Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish Managed Data Solution for PHLX Top of Options, 43629-43633 [2012-18163]
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Federal Register / Vol. 77, No. 143 / Wednesday, July 25, 2012 / Notices
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
filings also will be available for
inspection and copying at the principal
office of the Exchanges. 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–2012–28 and should be
submitted on or before August 24, 2012.
Rebuttal comments should be submitted
by September 10, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.144
Kevin M. O’Neill,
Deputy Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67466; File No. SR–Phlx–
2012–93]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Establish
Managed Data Solution for PHLX Top
of Options
srobinson on DSK4SPTVN1PROD with NOTICES
July 19, 2012.
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 6,
2012, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I and II 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.
CFR 200.30–3(a)(57).
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
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 III 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
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2012–18107 Filed 7–24–12; 8:45 am]
144 17
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Phlx proposes to establish a program
for Managed Data Solutions for PHLX
Top of Options data offered by
Distributors externally distributing data
to clients and/or client organizations
that are using the TOPO information
internally. The text of the proposed rule
change is available at https://
nasdaqomxphlx.cchwallstreet.com, at
Phlx’s principal office, and at the
Commission’s Public Reference Room.
1. Purpose
PHLX is proposing to create a new
data distribution model (a Managed
Data Solution) to further the distribution
of the Top of PHLX Options datafeed
(‘‘TOPO’’). The Managed Data Solution
offers a new delivery method to firms
seeking simplified market data
administration. The Managed Data
Solution may be offered by Distributors
externally distributing data to clients
and/or client organizations that are
using the TOPO information internally.
This new pricing and administrative
option is in response to industry
demand, as well as due to changes in
the technology used to distribute market
data. Distributors offering Managed Data
Solutions continue to be fee liable for
the applicable distributor fees for the
receipt and distribution of TOPO data.
A Managed Data Solution is a delivery
option that will assess a new, innovative
fee schedule to Distributors of TOPO
that provide datafeed solutions such as
an Application Programming Interface
(API) or similar automated delivery
solutions to recipients with only limited
entitlement controls (e.g., usernames
and/or passwords) (‘‘Managed Data
Recipients’’). However, the Distributor
must first agree to reformat, redisplay
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and/or alter the TOPO data prior to
retransmission, but not to affect the
integrity of TOPO data and not to render
it inaccurate, unfair, uninformative,
fictitious, misleading, or discriminatory.
A Managed Data Solution is any
retransmission data product containing
PHLX TOPO offered by a Distributor
where the Distributor manages and
monitors, but does not control, the
information. However, the Distributor
does maintain contracts with the
Managed Data Recipients and is liable
for any unauthorized use by the
Managed Data Recipients under a
Managed Data Solution. The Recipient
of a Managed Data Solution may use the
information for internal purposes only
and may not distribute the information
outside of their organization.
Currently, the Exchange does not
distinguish between Managed Data
Recipients and a recipient of an
uncontrolled data product. Some
Distributors believe that the Managed
Data Solution is a viable alternative to
an uncontrolled data product. Some
Distributors have even held-off on
deploying new PHLX TOPO offerings,
pending the initiation of Managed Data
Solutions. Thus, offering a Managed
Data Solution fee schedule would not
only result in PHLX offering lower fees
for existing Managed Data Recipients
utilizing a Managed Data Solution, but
will allow new Distributors to deliver
Managed Data Solutions to new clients,
thereby increasing transparency of the
market. PHLX proposes to establish two
fees for Distributors that adopt the
Managed Data Solution to Distributors,
a monthly Managed Data Solution
Administration fee of $1,500 and a
monthly Subscriber fee of $250. The
proposed monthly License fee would be
in addition to the monthly Distributor
fee of $2,500 (for external usage)
currently set forth in Section IX of the
PHLX Fee Schedule, and the $250
monthly Subscriber fee would be
assessed for each Subscriber of a
Managed Data Solution.
2. Statutory Basis
PHLX believes that the proposed rule
change is consistent with the provisions
of Section 6 of the Act,3 in general, and
with Section 6(b)(4) of the Act,4 in
particular, in that it provides an
equitable allocation of reasonable fees
among Subscribers and Recipients of
PHLX data. In adopting Regulation
NMS, the Commission granted selfregulatory organizations and brokerdealers increased authority and
flexibility to offer new and unique
3 15
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market data to the public. It was
believed that this authority would
expand the amount of data available to
consumers, and also spur innovation
and competition for the provision of
market data.
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:
srobinson on DSK4SPTVN1PROD with NOTICES
[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.5
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,
5 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
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or otherwise in furtherance of the
purposes of this title. If the Commission
takes such action, the Commission shall
institute proceedings under paragraph
(2)(B) [of Section 19(b)] to determine
whether the proposed rule should be
approved or disapproved.’’
