Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Establishing a Program for Managed Data Solutions (MDS), 15791-15796 [2013-05568]
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Federal Register / Vol. 78, No. 48 / Tuesday, March 12, 2013 / Notices
proposed the instant rule change to
prepare for such dissemination, which
has not yet become effective, as well as
to prepare for any future dissemination
of additional ABS market segments.10
Specifically, FINRA has proposed to
amend FINRA Rule 6730(d)(2) to require
a member to report to TRACE the Factor
in the limited instances when the
member effects a transaction in an ABS
(except a TBA transaction) as agent and
charges a commission.11 Under FINRA’s
current transaction reporting rules, for a
transaction in an ABS that is backed by
mortgages or other assets that amortize
over the life of the security, instead of
reporting the size of the transaction by
reporting the total par or principal
value, a member must report two items
from which the size is calculable: (1)
The original face value of the ABS,
which is the size at issuance; and (2) the
Factor, but only if the Factor used to
execute the transaction is not the most
current Factor that is publicly available
at the Time of Execution 12 (a ‘‘nonconforming Factor’’).13 As a result of the
proposed rule change, when an ABS
transaction (except for a TBA
transaction) is executed in an agency
capacity with a commission charged,
the FINRA member would be required
to report the Factor regardless of
whether it is the most current Factor
publicly available at the Time of
Execution or is a non-conforming
Factor.14 In addition, FINRA has
proposed supplementary material to
make clear that the requirement to
report the Factor will apply to every
ABS transaction (except for a TBA
transaction) executed in an agency
capacity with a commission charged,
including the small number of
transactions in non-amortizing ABS.15
FINRA has also proposed technical
amendments to reorganize the current
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10 See
Notice, 77 FR at 74896.
11 See proposed Rule 6730(d)(2)(B)(iv); see also
Notice, 77 FR at 74896. FINRA stated that only a
small number of ABS transactions are executed on
an agency basis with a commission charged; ABS
are traded mostly on a principal basis. See id.
12 The term ‘‘Time of Execution’’ is defined in
FINRA Rule 6710(d).
13 See FINRA Rules 6730(c)(2) and (d)(2); see also
Notice, 77 FR at 74896. When a member uses the
most current Factor that is publicly available at the
Time of Execution of the transaction, the member
currently is not required to report the Factor.
Instead, the TRACE system incorporates the most
current Factor publicly available at the Time of
Execution. FINRA receives such information from
commercial data vendors. See Notice, 77 FR at
74896 n.7.
14 See proposed Rule 6730(d)(2)(B)(iv); see also
Notice, 77 FR at 74897.
15 See proposed supplementary material .01 to
Rule 6730(d)(2); see also Notice, 77 FR at 74897. For
transactions in non-amortizing ABS, a member
would be required to report 1.0 as the Factor. See
id. at 74897 n.11.
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size reporting requirements in FINRA
Rule 6730(d)(2) and to make them
consistent with proposed Rule
6730(d)(2)(B)(iv).16
FINRA stated that it will announce
the effective date of the proposed rule
change in a Regulatory Notice to be
published no later than 60 days
following Commission approval, and
that the effective date will be no later
than 270 days following publication of
the Regulatory Notice.17
III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities association.18 In particular,
the Commission finds that the proposed
rule change is consistent with Section
15A(b)(6) of the Act,19 which requires,
among other things, that FINRA rules be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, and, in general, to protect
investors and the public interest.
In approving the original TRACE
rules, the Commission stated that price
transparency plays a fundamental role
in promoting fairness and efficiency of
U.S. capital markets.20 FINRA believes
that the proposed rule change would
promote price transparency provided by
TRACE for ABS transactions executed
in an agency capacity with a
commission charged.21 When an ABS
transaction is executed in an agency
capacity with a commission charged,
the TRACE system must take the Factor,
as well as other information, into
account when calculating the
disseminated price of the transaction.22
Currently, all components of the
formula that would be used to calculate
a disseminated price in an agency ABS
transaction, except the Factor, are
reported by a member effecting the
transaction.23 FINRA represented that
requiring that the Factor also be
reported would ensure the accuracy of
the disseminated price for an agency
ABS transaction because the TRACE
system would rely exclusively upon
16 See
proposed Rules 6730(d)(2)(A)–(2)(B)(iv).
Notice, 77 FR at 74897.
18 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
19 15 U.S.C. 78o–3(b)(6).
20 See Securities Exchange Act Release No. 43873
(January 23, 2001), 66 FR 8131, 8136 (January 29,
2001).
21 See Notice, 77 FR at 74897.
22 See id. at 74896–97.
23 See id. at 74897.
17 See
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15791
information reported by the members
that are parties to such a transaction in
calculating the transaction’s
disseminated price.24 The Commission
believes that the proposal is reasonably
designed to promote the accuracy of the
disseminated price data for agency ABS
transactions and to further the goal of
increasing price transparency in the
ABS market.
