Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Establishing Non-Display Usage Fees for NYSE Arca Integrated Feed, NYSE ArcaBook, NYSE Arca Trades, and NYSE Arca BBO, and a Redistribution Fee for NYSE ArcaBook, 21668-21675 [2013-08464]
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intramarket competition given that the
Exchange’s rates apply uniformly to all
Members.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any
unsolicited written comments from
Members or other interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 12 and Rule 19b–4(f)(2) 13
thereunder. At any time within 60 days
of the filing of such proposed rule
change, the Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
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 the
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–EDGX–
2013–12 and should be submitted on or
before May 2, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.14
Kevin M. O’Neill,
Deputy Secretary.
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–EDGX–2013–12 on the
subject line.
TKELLEY on DSK3SPTVN1PROD with NOTICES
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:
SECURITIES AND EXCHANGE
COMMISSION
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–EDGX–2013–12. 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
[FR Doc. 2013–08470 Filed 4–10–13; 8:45 am]
BILLING CODE 8011–01–P
[Release No. 34–69315; File No. SR–
NYSEArca–2013–37]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Establishing Non-Display
Usage Fees for NYSE Arca Integrated
Feed, NYSE ArcaBook, NYSE Arca
Trades, and NYSE Arca BBO, and a
Redistribution Fee for NYSE ArcaBook
April 5, 2013.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on March
28, 2013, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
14 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
12 15
13 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4 (f)(2).
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Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to establish
non-display usage fees for NYSE Arca
Integrated Feed, NYSE ArcaBook, NYSE
Arca Trades, and NYSE Arca BBO, all
of which will be operative on April 1,
2013, and a redistribution fee for NYSE
ArcaBook, which will be operative on
July 1, 2013. The text of the proposed
rule change is available on the
Exchange’s Web site at www.nyse.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to establish
non-display usage fees for NYSE Arca
Integrated Feed, NYSE ArcaBook, NYSE
Arca Trades, and NYSE Arca BBO, all
of which will be operative on April 1,
2013, and a redistribution fee for NYSE
ArcaBook, which will be operative on
July 1, 2013. The subsections below
describe (1) The background on the
current fees for these real-time products;
(2) the rationale for creating a new nondisplay usage fee structure; (3) the
proposed fees for non-display use,
which will include internal non-display
use and managed non-display use; (4)
the proposed redistribution fee for
NYSE ArcaBook; and (5) examples
comparing the current and proposed
fees.
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ArcaBook,5 NYSE Arca BBO,6 and
NYSE Arca Trades 7 are as follows:
Background on Current Fees
The current monthly fees for NYSE
Arca Integrated Feed,4 NYSE
Product
Access fee
NYSE Arca Integrated
Feed 8.
NYSE ArcaBook .................
$3,000
NYSE Arca BBO .................
$750
NYSE Arca Trades .............
9 $750
$750
Digital media
enterprise fee
Subscriber fees
Professional: $40 ............................................................
Non-professional: $20.
Tape A & B Securities (including ETFs) ........................
Professional: $15.
Non-professional: $5.
Tape C Securities (excluding ETFs)
Professional: $15.
Non-professional: $5.
Non-professional Fee Cap: $20,000.
Professional: $10 ............................................................
Non-professional: $5
Professional: $10 ............................................................
Redistribution fee
N/A
$3,000
NA
NA
NA
NA
$20,000
* $750
* (Operative May 1, 2013).
While the majority of subscribers pay
the subscriber fee for each display or
non-display device that has access to
NYSE Arca BBO and NYSE Arca Trades
as set forth above, a small number of
vendors and subscribers are eligible for,
and have elected, the NYSE Arca Unitof-Count Policy that was first
introduced by the Exchange’s affiliate,
New York Stock Exchange LLC
(‘‘NYSE’’), 2009 10 and is now also
available for NYSE Arca BBO and NYSE
Arca Trades.11 Under this fee structure,
these vendors and subscribers are
subject to a fee structure that utilizes the
following basic principles:
TKELLEY on DSK3SPTVN1PROD with NOTICES
i. Vendors.
• ‘‘Vendors’’ are market data vendors,
broker-dealers, private network providers,
and other entities that control Subscribers’
access to a market data product through
Subscriber Entitlement Controls (as described
below).
ii. Subscribers.
• ‘‘Subscribers’’ are unique individual
persons or devices (which include both
4 See Securities Exchange Act Release No. 66128
(Jan. 10, 2012), 77 FR 2331 (Jan. 17, 2012) (SR–
NYSEArca–2011–96).
