among exchanges. In
announcing the abandoned bid for
NYSE Euronext by NASDAQ OMX
Group Inc. and
IntercontinentalExchange Inc., Assistant
Attorney General Christine Varney
stated that exchanges ‘‘compete head to
head to offer real-time equity data
products. These data products include
the best bid and offer of every exchange
and information on each equity trade,
including the last sale.’’ 17
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 trade
executions, exchange data products
cannot exist.
Further, 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 Exchange notes in that respect that
16 Concept Release on Equity Market Structure,
Securities Exchange Act Release No. 61358 (Jan. 14,
2010), 75 FR 3594 (Jan. 22, 2010) (File No. S7–02–
10). This Concept Release included data from the
third quarter of 2009 showing that no market center
traded more than 20% of the volume of listed
stocks, further evidencing the dispersal of and
competition for trading activity. Id. at 3598.
17 Press Release, U.S. Department of Justice,
Assistant Attorney General Christine Varney Holds
Conference Call Regarding NASDAQ OMX Group
Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011),
available at https://www.justice.gov/iso/opa/atr/
speeches/2011/at-speech-110516.html.
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making the NYSE Arca Trades service
available on television at a more
economical and easier to administer fee
would encourage more television
broadcasters to choose to offer the
datafeed and thereby benefit public
investors and other market participants
who follow market developments
through that medium by providing them
with a convenient way to track price
trends while watching news programs
during the course of the trading day,
thereby complementing NYSE Arca
Trades offerings through other means.
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 broker-dealer customers
view the costs of transaction executions
and of data as a unified cost of doing
business with the exchange.
Similarly, in the case of products that
are distributed through market data
vendors, the vendors provide price
discipline for proprietary data products
because they control the primary means
of access to certain end users. Vendors
impose price restraints based upon their
business models. For example, vendors
such as Bloomberg and Thomson
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. Similarly, television
broadcasters will not elect to display
NYSE Arca Trades unless they believe
it will help them attract or maintain
viewers.
Other market participants have noted
that the liquidity provided by the order
book, trade execution, core market data,
and non-core market data are joint
products of a joint platform and have
common costs.18 The Exchange agrees
18 See Securities Exchange Act Release No. 62887
(Sept. 10, 2010), 75 FR 57092, 57095 (Sept. 17,
2010) (SR–Phlx–2010–121); Securities Exchange
Act Release No. 62907 (Sept. 14, 2010), 75 FR
57314, 57317 (Sept. 20, 2010) (SR–NASDAQ–2010–
110); and Securities Exchange Act Release No.
62908 (Sept. 14, 2010) (SR–NASDAQ–2010–111),
75 FR 57321, 57324 (Sept. 20, 2010) (‘‘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
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emcdonald on DSK67QTVN1PROD with NOTICES
with and adopts those discussions and
the arguments therein. The Exchange
also notes that the economics literature
confirms that there is no way to allocate
common costs between joint products
that would shed any light on
competitive or efficient pricing.19
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 an exchange’s costs to the
market data portion of an exchange’s
joint product. Rather, all of an
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 that 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
example, some platforms may choose to
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.’’); see also August 1, 2008 Comment
Letter of Jeffrey S. Davis, Vice President and Deputy
General Counsel, NASDAQ OMX Group, Inc.,
Statement of Janusz Ordover and Gustavo
Bamberger (‘‘because market data is both an input
to and a byproduct of executing trades on a
particular platform, market data and trade
execution services are an example of ‘joint
products’ with ‘joint costs.’ ’’), attachment at pg. 4,
available at www.sec.gov/comments/34-57917/
3457917-12.pdf.
19 See generally Mark Hirschey, Fundamentals of
Managerial Economics, at 600 (2009) (‘‘It is
important to note, however, that although it is
possible to determine the separate marginal costs of
goods produced in variable proportions, it is
impossible to determine their individual average
costs. This is because common costs are expenses
necessary for manufacture of a joint product.