The commenter suggested that the
proposed rule change would add an
administrative burden to the industry.25
FINRA responded that the proposed
rule change is necessary and
appropriate, and noted that it would be
narrowly tailored to apply to the very
limited number of ABS transactions
where a member trades in an agency
capacity and charges a commission.26
FINRA also noted that the accuracy of
the price transparency provided by
TRACE assists all market participants in
determining the quality of their
executions and firms in complying with
their regulatory obligations.27 The
Commission believes that the
commenter has not raised any issue that
would preclude approval of the
proposal.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,28 that the
proposed rule change (SR–FINRA–
2012–052) be, and it hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.29
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–05570 Filed 3–11–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69041; File No. SR–BX–
2013–018]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change Relating to
Establishing a Program for Managed
Data Solutions (MDS)
March 5, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
24 See
id.
Sokolow Comment.
26 See FINRA Letter at 2.
27 See id.
28 15 U.S.C. 78s(b)(2).
29 17 CFR 200.30–3(a)(12).
25 See
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Federal Register / Vol. 78, No. 48 / Tuesday, March 12, 2013 / Notices
(‘‘Act’’) 1, and Rule 19b–4 thereunder,2
notice is hereby given that on February
22, 2013, NASDAQ OMX BX, Inc. (‘‘BX’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) a 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 the Substance
of the Proposed Rule Change
The Exchange proposes add new BX
Rule 7026 (Distribution Models) to
establish a program for Managed Data
Solutions (‘‘MDS’’).
While the fee changes pursuant to this
proposal are effective upon filing, the
Exchange has designated these changes
to be operative on March 1, 2013.
The text of the proposed rule change
is provided in Exhibit 5. The text of the
proposed rule change is also available
on the Exchange’s Web site at https://
nasdaqomxbx.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
BX is now proposing to create a new
data distribution model known as MDS
in new Rule 7026 to further the
distribution of BX TotalView.3 This
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Proposed Rule 7026(b)(4) states that the term
‘‘BX TotalView’’ shall have the same meaning as set
forth in Rule 7023(a). Rule 7023(a) states that the
BX TotalView entitlement allows a Subscriber to
see all individual NASDAQ OMX BX Equities
System participant orders and quotes displayed in
the system, the aggregate size of such orders and
quotes at each price level, and the trade data for
2 17
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offers a new pricing and administrative
option available to firms seeking
simplified market data administration
for MDS products containing BX
TotalView (‘‘BX Depth Data’’).
Proposed BX Rule 7026 is similar to
The NASDAQ Stock Market LLC
(‘‘NASDAQ’’) Rule 7026 in terms of
offering MDS for a fee to members of the
Exchange.4 MDS may be offered by
members of the Exchange as well as
Distributors 5 to clients and/or client
organizations that are using the BX
Depth Data internally in a non-display
manner. This new pricing and
administrative option is in response to
industry demand, as well as due to
improvements in the contractual
administration and the technology used
to distribute market data. Distributors
offering MDS continue to be fee liable
for the applicable distributor fees for the
receipt and distribution of the BX Depth
Data such as BX Total View.6
MDS is a pricing and administrative
option that will assess a new fee
schedule to Distributors of BX Depth
Data that provide datafeed solutions
such as an Application Programming
Interface (API) or similar automated
delivery solutions to recipients with
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 BX
Depth Data prior to retransmission, but
not to affect the integrity of the BX
Depth Data and not to render it
inaccurate, unfair, uninformative,
fictitious, misleading, or discriminatory.
MDS is any retransmission datafeed
product containing BX Depth Data
offered by a Distributor where the
Distributor manages and monitors, but
does not necessarily control, the
executions that occur within the NASDAQ OMX BX
Equities System.
4 See Securities Exchange Release No. 63276
(November 8, 2010), 75 FR 69717 (November 15,
2010) (SR–NASDAQ–2010–138) (notice of filing
and immediate effectiveness implementing MDS on
NASDAQ) (the ‘‘NASDAQ MDS filing’’). Other
options markets have also implemented a managed
data solution. See, for example, Securities Exchange
Release No. 65678 (November 3, 2011), 76 FR 70178
(November 10, 2011) (SR–ISE–2011–67)(notice of
filing and immediate effectiveness implementing a
managed data solution on ISE).
5 Proposed Rule 7026(b)(2) states that the term
‘‘Distributor’’ shall have the same meaning as set
forth in Rule 7019(b). Rule 7019(b) states that a
‘‘Distributor’’ of Exchange data is any entity that
receives a feed or data file of Exchange data directly
from the Exchange or indirectly through another
entity and then distributes it either internally
(within that entity) or externally (outside that
entity). All distributors shall execute an Exchange
distributor agreement. The Exchange itself is a
vendor of its data feed(s) and has executed an
Exchange distributor agreement and pays the
distributor charge.
6 See, for example, Rule 7023.
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information. However, the Distributor
does maintain contracts with the
Managed Data Recipients and is liable
for any unauthorized use by the
Managed Data Recipients. The Managed
Data Recipients may only use the
information for internal, non-display
purposes and may not distribute the
information outside of their
organization.
In the past, retransmissions were
considered to be an uncontrolled data
product if the Distributor did not
control both the entitlements and the
display of the information. Over the last
ten years, however, Distributors have
improved the technical delivery and
monitoring of data, and the MDS
offering responds to an industry need to
offer new pricing and administrative
options.