PHLX 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. PHLX
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 non-members, 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.
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SEC, No. 09–1042 (D.C. 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.’ 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). 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.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
PHLX 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 NetCoalition 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. PHLX believes that a
record may readily be established to
demonstrate the competitive nature of
the market in question.
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
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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 Subscribers only insofar as
they provide information that end
Subscribers 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 the broker-dealer’s orders
will not be reflected in it. Second, and
perhaps more important, the product
will be less valuable to that brokerdealer because it does not provide
information about the venue to which it
is directing its orders. Data from the
competing venue to which the brokerdealer 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’.’’ NetCoalition at 24. However,
the existence of fierce competition for
order flow implies a high degree of price
sensitivity on the part of broker-dealers
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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
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. This would be akin to strictly
regulating the price that an automobile
manufacturer can charge for car sound
systems despite the existence of a highly
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competitive market for cars and the
availability of after-market alternatives
to the manufacturer-supplied system.
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 nine existing SRO
markets (plus two more expected this
year) [sic], as well as various forms of
alternative trading systems (‘‘ATSs’’).
Each SRO market competes to produce
transaction reports via trade executions.
Competitive markets for order flow,
executions, and transaction reports
provide pricing discipline for the inputs
of proprietary data products.
The large number of SROs, 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, ATS, and BD is currently
permitted to produce proprietary data
products, and many currently do or
have announced plans to do so,
including NASDAQ, CBOE, ISE, NYSE
Amex, and NYSEArca.
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.
Market data vendors provide another
form of price discipline for proprietary
data products because they control the
primary means of access to end
Subscribers. 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 Subscribers 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
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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. PHLX 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.
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, BATS Trading and Direct
Edge.
Regulation NMS, by deregulating the
market for proprietary data, has
increased the contestability of that
market. While broker-dealers have
previously published their proprietary
data individually, Regulation NMS
encourages market data vendors and
broker-dealers to produce proprietary
products cooperatively in a manner
never before possible. Multiple market
data vendors already have the capability
to aggregate data and disseminate it on
a profitable scale, including Bloomberg,
and Thomson Reuters.
The court in NetCoalition concluded
that the Commission had failed to
demonstrate that the market for market
data was competitive based on the
reasoning of the Commission’s
NetCoalition order because, in the
court’s view, the Commission had not
adequately demonstrated that the
proprietary data at issue in the case is
used to attract order flow. PHLX
believes, however, that evidence not
then before the court clearly
demonstrated that availability of data
attracts order flow.
Competition among platforms has
driven PHLX continually to improve its
platform data offerings and to cater to
customers’ data needs. For example,
PHLX has developed and maintained
multiple delivery mechanisms (IP,
multi-cast, and compression) that enable
customers to receive data in the form
and manner they prefer and at the
lowest cost to them. PHLX has created
new products like Depth Data, TOPO
and TOPO Plus Orders, because offering
data in multiple formatting allows
PHLX to better fit customer needs.
PHLX offers data via multiple extranet
providers, thereby helping to reduce
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network and total cost for its data
products. PHLX has developed an
online administrative system to provide
customers transparency into their
datafeed requests and streamline data
usage reporting.
Despite these enhancements and a
dramatic increase in message traffic,
PHLX’s fees for market data have
remained flat. In fact, as a percent of
total Subscriber costs, PHLX data fees
have fallen relative to other data usage
costs—including bandwidth,
programming, and infrastructure—that
have risen. The same holds true for
execution services; despite numerous
enhancements to PHLX’s trading
platform, absolute and relative trading
costs have declined. Platform
competition has intensified as new
entrants have emerged, constraining
prices for both executions and for data.
The vigor of competition for
proprietary information is significant
and the Exchange believes that this
proposal itself clearly evidences such
competition. PHLX is offering a new
pricing model in order to keep pace
with changes in the industry and
evolving customer needs. It is entirely
optional and is geared towards
attracting new customers, as well as
retaining existing customers.
The Exchange has witnessed
competitors creating new products and
innovative pricing in this space over the
course of the past year. PHLX continues
to see firms challenge its pricing on the
basis of the Exchange’s explicit fees
being higher than the zero-priced fees
from other competitors such as BATS.
In all cases, firms make decisions on
how much and what types of data to
consume on the basis of the total cost of
interacting with PHLX or other
exchanges. Of course, the explicit data
fees are but one factor in a total platform
analysis. Some competitors have lower
transactions fees and higher data fees,
and others are vice versa. The market for
this proprietary information is highly
competitive and continually evolves as
products develop and change.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments were neither
solicited nor received.