Common costs of production—raw material and
equipment costs, management expenses, and other
overhead—cannot be allocated to each individual
by-product on any economically sound basis.* * *
Any allocation of common costs is wrong and
arbitrary.’’). This is not new economic theory. See,
e.g., F.W. Taussig, ‘‘A Contribution to the Theory
of Railway Rates,’’ Quarterly Journal of Economics
V(4) 438, 465 (July 1891) (‘‘Yet, surely, the division
is purely arbitrary. These items of cost, in fact, are
jointly incurred for both sorts of traffic; and I cannot
share the hope entertained by the statistician of the
Commission, Professor Henry C. Adams, that we
shall ever reach a mode of apportionment that will
lead to trustworthy results.’’).
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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 level of competition and
contestability in the market is evident in
the numerous alternative venues that
compete for order flow, including 12
equities 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.
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 but not limited to the
Exchange, NYSE, NYSE Amex,
NASDAQ OMX, BATS, and Direct Edge.
The fact that proprietary data from
ATSs, BDs, and vendors can bypass
SROs is significant in two respects.
First, non-SROs can compete directly
with SROs for the production and sale
of proprietary data products. Second,
because a single order or transaction
report can appear in an SRO proprietary
product, a non-SRO proprietary
product, or both, the amount of data
available via proprietary products is
greater in size than the actual number of
orders and transaction reports that exist
in the marketplace. Because market data
users can thus find suitable substitutes
for most proprietary market data
products (in this case both a CTA
product and a NASDAQ proprietary
product are direct alternatives), a market
that overprices its market data products
stands a high risk that users may
substitute another source of market
information for its own.
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Moreover, consolidated data provides
two additional measures of pricing
discipline for proprietary data products
that are a subset of the consolidated data
stream. First, the consolidated data is
widely available in real-time at $1 per
month for non-professional users.
Second, consolidated data is also
available at no cost with a 15- or 20minute delay. Because consolidated
data contains marketwide information,
it effectively places a cap on the fees
assessed for proprietary data (such as
last sale data) that is simply a subset of
the consolidated data. The mere
availability of low-cost or free
consolidated data provides a powerful
form of pricing discipline for
proprietary data products that contain
data elements that are a subset of the
consolidated data, by highlighting the
optional nature of proprietary products.
The Exchange notes that its Broadcast
Fee for NYSE Arca Trades is
substantially less than the fee for a
similar CTA product.
In addition to the competition and
price discipline described above, the
market for proprietary data products is
also highly contestable because market
entry is rapid, inexpensive, and
profitable. The history of electronic
trading is replete with examples of
entrants that swiftly grew into some of
the largest electronic trading platforms
and proprietary data producers:
Archipelago, Bloomberg Tradebook,
Island, RediBook, Attain, TrackECN,
BATS Trading and Direct Edge. Today,
BATS and Direct Edge provide data at
no charge on their Web sites in order to
attract more order flow, and use market
data revenue rebates from resulting
additional executions to maintain low
execution charges for their users.20
In establishing the Broadcast Fee for
the NYSE Arca Trades Service, the
Exchange considered the
competitiveness of the market for data
and all of the implications of that
competition. The Exchange believes that
it has considered all relevant factors and
has not considered irrelevant factors in
order to establish fair, reasonable, and
not unreasonably discriminatory fees
and an equitable allocation of fees
among all users. The existence of
numerous alternatives to the Exchange’s
product, including real-time
consolidated data, free delayed
consolidated data, and proprietary data
from other sources, ensures that the
20 This is simply a securities market-specific
example of the well-established principle that in
certain circumstances more sales at lower margins
can be more profitable than fewer sales at higher
margins; this example is additional evidence that
market data is an inherent part of a market’s joint
platform.
E:\FR\FM\19JYN1.SGM
19JYN1
Federal Register / Vol. 77, No. 139 / Thursday, July 19, 2012 / Notices
Exchange cannot set unreasonable fees,
or fees that are unreasonably
discriminatory, when vendors and
subscribers can elect these alternatives.