The Exchange notes that some
Distributors believe that MDS is a better
controlled datafeed product and as such
should not be subject to the same rates
as a datafeed. However, the Distributors
may only have contractual control over
the data and may not be able to verify
how Managed Data Recipients are
actually using the data at least without
involvement of the Managed Data
Recipient.7 The proposal to offer MDS
to Distributors would assist in the
management of the uncontrolled data
product on behalf of their Managed Data
Recipients by contractually restricting
the data flow and monitoring the
delivery. Thus, offering MDS on BX per
proposed Rule 7026 would allow
Distributors to deliver MDS to their
clients and would allow Professional
and Non-Professional 8 Subscribers 9 to
7 In the NASDAQ MDS filing, for example, it was
noted that some Distributors have even held off on
deployment of new product offerings, pending the
resolution to this issue. See supra note 4.
8 Proposed Rule 7026(b)(1) states that the term
‘‘Non-Professional’’ shall have the same meaning as
set forth in Rule 7023(b). Rule 7023(b) states that
a ‘‘Non-Professional’’ is a natural person who is
neither: (A) registered or qualified in any capacity
with the Commission, the Commodities Futures
Trading Commission, any state securities agency,
any securities exchange or association, or any
commodities or futures contract market or
association; (B) engaged as an ‘‘investment adviser’’
as that term is defined in Section 201(11) of the
Investment Advisors Act of 1940 (whether or not
registered or qualified under that Act); nor (C)
employed by a bank or other organization exempt
from registration under federal or state securities
laws to perform functions that would require
registration or qualification if such functions were
performed for an organization not so exempt.
9 Proposed Rule 7026(b)(3) states that the term
‘‘Subscriber’’ shall have the same meaning as set
forth in Rule 7023(c). Rule 7023(c) states that a
‘‘Subscriber’’ is any access that a distributor of the
data entitlement package(s) provides to: (1) Access
the information in the data entitlement package(s);
or (2) communicate with the distributor so as to
cause the distributor to access the information in
the data entitlement package(s). If a Subscriber is
part of an electronic network between computers
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Federal Register / Vol. 78, No. 48 / Tuesday, March 12, 2013 / Notices
use BX Depth Data for their own nondisplay use.10
Finally, proposed Rule 7026
establishes a fee schedule for
Distributors and Subscribers of MDS
products containing BX Depth Data for
non-display use only. Specifically,
Distributors would be assessed $750/
month per Distributor for the right to
offer MDS to client organizations. NonProfessional Subscribers would be
assessed $20/month per Subscriber for
the right to obtain BX Depth Data
(which includes TotalView) for internal
non-display use only. And Professional
Subscribers would be assessed $100/
month per Subscriber for the right to
receive BX Depth Data (TotalView) for
internal non-display use only.11
This new fee is meant to lower the fee
for current and potential future
recipients of datafeed products by
offering a new pricing option. No
recipients will have an increased fee
due to this filing.
Accordingly, the Exchange believes
that the proposed rule establishes a
program that allows all BX Members
and Distributors a practicable
methodology to access and receive
MDS, similarly to other options [sic]
exchanges.
2. Statutory Basis
BX believes that the proposed rule
change is consistent with the provisions
of Section 6 of the Act,12 in general, and
with Section 6(b)(4) of the Act,13 in
particular, in that it provides an
equitable allocation of reasonable fees
among users and recipients of BX data.
In adopting Regulation NMS, the
Commission granted self-regulatory
organizations and broker-dealers
increased authority and flexibility to
offer new and unique 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:
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[E]fficiency is promoted when brokerdealers who do not need the data beyond the
used for investment, trading or order routing
activities, the burden shall be on the distributor to
demonstrate that the particular Subscriber should
not have to pay for an entitlement.
10 Downstream recipients are not allowed to
redistribute the MDS products.
11 Each of the fees for MDS on BX is initially set
to be significantly lower than the fees for similar
MDS on NASDAQ. See NASDAQ Rule 7026.
12 15 U.S.C. 78f.
13 15 U.S.C. 78f(b)(4).
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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.14
By removing ‘‘unnecessary regulatory
restrictions’’ on the ability of exchanges
to sell their own data, Regulation NMS
advanced the goals of the Act and the
principles reflected in its legislative
history. If the free market should
determine whether proprietary data is
sold to broker-dealers at all, it follows
that the price at which such data is sold
should be set by the market as well.
On July 21, 2010, President Barack
Obama signed into law H.R. 4173, the
Dodd- Frank Wall Street Reform and
Consumer Protection Act of 2010
(‘‘Dodd-Frank Act’’), which amended
Section 19 of the Act. Among other
things, Section 916 of the Dodd-Frank
Act amended paragraph (A) of Section
19(b)(3) of the Act by inserting the
phrase ‘‘on any person, whether or not
the person is a member of the selfregulatory organization’’ after ‘‘due, fee
or other charge imposed by the selfregulatory organization.’’ As a result, all
SRO rule proposals establishing or
changing dues, fees, or other charges are
immediately effective upon filing
regardless of whether such dues, fees, or
other charges are imposed on members
of the SRO, non-members, or both.