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.6 At any time
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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 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 email to rulecomments@sec.gov. Please include File
Number SR–Phlx–2012–93 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–Phlx–2012–93. 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
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of the
Exchange. All comments received will
be posted without change; the
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Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
publicly available. All submissions
should refer to File Number SR–Phlx–
2012–93 and should be submitted on or
before August 15, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority. 7
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–18163 Filed 7–24–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67469; File No. SR–Phlx–
2012–92]
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Exchange Rules 1014, 1051, and OFPA
F–2
July 19, 2012.
srobinson on DSK4SPTVN1PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 2 thereunder,
notice is hereby given that on July 6,
2012, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘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 is filing with the
Commission a proposal to amend
Exchange Rules 1014, Obligations and
Restrictions Applicable to Specialists
and Registered Options Traders, and
1051, General Comparison and
Clearance Rule, and Options Floor
Procedure Advice (‘‘OFPA’’) F–2,
Allocation, Time Stamping, Matching
and Access to Matched Trades, to delete
obsolete and unnecessary provisions in
the Rules and OFPA concerning ticket
matching and trade reporting
requirements for options trades
executed in open outcry.
The text of the proposed rule change
is available on the Exchange’s Web site
7 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Mar<15>2010
17:49 Jul 24, 2012
Jkt 226001
at https://nasdaqomxphlx.
cchwallstreet.com/
NASDAQOMXPHLX/Filings/, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
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 modify unnecessary or
obsolete provisions currently contained
in Exchange Rules 1014(g)(vi), 1051,
and OFPA F–2 that set forth ticket
matching and trade reporting
requirements for members executing
transactions on the Exchange. The
proposed rule change is intended to
adopt rules that reflect the current
process for matching and reporting
options trades executed in open outcry
on the floor of the Exchange.
The matching and trade reporting
requirements in the current rules apply
to trades that are executed in open
outcry, which may require the
participants to submit written paper
trade tickets for reporting. Portions of
the Rules and OFPA apply to
electronically executed trades, which
are matched and reported to the
consolidated tape automatically by the
Exchange’s automated options trading
system, PHLX XL® 3. The vast majority
3 PHLX XL, formerly known as ‘‘AUTOM,’’ is the
Exchange’s electronic order delivery and reporting
system, which provides for the automatic entry and
routing of Exchange-listed equity options, index
options and U.S. dollar-settled foreign currency
options orders to the Exchange trading floor. See
Exchange Rule 1080(a). This proposal refers to
‘‘PHLX XL’’ as the Exchange’s automated options
trading and reporting system. In May 2009 the
Exchange enhanced the system and adopted
corresponding rules referring to the system as ‘‘Phlx
XL II.’’ See Securities Exchange Act Release No.
59995 (May 28, 2009), 74 FR 26750 (June 3, 2009)
(SR–Phlx–2009–32). The Exchange intends to
submit a separate technical proposed rule change
that would change all references to the system from
PO 00000
Frm 00063
Fmt 4703
Sfmt 4703
43633
of options trades that are executed on
the Exchange are reported to the
consolidated tape and to the
participants in the trade automatically.
In certain instances, however, trades are
executed in open outcry in the trading
crowd without the use of electronic
connectivity to PHLX XL (such as a
verbal trade between market makers).
The Exchange proposes to modify the
Rules and OFPA to reflect the current
procedures for reporting such trades.
Current Rules
Rule 1051(b) currently requires that
all Exchange options transactions be
reported at the time of execution to the
Exchange for comparison of trade
information at the specialist’s post.
Currently, not ‘‘all’’ options trades are
executed in open outcry. In fact, the
majority of option trades executed on
the Exchange are executed
electronically via PHLX XL. Upon the
electronic execution of an options trade,
PHLX XL sends an immediate report of
the trade to the Options Price Reporting
Authority (‘‘OPRA’’), the Options
Clearing Corporation (‘‘OCC’’), and to
the participants in the trade. Therefore,
trades executed electronically via PHLX
XL require no trade reporting action by
participants.
Some trades still occur verbally in the
trading crowd, such as when market
makers trade with one another, or in
very rare instances where there is a
malfunction of the Exchange’s system or
the Options Floor Broker Management
System (‘‘FBMS,’’ described below). In
such instances, participants in the
verbal trade are required to produce
written trade tickets. Current Rule
1014(g)(vi) and OFPA F–2 require
participants to allocate, match and time
stamp executed trades as well as to
submit the matched trade to the
appropriate person at the respective
specialist post. Once a trade has been
matched and submitted for reporting at
the post, current OFPA F–2(d) states
that the respective Specialist Unit must
preserve the matched tickets for a
period of not less than three years.