Accordingly, the Exchange believes that
the acceptance of datafeed products in
the marketplace demonstrates the
consistency of these fees with
applicable statutory standards.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 21 of the Act and
subparagraph (f)(2) of Rule 19b–4 22
thereunder, because it establishes a due,
fee, or other charge imposed by the
NYSE Arca.
At any time within 60 days of the
filing of such 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.
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 email to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2012–73 on the
subject line.
emcdonald on DSK67QTVN1PROD with NOTICES
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–NYSEArca–2012–73. This
file number should be included on the
subject line if email is used. To help the
21 15
22 17
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for 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
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
offices of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2012–73, and should be
submitted on or before August 9, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–17550 Filed 7–18–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67435; File No. SR–
NYSEArca–2012–45]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change Amending Its
Rules To Reflect the Merger of
Archipelago Holdings, Inc.
(‘‘Archipelago Holdings’’), An
Intermediate Holding Company, Into
and With NYSE Group, Inc., Thereby
Eliminating Archipelago Holdings
From the Ownership Structure of the
Exchange
July 13, 2012.
I. Introduction
On May 14, 2012, NYSE Arca, Inc.
(‘‘NYSE Arca’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
VerDate Mar<15>2010
15:07 Jul 18, 2012
23 17
Jkt 226001
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CFR 200.30–3(a)(12).
Frm 00052
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42533
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 proposed rule
changes to reflect the merger of
Archipelago Holdings, Inc.
(‘‘Archipelago Holdings’’), an
intermediate holding company, into and
with NYSE Group, Inc. (‘‘NYSE
Group’’), thereby eliminating
Archipelago Holdings from the
ownership structure of the Exchange
(the ‘‘Merger’’). The proposed rule
changes were published for comment in
the Federal Register on May 31, 2012.3
The Commission received no comment
letters on the proposal. The Commission
has reviewed carefully the proposed
rule changes and finds that the
proposed rule changes are consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.4 This order approves the
proposed rule changes.
II. Description
NYSE Euronext intends to merge
Archipelago Holdings with and into
NYSE Group, effective following
approval of the proposed rule change.5
According to the Exchange, the reason
for the Merger is to eliminate an
unnecessary intermediate holding
company.6 Following the Merger, the
Exchange would continue to be whollyowned by NYSE Arca Holdings, which
in turn would be wholly-owned by
NYSE Group, which in turn would be
wholly-owned by NYSE Euronext.
The Exchange has submitted its
proposal to (i) Amend and restate the
Amended and Restated Certificate of
Incorporation of NYSE Arca Holdings,
Inc. (the ‘‘NYSE Arca Holdings
Certificate’’), (ii) amend and restate the
NYSE Arca Holdings, Inc. Bylaws
(‘‘NYSE Arca Holdings Bylaws’’) as
required by the NYSE Arca Holdings
Certificate, (iii) amend the rules of
NYSE Arca and NYSE Arca Equities,
Inc., (iv) delete in its entirety the
Amended and Restated Certificate of
Archipelago Holdings (‘‘Archipelago
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 67058
(May 31, 2012), 77 FR 32155 (‘‘Notice’’).
4 In approving the proposed rule changes, the
Commission has considered their impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
5 Currently, NYSE Arca Holdings, Inc. (‘‘NYSE
Arca Holdings’’) owns all of the equity interest of
the Exchange. Archipelago Holdings owns all of the
equity interest of NYSE Arca Holdings, and NYSE
Group owns all of the equity interest of Archipelago
Holdings. NYSE Euronext owns all of the equity
interest of NYSE Group.
6 See Notice, 77 FR at 32156.
2 17
E:\FR\FM\19JYN1.SGM
19JYN1
]]>Agencies
[Federal Register Volume 77, Number 139 (Thursday, July 19, 2012)]
[Notices]
[Pages 42529-42533]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-17550]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67436; File No. SR-NYSEArca-2012-73]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Establishing a Fee
for Television Distribution of the NYSE Arca Trades Data Product
July 13, 2012.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on July 3, 2012, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
[[Page 42530]]
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 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 establish a fee for television
distribution of the NYSE Arca Trades data product. The text of the
proposed rule change is available on the Exchange's Web site at
www.nyse.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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to establish a fee for television
distribution of the NYSE Arca Trades data product.