Section 916 further amended paragraph
(C) of Section 19(b)(3) of the Exchange
Act to read, in pertinent part, ‘‘At any
time within the 60-day period beginning
on the date of filing of such a proposed
rule change in accordance with the
provisions of paragraph (1) [of Section
19(b)], the Commission summarily may
temporarily suspend the change in the
rules of the self-regulatory organization
made thereby, if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of this title. If the Commission
takes such action, the Commission shall
institute proceedings under paragraph
(2)(B) [of Section 19(b)] to determine
whether the proposed rule should be
approved or disapproved.’’
The decision of the United States
Court of Appeals for the District of
Columbia Circuit in NetCoalition v.
SEC, No. 09–1042 (D.C. Cir. 2010),
although reviewing a Commission
decision made prior to the effective date
14 Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
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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.’ ’’ 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).
BX believes that the proposed fees are
fair and equitable, and not unreasonably
discriminatory. The proposed fees are
based on pricing conventions and
distinctions that currently exist in the
fee schedules of another exchange,
namely NASDAQ. These distinctions
(e.g. Distributor versus Subscriber,
Professional versus Non-Professional,
internal versus external distribution,
controlled versus uncontrolled datafeed)
are each based on principles of fairness
and equity that have helped for many
years to maintain fair, equitable, and not
unreasonably discriminatory fees, and
that apply with equal or greater force to
the current proposal. BX believes that
the MDS offering promotes broader
distribution of controlled data, while
offering a fee reduction in the form of
a pricing option resulting in lower fees
for Subscribers. The MDS proposal is
reasonable in that it offers a
methodology to get MDS data for less.
It is equitable in that it provides an
opportunity for all Distributors and
Subscribers, Professional and NonProfessional, to get MDS data without
unfairly discriminating against any.
Thus, if BX has calculated improperly
and the market deems the proposed fees
to be unfair, inequitable, or
unreasonably discriminatory, firms can
diminish or discontinue the use of their
data because the proposed fees are
entirely optional to all parties. Firms are
not required to choose to purchase MDS
or to utilize any specific pricing
alternative. BX is not required to make
MDS available or to offer specific
pricing alternatives for potential
purchases. BX can discontinue offering
a pricing alternative (as it has in the
past) and firms can discontinue their
use at any time and for any reason (as
they often do), including due to their
assessment of the reasonableness of fees
charged. BX continues to establish and
revise pricing policies aimed at
increasing fairness and equitable
allocation of fees among Subscribers.
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B. Self-Regulatory Organization’s
Statement on Burden on Competition
BX 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. BX believes that a record
may readily be established to
demonstrate the competitive nature of
the market in question.
The proposal is, as described below
pro-competitive. The proposal offers an
overall fee reduction, which is, by its
nature, pro-competitive. Moreover, there
is intense competition between trading
platforms that provide transaction
execution and routing services and
proprietary data products. Transaction
execution and proprietary data products
are complementary in that market data
is both an input and a byproduct of the
execution service. In fact, market data
and trade execution are a paradigmatic
example of joint products with joint
costs. The decision whether and on
which platform to post an order will
depend on the attributes of the platform
where the order can be posted,
including the execution fees, data
quality and price and distribution of its
data products. Without the prospect of
a taking order seeing and reacting to a
posted order on a particular platform,
the posting of the order would
accomplish little. Without orders
entered and trades executed, exchange
data products cannot exist. Data
products are valuable to many end
Subscribers insofar as they provide
information that end Subscribers expect
will assist them 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
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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 decreases,
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.
‘‘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,
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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 more than ten
SRO markets, as well as internalizing
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 Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) regulated
Trade Reporting Facilities (‘‘TRFs’’)
compete to attract internalized
transaction reports. Competitive markets
for order flow, executions, and
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Federal Register / Vol. 78, No. 48 / Tuesday, March 12, 2013 / Notices
transaction reports provide pricing
discipline for the inputs of proprietary
data products.
The large number of SROs, TRFs, BDs,
and ATSs that currently produce
proprietary data or are currently capable
of producing it provides further pricing
discipline for proprietary data products.
Each SRO, TRF, ATS, and BD is
currently permitted to produce
proprietary data products, and many
currently do or have announced plans to
do so, including NASDAQ, NYSE,
NYSE Amex (now NYSE MKT),
NYSEArca, DirectEdge and BATS.
Any ATS or BD can combine with any
other ATS, BD, or multiple ATSs or BDs
to produce joint proprietary data
products. Additionally, order routers
and market data vendors can facilitate
single or multiple broker-dealers’
production of proprietary data products.
The potential sources of proprietary
products are virtually limitless.
The fact that proprietary data from
ATSs, BDs, and vendors can by-pass
SROs is significant in two respects.
First, non-SROs can compete directly
with SROs for the production and sale
of proprietary data products as, for
example, BATS and Arca did before
registering as exchanges by publishing
Depth-of-Book data on the Internet.