Current Rule 1051(a) and OFPA F–
2(b) require a member or member
organization initiating an options
transaction, whether acting as principal
or agent, to report or ensure that the
transaction is reported within 90
seconds of the execution to the tape,
except that, when an order represented
by a Floor Broker is executed against a
limit order on the book, the Specialist
must report or ensure that the portion of
‘‘AUTOM’’ and ‘‘Phlx XL II’’ to ‘‘PHLX XL’’ for
branding purposes.
E:\FR\FM\25JYN1.SGM
25JYN1
]]>Agencies
[Federal Register Volume 77, Number 143 (Wednesday, July 25, 2012)]
[Notices]
[Pages 43629-43633]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-18163]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67466; File No. SR-Phlx-2012-93]
Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Establish
Managed Data Solution for PHLX Top of Options
July 19, 2012.
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 6, 2012, NASDAQ OMX PHLX LLC (``Phlx'' or the ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change as described in Items I and II 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
Phlx proposes to establish a program for Managed Data Solutions for
PHLX Top of Options data offered by Distributors externally
distributing data to clients and/or client organizations that are using
the TOPO information internally. The text of the proposed rule change
is available at https://nasdaqomxphlx.cchwallstreet.com, at Phlx's
principal office, 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 III 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
PHLX is proposing to create a new data distribution model (a
Managed Data Solution) to further the distribution of the Top of PHLX
Options datafeed (``TOPO''). The Managed Data Solution offers a new
delivery method to firms seeking simplified market data administration.
The Managed Data Solution may be offered by Distributors externally
distributing data to clients and/or client organizations that are using
the TOPO information internally. This new pricing and administrative
option is in response to industry demand, as well as due to changes in
the technology used to distribute market data. Distributors offering
Managed Data Solutions continue to be fee liable for the applicable
distributor fees for the receipt and distribution of TOPO data.
A Managed Data Solution is a delivery option that will assess a
new, innovative fee schedule to Distributors of TOPO that provide
datafeed solutions such as an Application Programming Interface (API)
or similar automated delivery solutions to recipients with only limited
entitlement controls (e.g., usernames and/or passwords) (``Managed Data
Recipients''). However, the Distributor must first agree to reformat,
redisplay and/or alter the TOPO data prior to retransmission, but not
to affect the integrity of TOPO data and not to render it inaccurate,
unfair, uninformative, fictitious, misleading, or discriminatory. A
Managed Data Solution is any retransmission data product containing
PHLX TOPO offered by a Distributor where the Distributor manages and
monitors, but does not control, the information. However, the
Distributor does maintain contracts with the Managed Data Recipients
and is liable for any unauthorized use by the Managed Data Recipients
under a Managed Data Solution. The Recipient of a Managed Data Solution
may use the information for internal purposes only and may not
distribute the information outside of their organization.
Currently, the Exchange does not distinguish between Managed Data
Recipients and a recipient of an uncontrolled data product. Some
Distributors believe that the Managed Data Solution is a viable
alternative to an uncontrolled data product. Some Distributors have
even held-off on deploying new PHLX TOPO offerings, pending the
initiation of Managed Data Solutions. Thus, offering a Managed Data
Solution fee schedule would not only result in PHLX offering lower fees
for existing Managed Data Recipients utilizing a Managed Data Solution,
but will allow new Distributors to deliver Managed Data Solutions to
new clients, thereby increasing transparency of the market. PHLX
proposes to establish two fees for Distributors that adopt the Managed
Data Solution to Distributors, a monthly Managed Data Solution
Administration fee of $1,500 and a monthly Subscriber fee of $250. The
proposed monthly License fee would be in addition to the monthly
Distributor fee of $2,500 (for external usage) currently set forth in
Section IX of the PHLX Fee Schedule, and the $250 monthly Subscriber
fee would be assessed for each Subscriber of a Managed Data Solution.
2. Statutory Basis
PHLX believes that the proposed rule change is consistent with the
provisions of Section 6 of the Act,\3\ in general, and with Section
6(b)(4) of the Act,\4\ in particular, in that it provides an equitable
allocation of reasonable fees among Subscribers and Recipients of PHLX
data. In adopting Regulation NMS, the Commission granted self-
regulatory organizations and broker-dealers increased authority and
flexibility to offer new and unique
[[Page 43630]]
market data to the public. It was believed that this authority would
expand the amount of data available to consumers, and also spur
innovation and competition for the provision of market data.
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78f.