In 2009, the Commission approved the NYSE Arca Trades data product
and its fees.\4\ NYSE Arca Trades is a NYSE Arca-only market data
service that allows a vendor to redistribute on a real-time basis the
same last sale information that the Exchange reports under the
Consolidated Tape Association (``CTA'') Plan and the NASDAQ Unlisted
Trading Privileges Plan (``NASDAQ UTP Plan'') for including in those
plans' consolidated data streams and certain other related data
elements (``NYSE Arca Last Sale Information'').
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 59598 (Mar. 18,
2009); 74 FR 12919 (Mar. 25, 2009) (SR-NYSEArca-2009-05).
---------------------------------------------------------------------------
In 2010, the Commission approved changes to the fees for NYSE Arca
Trades that modified the professional subscriber fee to consolidate the
per-display device fee for NYSE Arca Last Sale Information relating to
Network A and Network B Eligible Securities and securities listed on
NASDAQ and provide an alternative to the per-device fee based on the
number of ``Subscriber Entitlements,'' rather the basis of the number
of devices.\5\ The Exchange charges the datafeed recipients (a) an
access fee of $750 per month (the ``Access Fee''), and (b) at the
election of the vendor, either (i) a device fee for professional
subscribers of $10.00 per month or (ii) a fee based on the number of
``Subscriber Entitlements '' (the latter two fees together, ``User
Fees'').\6\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 62188 (May 27,
2010); 75 FR 31484 (June 3, 2010) (SR-NYSEArca-2010-23).
\6\ Id. at 31485-31486.
---------------------------------------------------------------------------
The Exchange proposes to add a new fee category for NYSE Arca
Trades to provide television broadcasters \7\ with an alternative
enterprise fee (the ``Broadcast Fee''). For the receipt of access to
and the ability to display the datafeeds of the NYSE Arca Trades
service by a television broadcaster, the Exchange proposes to charge a
flat fee of $20,000 per month.\8\ Broadcasters will not be required to
track the number of viewers.
---------------------------------------------------------------------------
\7\ Television broadcast can be through cable, satellite, or
traditional means.
\8\ Although the Broadcast Fee will not vary based on the amount
of time that the datafeed is displayed during the day or the number
of channels the broadcaster utilizes, it will be prorated if a
television broadcaster initiates the service during the middle of a
month.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Securities Exchange Act of 1934
(the ``Act'') \9\ in general and with Section 6(b)(4) and 6(b)(5) of
the Act \10\ in particular in that it provides an equitable allocation
of reasonable fees among users and recipients of the data and is not
designed to permit unfair discrimination among customers, issuers, and
brokers. The proposed Broadcast Fee is reasonable, equitable, and not
unfairly discriminatory because it will provide a convenient and easy-
to-administer way for a television broadcaster to display real-time
NYSE Arca-only data on television, thereby providing public investors
and other market participants who watch the broadcaster's channel with
another means to obtain current market data. The Exchange believes that
the Broadcast Fee will be attractive to television broadcasters because
it will enable them to provide market data to their viewers that will
complement the broadcasters' news reporting services without the added
administrative burden and cost of keeping track of the number of
viewers of the datafeed. The proposed distribution method differs,
however, from other distribution methods in that the data will be
available in temporary, view-only mode on television screens.\11\ Other
available distribution methods for NYSE Arca Trades and alternative
data products may allow the end-user to download and analyze last sale
data in order to make trading decisions. For these reasons, the
Exchange believes that establishing a different pricing scheme for
television broadcasters is justified. The Exchange also believes that
its pricing is reasonable in light of other similar products. By way of
comparison, for example, the television ticker display fee for CTA
Network A market data (i.e., consolidated last sale data for securities
listed on the New York Stock Exchange) is based on the number of
viewers of the ticker, and is capped at $125,000 month, and the
television ticker display fee for NASDAQ securities, similarly based on
the number of households reached by the broadcaster, is capped at
$50,000. Both of these products require the broadcaster to track the
number of viewers of the ticker.\12\
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4) and (5).