Second, because a single order or
transaction report can appear in an SRO
proprietary product, a non-SRO
proprietary product, or both, the data
available in proprietary products is
exponentially greater than the actual
number of orders and transaction
reports that exist in the marketplace.
Market data vendors provide another
form of price discipline for proprietary
data products because they control the
primary means of access to end
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
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. BX and other
producers of proprietary data products
must understand and respond to these
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17:21 Mar 11, 2013
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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, Bloomberg Tradebook,
Island, RediBook, Attain, TracECN,
BATS Trading and Direct Edge. A
proliferation of dark pools and other
ATSs operate profitably with
fragmentary shares of consolidated
market volume.
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.
Competition among platforms has
driven BX continually to improve its
platform data offerings and to cater to
customers’ data needs. For example, BX
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. BX has created new products like
TotalView, because offering data in
multiple formatting allows BX to better
fit customer needs. BX offers data via
multiple extranet and
telecommunication providers such as
Verizon, BT Radianz, and Savvis, among
others, thereby helping to reduce
network and total cost for its data
products. BX has an online
administrative system to provide
customers transparency into their
datafeed requests and streamline data
usage reporting. BX has also
implemented an Enterprise License
option to reduce the administrative
burden and costs to firms that purchase
market data.
Despite these enhancements and ever
increasing message traffic, BX’s fees for
market data have remained flat. The
same holds true for execution services;
despite numerous enhancements to BX’s
trading platform, absolute and relative
trading costs have declined. Platform
competition has intensified as new
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
15795
entrants have emerged, constraining
prices for both executions and for data.
The vigor of competition for BX data
is significant and the Exchange believes
that this proposal itself clearly
evidences such competition. BX is
offering a new pricing model in order to
keep pace with changes in the industry
and evolving customer needs. This
pricing option 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. BX 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 BX 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
the proposed data 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
No written comments were either
solicited or 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.15 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.
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.
15 15
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U.S.C. 78s(b)(3)(A)(ii).
12MRN1
15796
Federal Register / Vol. 78, No. 48 / Tuesday, March 12, 2013 / Notices
Comments may be submitted by any of
the following methods:
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[File No. 500–1]
• 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–BX–2013–018 on the
subject line.
In the Matter of: Endeavor Power
Corp.; Order of Suspension of Trading
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549.
mstockstill on DSK4VPTVN1PROD with NOTICES
All submissions should refer to File
Number SR–BX–2013–018. 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
office 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–BX–
2013–018 and should be submitted on
or before April 2, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–05568 Filed 3–11–13; 8:45 am]
BILLING CODE 8011–01–P
16 17
CFR 200.30–3(a)(12).
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17:21 Mar 11, 2013
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March 8, 2013.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Endeavor
Power Corp. (‘‘Endeavor Power’’),
quoted under the ticker symbol EDVP,
because of questions regarding the
accuracy of assertions in Endeavor
Power’s public filings and press releases
relating to, among other things, patents.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
company.
Therefore, it is ordered, pursuant to
Section 12(k) of the Securities Exchange
Act of 1934, that trading in the
securities of the above-listed company is
suspended for the period from 9:30 a.m.
EST on March 8, 2013 through 11:59
p.m. EDT on March 21, 2013.
By the Commission.
Lynn M. Powalski,
Deputy Secretary.
[FR Doc. 2013–05729 Filed 3–8–13; 11:15 am]
BILLING CODE P
SMALL BUSINESS ADMINISTRATION
Data Collection Available for Public
Comments
60-day notice and request for
comments.
ACTION:
In accordance with the
Paperwork Reduction Act of 1995, this
notice announces the Small Business
Administration’s intentions to request
approval on a new and/or currently
approved information collection.
DATES: Submit comments on or before
May 13, 2013.
ADDRESSES: Send all comments
regarding whether this information
collection is necessary for the proper
performance of the function of the
agency, whether the burden estimates
are accurate, and if there are ways to
minimize the estimated burden and
enhance the quality of the collections, to
Rachel Newman Karton, Program
Analyst, Office of Entrepreneurial
Development, Small Business
Administration, 409 3rd Street, 6th
Floor, Washington, DC 20416.
FOR FURTHER INFORMATION CONTACT:
Rachel Newman Karton, Program
SUMMARY:
PO 00000
Frm 00117
Fmt 4703
Sfmt 4703
Analyst, 202–619–1618
rachel.newman@sba.gov Curtis B. Rich,
Management Analyst, 202–205–7030
curtis.rich@sba.gov.
Title: ‘‘Federal Cash Transaction
Report; Financial Status Report Program
Income Report Narrative Program
Report.’’
Abstract: The Small Business
Development Centers (SBDC) must
provide semi-annual financial and
programmatic reports outlining
accomplishments.
Description of Respondents: SBDC
Directors.
Form Number: 2113.
Annual Responses: 126.
Annual Burden: 7,308.
Curtis Rich,
Management Analyst.
[FR Doc. 2013–05690 Filed 3–11–13; 8:45 am]
BILLING CODE 8025–01–P
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #13511 and #13512]
Michigan Disaster #MI–00038.
U.S. Small Business
Administration.