\4\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
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.\5\
---------------------------------------------------------------------------
\5\ 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
(2)(B) [of Section 19(b)] to determine whether the proposed rule should
be approved or disapproved.''
PHLX 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. PHLX
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 non-
members, 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 (D.C.
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.'
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). 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
PHLX 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
NetCoalition 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. PHLX believes
that a record may readily be established to demonstrate the competitive
nature of the market in question.
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
[[Page 43631]]
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 Subscribers only insofar as they provide
information that end Subscribers 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 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'.'' NetCoalition at 24. 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 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. This would be akin to strictly
regulating the price that an automobile manufacturer can charge for car
sound systems despite the existence of a highly competitive market for
cars and the availability of after-market alternatives to the
manufacturer-supplied system.
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 nine existing SRO markets (plus two more expected
this year) [sic], as well as various forms of alternative trading
systems (``ATSs''). Each SRO market competes to produce transaction
reports via trade executions. Competitive markets for order flow,
executions, and transaction reports provide pricing discipline for the
inputs of proprietary data products.
The large number of SROs, 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,
ATS, and BD is currently permitted to produce proprietary data
products, and many currently do or have announced plans to do so,
including NASDAQ, CBOE, ISE, NYSE Amex, and NYSEArca.
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.
Market data vendors provide another form of price discipline for
proprietary data products because they control the primary means of
access to end Subscribers. 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 Subscribers 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
[[Page 43632]]
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. PHLX 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.
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, BATS Trading and Direct
Edge.
Regulation NMS, by deregulating the market for proprietary data,
has increased the contestability of that market. While broker-dealers
have previously published their proprietary data individually,
Regulation NMS encourages market data vendors and broker-dealers to
produce proprietary products cooperatively in a manner never before
possible. Multiple market data vendors already have the capability to
aggregate data and disseminate it on a profitable scale, including
Bloomberg, and Thomson Reuters.
The court in NetCoalition concluded that the Commission had failed
to demonstrate that the market for market data was competitive based on
the reasoning of the Commission's NetCoalition order because, in the
court's view, the Commission had not adequately demonstrated that the
proprietary data at issue in the case is used to attract order flow.
PHLX believes, however, that evidence not then before the court clearly
demonstrated that availability of data attracts order flow.
Competition among platforms has driven PHLX continually to improve
its platform data offerings and to cater to customers' data needs. For
example, PHLX has developed and maintained multiple delivery mechanisms
(IP, multi-cast, and compression) that enable customers to receive data
in the form and manner they prefer and at the lowest cost to them. PHLX
has created new products like Depth Data, TOPO and TOPO Plus Orders,
because offering data in multiple formatting allows PHLX to better fit
customer needs. PHLX offers data via multiple extranet providers,
thereby helping to reduce network and total cost for its data products.
PHLX has developed an online administrative system to provide customers
transparency into their datafeed requests and streamline data usage
reporting.
Despite these enhancements and a dramatic increase in message
traffic, PHLX's fees for market data have remained flat. In fact, as a
percent of total Subscriber costs, PHLX data fees have fallen relative
to other data usage costs--including bandwidth, programming, and
infrastructure--that have risen. The same holds true for execution
services; despite numerous enhancements to PHLX's trading platform,
absolute and relative trading costs have declined. Platform competition
has intensified as new entrants have emerged, constraining prices for
both executions and for data.
The vigor of competition for proprietary information is significant
and the Exchange believes that this proposal itself clearly evidences
such competition. PHLX is offering a new pricing model in order to keep
pace with changes in the industry and evolving customer needs. It is
entirely optional and is geared towards attracting new customers, as
well as retaining existing customers.
The Exchange has witnessed competitors creating new products and
innovative pricing in this space over the course of the past year. PHLX
continues to see firms challenge its pricing on the basis of the
Exchange's explicit fees being higher than the zero-priced fees from
other competitors such as BATS. In all cases, firms make decisions on
how much and what types of data to consume on the basis of the total
cost of interacting with PHLX or other exchanges. Of course, the
explicit data fees are but one factor in a total platform analysis.
Some competitors have lower transactions fees and higher data fees, and
others are vice versa. The market for this proprietary information is
highly competitive and continually evolves as products develop and
change.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
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.\6\ 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 should be
approved or disapproved.
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\6\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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 email to rule-comments@sec.gov. Please include
File Number SR-Phlx-2012-93 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-Phlx-2012-93. 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
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the
[[Page 43633]]
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
publicly available. All submissions should refer to File Number SR-
Phlx-2012-93 and should be submitted on or before August 15, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority. \7\
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\7\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-18163 Filed 7-24-12; 8:45 am]
BILLING CODE 8011-01-P