\11\ A television broadcaster could elect to combine for
broadcast the NYSE Arca Trades data with other data available to it
for broadcast.
\12\ The Network A Rate Schedule is available at https://www.nyxdata.com/CTA. See also NASDAQ Rule 7039, which sets forth
fees for the distribution of NASDAQ Last Sale Data Products via
Television.
---------------------------------------------------------------------------
The existence of alternatives to the NYSE Arca Trades data product,
including real-time consolidated data, free delayed consolidated data,
and proprietary last sale data from other sources, ensures that the
Exchange cannot set unreasonable fees, or fees that are unreasonably
discriminatory, when vendors and subscribers can elect such
alternatives. The recent decision of the United States Court of Appeals
for the District of Columbia Circuit in NetCoalition v. SEC, No. 09-
1042 (DC Cir. 2010), upheld the Commission's reliance upon the
existence of competitive market mechanisms to set reasonable and
equitably allocated fees for proprietary 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.'
NetCoalition at 15 (quoting H.R. Rep. No. 94-229 at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 321, 323). The court agreed with the
Commission's conclusion that ``Congress intended that `competitive
forces should dictate the services and practices that constitute the
[[Page 42531]]
U.S. national market system for trading equity securities.' '' \13\
---------------------------------------------------------------------------
\13\ NetCoalition at 16.
---------------------------------------------------------------------------
As explained below in the Exchange's Statement on Burden on
Competition, the Exchange believes that there is substantial evidence
of competition in the marketplace for data and that the Commission can
rely upon such evidence in concluding that the fees established in this
filing are the product of competition and therefore satisfy the
relevant statutory standards.\14\
---------------------------------------------------------------------------
\14\ Section 916 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (``Dodd-Frank Act'') amended
paragraph (A) of Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3),
to make clear that all exchange fees for market data may be filed by
exchanges on an immediately effective basis.
---------------------------------------------------------------------------
As the NetCoalition decision noted, the Commission is not required
to undertake a cost-of-service or ratemaking approach, and the Exchange
incorporates by reference into this proposed rule change its analysis
of this topic in another recent rule filing.\15\
---------------------------------------------------------------------------
\15\ See Securities Exchange Act Release No. 63291 (Nov. 9,
2010), 75 FR 70311 (Nov. 17, 2010) (SR-NYSEArca-2010-97).
---------------------------------------------------------------------------
For these reasons, the Exchange believes that the proposed fee is
reasonable, equitable, and not unfairly discriminatory.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. An exchange's ability to
price its datafeed products is constrained by (1) competition among
exchanges and other trading platforms that compete with one another in
a variety of dimensions, (2) the existence of inexpensive real-time
consolidated data and free delayed consolidated data, and (3) the
inherent contestability of the market for proprietary last sale data.
The market for proprietary last sale data products is currently
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.
It is common for broker-dealers to further exploit this competition
by sending their order flow and transaction reports to multiple
markets, rather than providing them all to a single market. As a recent
Commission Concept Release noted, the ``current market structure can be
described as dispersed and complex'' with ``trading volume * * *
dispersed among many highly automated trading centers that compete for
order flow in the same stocks'' and ``trading centers offer[ing] a wide
range of services that are designed to attract different types of
market participants with varying trading needs.'' \16\
---------------------------------------------------------------------------
\16\ Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 22,
2010) (File No. S7-02-10). This Concept Release included data from
the third quarter of 2009 showing that no market center traded more
than 20% of the volume of listed stocks, further evidencing the
dispersal of and competition for trading activity. Id. at 3598.