ACTION: Notice.
AGENCY:
This is a notice of an
Administrative declaration of a disaster
for the State of michigan dated 03/04/
2013.
Incident: Severe Storms and Flooding.
Incident Period: 01/30/2013 through
02/16/2013.
Effective Date: 03/04/2013.
Physical Loan Application Deadline
Date: 05/03/2013.
Economic Injury (EIDL) Loan
Application Deadline Date: 12/04/2013.
ADDRESSES: Submit completed loan
applications to: U.S. Small Business
Administration, Processing and
Disbursement Center, 14925 Kingsport
Road, Fort Worth, TX 76155.
FOR FURTHER INFORMATION CONTACT: A.
Escobar, Office of Disaster Assistance,
U.S. Small Business Administration,
409 3rd Street SW., Suite 6050,
Washington, DC 20416.
SUPPLEMENTARY INFORMATION: Notice is
hereby given that as a result of the
Administrator’s disaster declaration,
applications for disaster loans may be
filed at the address listed above or other
locally announced locations.
The following areas have been
determined to be adversely affected by
the disaster:
Primary Counties: Mecosta.
Contiguous Counties:
Michigan: Clare, Isabella, Lake,
SUMMARY:
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]]>Agencies
[Federal Register Volume 78, Number 48 (Tuesday, March 12, 2013)]
[Notices]
[Pages 15791-15796]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05568]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69041; File No. SR-BX-2013-018]
Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Establishing a Program for Managed Data Solutions (MDS)
March 5, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 15792]]
(``Act'') \1\, and Rule 19b-4 thereunder,\2\ notice is hereby given
that on February 22, 2013, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') a proposed rule change as described in Items I, II, and
III, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes add new BX Rule 7026 (Distribution Models) to
establish a program for Managed Data Solutions (``MDS'').
While the fee changes pursuant to this proposal are effective upon
filing, the Exchange has designated these changes to be operative on
March 1, 2013.
The text of the proposed rule change is provided in Exhibit 5. The
text of the proposed rule change is also available on the Exchange's
Web site at https://nasdaqomxbx.cchwallstreet.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
BX is now proposing to create a new data distribution model known
as MDS in new Rule 7026 to further the distribution of BX TotalView.\3\
This offers a new pricing and administrative option available to firms
seeking simplified market data administration for MDS products
containing BX TotalView (``BX Depth Data'').
---------------------------------------------------------------------------
\3\ Proposed Rule 7026(b)(4) states that the term ``BX
TotalView'' shall have the same meaning as set forth in Rule
7023(a). Rule 7023(a) states that the BX TotalView entitlement
allows a Subscriber to see all individual NASDAQ OMX BX Equities
System participant orders and quotes displayed in the system, the
aggregate size of such orders and quotes at each price level, and
the trade data for executions that occur within the NASDAQ OMX BX
Equities System.
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Proposed BX Rule 7026 is similar to The NASDAQ Stock Market LLC
(``NASDAQ'') Rule 7026 in terms of offering MDS for a fee to members of
the Exchange.\4\ MDS may be offered by members of the Exchange as well
as Distributors \5\ to clients and/or client organizations that are
using the BX Depth Data internally in a non-display manner. This new
pricing and administrative option is in response to industry demand, as
well as due to improvements in the contractual administration and the
technology used to distribute market data. Distributors offering MDS
continue to be fee liable for the applicable distributor fees for the
receipt and distribution of the BX Depth Data such as BX Total View.\6\
---------------------------------------------------------------------------
\4\ See Securities Exchange Release No. 63276 (November 8,
2010), 75 FR 69717 (November 15, 2010) (SR-NASDAQ-2010-138) (notice
of filing and immediate effectiveness implementing MDS on NASDAQ)
(the ``NASDAQ MDS filing''). Other options markets have also
implemented a managed data solution. See, for example, Securities
Exchange Release No. 65678 (November 3, 2011), 76 FR 70178 (November
10, 2011) (SR-ISE-2011-67)(notice of filing and immediate
effectiveness implementing a managed data solution on ISE).
\5\ Proposed Rule 7026(b)(2) states that the term
``Distributor'' shall have the same meaning as set forth in Rule
7019(b). Rule 7019(b) states that a ``Distributor'' of Exchange data
is any entity that receives a feed or data file of Exchange data
directly from the Exchange or indirectly through another entity and
then distributes it either internally (within that entity) or
externally (outside that entity). All distributors shall execute an
Exchange distributor agreement. The Exchange itself is a vendor of
its data feed(s) and has executed an Exchange distributor agreement
and pays the distributor charge.
\6\ See, for example, Rule 7023.
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MDS is a pricing and administrative option that will assess a new
fee schedule to Distributors of BX Depth Data that provide datafeed
solutions such as an Application Programming Interface (API) or similar
automated delivery solutions to recipients with 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 BX Depth Data prior to retransmission, but
not to affect the integrity of the BX Depth Data and not to render it
inaccurate, unfair, uninformative, fictitious, misleading, or
discriminatory. MDS is any retransmission datafeed product containing
BX Depth Data offered by a Distributor where the Distributor manages
and monitors, but does not necessarily 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. The Managed Data Recipients may only use the information
for internal, non-display purposes and may not distribute the
information outside of their organization.
In the past, retransmissions were considered to be an uncontrolled
data product if the Distributor did not control both the entitlements
and the display of the information. Over the last ten years, however,
Distributors have improved the technical delivery and monitoring of
data, and the MDS offering responds to an industry need to offer new
pricing and administrative options.
The Exchange notes that some Distributors believe that MDS is a
better controlled datafeed product and as such should not be subject to
the same rates as a datafeed. However, the Distributors may only have
contractual control over the data and may not be able to verify how
Managed Data Recipients are actually using the data at least without
involvement of the Managed Data Recipient.\7\ The proposal to offer MDS
to Distributors would assist in the management of the uncontrolled data
product on behalf of their Managed Data Recipients by contractually
restricting the data flow and monitoring the delivery. Thus, offering
MDS on BX per proposed Rule 7026 would allow Distributors to deliver
MDS to their clients and would allow Professional and Non-Professional
\8\ Subscribers \9\ to
[[Page 15793]]
use BX Depth Data for their own non-display use.\10\
---------------------------------------------------------------------------
\7\ In the NASDAQ MDS filing, for example, it was noted that
some Distributors have even held off on deployment of new product
offerings, pending the resolution to this issue. See supra note 4.
\8\ Proposed Rule 7026(b)(1) states that the term ``Non-
Professional'' shall have the same meaning as set forth in Rule
7023(b). Rule 7023(b) states that a ``Non-Professional'' is a
natural person who is neither: (A) registered or qualified in any
capacity with the Commission, the Commodities Futures Trading
Commission, any state securities agency, any securities exchange or
association, or any commodities or futures contract market or
association; (B) engaged as an ``investment adviser'' as that term
is defined in Section 201(11) of the Investment Advisors Act of 1940
(whether or not registered or qualified under that Act); nor (C)
employed by a bank or other organization exempt from registration
under federal or state securities laws to perform functions that
would require registration or qualification if such functions were
performed for an organization not so exempt.
\9\ Proposed Rule 7026(b)(3) states that the term ``Subscriber''
shall have the same meaning as set forth in Rule 7023(c). Rule
7023(c) states that a ``Subscriber'' is any access that a
distributor of the data entitlement package(s) provides to: (1)
Access the information in the data entitlement package(s); or (2)
communicate with the distributor so as to cause the distributor to
access the information in the data entitlement package(s). If a
Subscriber is part of an electronic network between computers used
for investment, trading or order routing activities, the burden
shall be on the distributor to demonstrate that the particular
Subscriber should not have to pay for an entitlement.
\10\ Downstream recipients are not allowed to redistribute the
MDS products.
---------------------------------------------------------------------------
Finally, proposed Rule 7026 establishes a fee schedule for
Distributors and Subscribers of MDS products containing BX Depth Data
for non-display use only. Specifically, Distributors would be assessed
$750/month per Distributor for the right to offer MDS to client
organizations. Non-Professional Subscribers would be assessed $20/month
per Subscriber for the right to obtain BX Depth Data (which includes
TotalView) for internal non-display use only. And Professional
Subscribers would be assessed $100/month per Subscriber for the right
to receive BX Depth Data (TotalView) for internal non-display use
only.\11\
---------------------------------------------------------------------------
\11\ Each of the fees for MDS on BX is initially set to be
significantly lower than the fees for similar MDS on NASDAQ. See
NASDAQ Rule 7026.
---------------------------------------------------------------------------
This new fee is meant to lower the fee for current and potential
future recipients of datafeed products by offering a new pricing
option. No recipients will have an increased fee due to this filing.
Accordingly, the Exchange believes that the proposed rule
establishes a program that allows all BX Members and Distributors a
practicable methodology to access and receive MDS, similarly to other
options [sic] exchanges.
2. Statutory Basis
BX believes that the proposed rule change is consistent with the
provisions of Section 6 of the Act,\12\ in general, and with Section
6(b)(4) of the Act,\13\ in particular, in that it provides an equitable
allocation of reasonable fees among users and recipients of BX data. In
adopting Regulation NMS, the Commission granted self-regulatory
organizations and broker-dealers increased authority and flexibility to
offer new and unique 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.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f.
\13\ 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.\14\
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\14\ 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.''
The decision of the United States Court of Appeals for the District
of Columbia Circuit in NetCoalition 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.' ''
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).
BX believes that the proposed fees are fair and equitable, and not
unreasonably discriminatory. The proposed fees are based on pricing
conventions and distinctions that currently exist in the fee schedules
of another exchange, namely NASDAQ. These distinctions (e.g.
Distributor versus Subscriber, Professional versus Non-Professional,
internal versus external distribution, controlled versus uncontrolled
datafeed) are each based on principles of fairness and equity that have
helped for many years to maintain fair, equitable, and not unreasonably
discriminatory fees, and that apply with equal or greater force to the
current proposal. BX believes that the MDS offering promotes broader
distribution of controlled data, while offering a fee reduction in the
form of a pricing option resulting in lower fees for Subscribers. The
MDS proposal is reasonable in that it offers a methodology to get MDS
data for less. It is equitable in that it provides an opportunity for
all Distributors and Subscribers, Professional and Non-Professional, to
get MDS data without unfairly discriminating against any.