---------------------------------------------------------------------------
Competitive markets for order flow, executions, and transaction
reports provide pricing discipline for the inputs of proprietary data
products and therefore constrain markets from overpricing proprietary
market data. The U.S. Department of Justice recently acknowledged the
aggressive competition among exchanges. In announcing the abandoned bid
for NYSE Euronext by NASDAQ OMX Group Inc. and IntercontinentalExchange
Inc., Assistant Attorney General Christine Varney stated that exchanges
``compete head to head to offer real-time equity data products. These
data products include the best bid and offer of every exchange and
information on each equity trade, including the last sale.'' \17\
---------------------------------------------------------------------------
\17\ Press Release, U.S. Department of Justice, Assistant
Attorney General Christine Varney Holds Conference Call Regarding
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011), available at https://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html.
---------------------------------------------------------------------------
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 trade executions, exchange data products cannot
exist.
Further, 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 Exchange notes in that
respect that making the NYSE Arca Trades service available on
television at a more economical and easier to administer fee would
encourage more television broadcasters to choose to offer the datafeed
and thereby benefit public investors and other market participants who
follow market developments through that medium by providing them with a
convenient way to track price trends while watching news programs
during the course of the trading day, thereby complementing NYSE Arca
Trades offerings through other means.
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 broker-
dealer customers view the costs of transaction executions and of data
as a unified cost of doing business with the exchange.
Similarly, in the case of products that are distributed through
market data vendors, the vendors provide price discipline for
proprietary data products because they control the primary means of
access to certain end users. Vendors impose price restraints based upon
their business models. For example, vendors such as Bloomberg and
Thomson 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. Similarly,
television broadcasters will not elect to display NYSE Arca Trades
unless they believe it will help them attract or maintain viewers.
Other market participants have noted that the liquidity provided by
the order book, trade execution, core market data, and non-core market
data are joint products of a joint platform and have common costs.\18\
The Exchange agrees
[[Page 42532]]
with and adopts those discussions and the arguments therein. The
Exchange also notes that the economics literature confirms that there
is no way to allocate common costs between joint products that would
shed any light on competitive or efficient pricing.\19\
---------------------------------------------------------------------------
\18\ See Securities Exchange Act Release No. 62887 (Sept. 10,
2010), 75 FR 57092, 57095 (Sept. 17, 2010) (SR-Phlx-2010-121);
Securities Exchange Act Release No. 62907 (Sept. 14, 2010), 75 FR
57314, 57317 (Sept. 20, 2010) (SR-NASDAQ-2010-110); and Securities
Exchange Act Release No. 62908 (Sept. 14, 2010) (SR-NASDAQ-2010-
111), 75 FR 57321, 57324 (Sept. 20, 2010) (``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.''); see also August 1, 2008
Comment Letter of Jeffrey S. Davis, Vice President and Deputy
General Counsel, NASDAQ OMX Group, Inc., Statement of Janusz Ordover
and Gustavo Bamberger (``because market data is both an input to and
a byproduct of executing trades on a particular platform, market
data and trade execution services are an example of `joint products'
with `joint costs.' ''), attachment at pg. 4, available at
www.sec.gov/comments/34-57917/3457917-12.pdf.
\19\ See generally Mark Hirschey, Fundamentals of Managerial
Economics, at 600 (2009) (``It is important to note, however, that
although it is possible to determine the separate marginal costs of
goods produced in variable proportions, it is impossible to
determine their individual average costs. This is because common
costs are expenses necessary for manufacture of a joint product.
Common costs of production--raw material and equipment costs,
management expenses, and other overhead--cannot be allocated to each
individual by-product on any economically sound basis.* * * Any
allocation of common costs is wrong and arbitrary.''). This is not
new economic theory. See, e.g., F.W. Taussig, ``A Contribution to
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4)
438, 465 (July 1891) (``Yet, surely, the division is purely
arbitrary. These items of cost, in fact, are jointly incurred for
both sorts of traffic; and I cannot share the hope entertained by
the statistician of the Commission, Professor Henry C. Adams, that
we shall ever reach a mode of apportionment that will lead to
trustworthy results.'').
---------------------------------------------------------------------------
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 an exchange's costs to the market data
portion of an exchange's joint product. Rather, all of an 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 that 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 example, some platforms 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 level of competition and contestability in the market is
evident in the numerous alternative venues that compete for order flow,
including 12 equities 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.
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 but not limited to the Exchange, NYSE, NYSE Amex, NASDAQ OMX,
BATS, and Direct Edge.
The fact that proprietary data from ATSs, BDs, and vendors can
bypass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and sale of proprietary data
products. Second, because a single order or transaction report can
appear in an SRO proprietary product, a non-SRO proprietary product, or
both, the amount of data available via proprietary products is greater
in size than the actual number of orders and transaction reports that
exist in the marketplace. Because market data users can thus find
suitable substitutes for most proprietary market data products (in this
case both a CTA product and a NASDAQ proprietary product are direct
alternatives), a market that overprices its market data products stands
a high risk that users may substitute another source of market
information for its own.
Moreover, consolidated data provides two additional measures of
pricing discipline for proprietary data products that are a subset of
the consolidated data stream. First, the consolidated data is widely
available in real-time at $1 per month for non-professional users.
Second, consolidated data is also available at no cost with a 15- or
20- minute delay. Because consolidated data contains marketwide
information, it effectively places a cap on the fees assessed for
proprietary data (such as last sale data) that is simply a subset of
the consolidated data. The mere availability of low-cost or free
consolidated data provides a powerful form of pricing discipline for
proprietary data products that contain data elements that are a subset
of the consolidated data, by highlighting the optional nature of
proprietary products. The Exchange notes that its Broadcast Fee for
NYSE Arca Trades is substantially less than the fee for a similar CTA
product.
In addition to the competition and price discipline described
above, the market for proprietary data products is also highly
contestable because market entry is rapid, inexpensive, and profitable.
The history of electronic trading is replete with examples of entrants
that swiftly grew into some of the largest electronic trading platforms
and proprietary data producers: Archipelago, Bloomberg Tradebook,
Island, RediBook, Attain, TrackECN, BATS Trading and Direct Edge.
Today, BATS and Direct Edge provide data at no charge on their Web
sites in order to attract more order flow, and use market data revenue
rebates from resulting additional executions to maintain low execution
charges for their users.\20\
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\20\ This is simply a securities market-specific example of the
well-established principle that in certain circumstances more sales
at lower margins can be more profitable than fewer sales at higher
margins; this example is additional evidence that market data is an
inherent part of a market's joint platform.
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In establishing the Broadcast Fee for the NYSE Arca Trades Service,
the Exchange considered the competitiveness of the market for data and
all of the implications of that competition. The Exchange believes that
it has considered all relevant factors and has not considered
irrelevant factors in order to establish fair, reasonable, and not
unreasonably discriminatory fees and an equitable allocation of fees
among all users. The existence of numerous alternatives to the
Exchange's product, including real-time consolidated data, free delayed
consolidated data, and proprietary data from other sources, ensures
that the
[[Page 42533]]
Exchange cannot set unreasonable fees, or fees that are unreasonably
discriminatory, when vendors and subscribers can elect these
alternatives. Accordingly, the Exchange believes that the acceptance of
datafeed products in the marketplace demonstrates the consistency of
these fees with applicable statutory standards.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \21\ of the Act and subparagraph (f)(2) of Rule
19b-4 \22\ thereunder, because it establishes a due, fee, or other
charge imposed by the NYSE Arca.
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such 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.
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 email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2012-73 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-NYSEArca-2012-73.
This file number should be included on the subject line if email is
used. To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for 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 10:00 a.m. and 3:00 p.m. Copies of such filing also will be
available for inspection and copying at the principal offices of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NYSEArca-2012-73, and should be submitted on or before August 9, 2012.
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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-17550 Filed 7-18-12; 8:45 am]
BILLING CODE 8011-01-P