Thus, if BX has calculated improperly and the market deems the
proposed fees to be unfair, inequitable, or unreasonably
discriminatory, firms can diminish or discontinue the use of their data
because the proposed fees are entirely optional to all parties. Firms
are not required to choose to purchase MDS or to utilize any specific
pricing alternative. BX is not required to make MDS available or to
offer specific pricing alternatives for potential purchases. BX can
discontinue offering a pricing alternative (as it has in the past) and
firms can discontinue their use at any time and for any reason (as they
often do), including due to their assessment of the reasonableness of
fees charged. BX continues to establish and revise pricing policies
aimed at increasing fairness and equitable allocation of fees among
Subscribers.
[[Page 15794]]
B. Self-Regulatory Organization's Statement on Burden on Competition
BX 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. BX believes
that a record may readily be established to demonstrate the competitive
nature of the market in question.
The proposal is, as described below pro-competitive. The proposal
offers an overall fee reduction, which is, by its nature, pro-
competitive. Moreover, there is intense competition between trading
platforms that provide transaction execution and routing services and
proprietary data products. Transaction execution and proprietary data
products are complementary in that market data is both an input and a
byproduct of the execution service. In fact, market data and trade
execution are a paradigmatic example of joint products with joint
costs. The decision whether and on which platform to post an order will
depend on the attributes of the platform where the order can be posted,
including the execution fees, data quality and price and distribution
of its data products. Without the prospect of a taking order seeing and
reacting to a posted order on a particular platform, the posting of the
order would accomplish little. Without orders entered and trades
executed, exchange data products cannot exist. Data products are
valuable to many end Subscribers insofar as they provide information
that end Subscribers expect will assist them 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
decreases, 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.
``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 more than ten SRO markets, as well as
internalizing 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 Financial Industry Regulatory Authority, Inc.
(``FINRA'') regulated Trade Reporting Facilities (``TRFs'') compete to
attract internalized transaction reports. Competitive markets for order
flow, executions, and
[[Page 15795]]
transaction reports provide pricing discipline for the inputs of
proprietary data products.
The large number of SROs, TRFs, BDs, and ATSs that currently
produce proprietary data or are currently capable of producing it
provides further pricing discipline for proprietary data products. Each
SRO, TRF, ATS, and BD is currently permitted to produce proprietary
data products, and many currently do or have announced plans to do so,
including NASDAQ, NYSE, NYSE Amex (now NYSE MKT), NYSEArca, DirectEdge
and BATS.
Any ATS or BD can combine with any other ATS, BD, or multiple ATSs
or BDs to produce joint proprietary data products. Additionally, order
routers and market data vendors can facilitate single or multiple
broker-dealers' production of proprietary data products. The potential
sources of proprietary products are virtually limitless.
The fact that proprietary data from ATSs, BDs, and vendors can by-
pass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and sale of proprietary data
products as, for example, BATS and Arca did before registering as
exchanges by publishing Depth-of-Book data on the Internet. Second,
because a single order or transaction report can appear in an SRO
proprietary product, a non-SRO proprietary product, or both, the data
available in proprietary products is exponentially greater than the
actual number of orders and transaction reports that exist in the
marketplace.
Market data vendors provide another form of price discipline for
proprietary data products because they control the primary means of
access to end 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
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. BX 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, Bloomberg Tradebook,
Island, RediBook, Attain, TracECN, BATS Trading and Direct Edge. A
proliferation of dark pools and other ATSs operate profitably with
fragmentary shares of consolidated market volume.
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.
Competition among platforms has driven BX continually to improve
its platform data offerings and to cater to customers' data needs. For
example, BX 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. BX
has created new products like TotalView, because offering data in
multiple formatting allows BX to better fit customer needs. BX offers
data via multiple extranet and telecommunication providers such as
Verizon, BT Radianz, and Savvis, among others, thereby helping to
reduce network and total cost for its data products. BX has an online
administrative system to provide customers transparency into their
datafeed requests and streamline data usage reporting. BX has also
implemented an Enterprise License option to reduce the administrative
burden and costs to firms that purchase market data.
Despite these enhancements and ever increasing message traffic,
BX's fees for market data have remained flat. The same holds true for
execution services; despite numerous enhancements to BX'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 BX data is significant and the
Exchange believes that this proposal itself clearly evidences such
competition. BX is offering a new pricing model in order to keep pace
with changes in the industry and evolving customer needs. This pricing
option 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. BX
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 BX 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 the proposed data 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
No written comments were either solicited or 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.\15\ 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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\15\ 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.
[[Page 15796]]
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-BX-2013-018 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.
All submissions should refer to File Number SR-BX-2013-018. 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 office 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-BX-2013-018 and should be
submitted on or before April 2, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05568 Filed 3-11-13; 8:45 am]
BILLING CODE 8011-01-P