5 See Securities Exchange Act Release No. 63291
(Nov. 9, 2010), 75 FR 70311 (Nov. 17, 2010) (SR–
NYSEArca–2010–97).
6 See Securities Exchange Act Release No. 62188
(May 27, 2010), 75 FR 31484 (June 3, 2010) (SR–
NYSEArca–2010–23).
7 See SR–NYSEArca–2013–31.
8 The NYSE Arca Integrated Feed includes: (i)
NYSE ArcaBook; (ii) NYSE Arca BBO; (iii) NYSE
Arca Trades; and (iv) order imbalance information.
See supra n.4.
9 One $750 monthly access fee entitles a vendor
to receive both the NYSE Arca BBO data feed as
well as the Exchange’s NYSE Arca Trades data feed.
See supra n.6.
10 See Securities Exchange Act Release Nos.
62038 (May 5, 2010), 75 FR 26825 (May 12, 2010)
(SR–NYSE–2010–22); 62181 (May 26, 2010), 75 FR
31488 (June 3, 2010) (SR–NYSE–2010–30); and
59290 (Jan. 23, 2009), 74 FR 5707 (Jan. 30, 2009)
(SR–NYSE–2009–05).
11 See supra n.6.
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display and non-display devices) to which a
Vendor provides a market data product. Any
individual or device that receives the market
data product from a Vendor is a Subscriber,
whether the individual or device works for
or belongs to the Vendor, or works for or
belongs to an entity other than the Vendor.
• Only a Vendor may control Subscriber
access to the market data product.
• Subscribers may not redistribute the
market data product in any manner.
iii. Subscriber Entitlements.
• A Subscriber Entitlement is a Vendor’s
permitting a Subscriber to receive access to
the market data product through an
Exchange-approved Subscriber Entitlement
Control.
• A Vendor may not provide access to a
market data product to a Subscriber except
through a unique Subscriber Entitlement.
• The Exchange will require each Vendor
to provide a unique Subscriber Entitlement to
each unique Subscriber.
• At prescribed intervals (normally
monthly), the Exchange will require each
Vendor to report each unique Subscriber
Entitlement.
iv. Subscriber Entitlement Controls.
• A Subscriber Entitlement Control is the
Vendor’s process of permitting Subscribers’
access to a market data product.
• Prior to using any Subscriber Entitlement
Control or changing a previously approved
Subscriber Entitlement Control, a Vendor
must provide the Exchange with a
demonstration and a detailed written
description of the control or change and the
Exchange must have approved it in writing.
• The Exchange will approve a Subscriber
Entitlement Control if it allows only
authorized, unique end-users or devices to
access the market data product or monitors
access to the market data product by each
unique end-user or device.
• Vendors must design Subscriber
Entitlement Controls to produce an audit
report and make each audit report available
to the Exchange upon request. The audit
report must identify:
• Each entitlement update to the
Subscriber Entitlement Control;
• The status of the Subscriber Entitlement
Control; and
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• Any other changes to the Subscriber
Entitlement Control over a given period.
• Only the Vendor may have access to
Subscriber Entitlement Controls.
Vendors must count every Subscriber
Entitlement, whether it be an individual
person or a device. Thus, the Vendor’s
count would include every person and
device that accesses the data regardless
of the purpose for which the individual
or device uses the data.
Vendors must report all Subscriber
Entitlements in accordance with the
following:
i. In connection with a Vendor’s external
distribution of the market data product, the
Vendor should count as one Subscriber
Entitlement each unique Subscriber that the
Vendor has entitled to have access to the
market data product. However, where a
device is dedicated specifically to a single
individual, the Vendor should count only the
individual and need not count the device.
ii. In connection with a Vendor’s internal
distribution of a market data product, the
Vendor should count as one Subscriber
Entitlement each unique individual (but not
devices) that the Vendor has entitled to have
access to such market data.
iii. The Vendor should identify and report
each unique Subscriber. If a Subscriber uses
the same unique Subscriber Entitlement to
gain access to multiple market data services,
the Vendor should count that as one
Subscriber Entitlement.
However, if a unique Subscriber uses
multiple Subscriber Entitlements to gain
access to one or more market data services
(e.g., a single Subscriber has multiple
passwords and user identifications), the
Vendor should report all of those Subscriber
Entitlements.
iv. Vendors should report each unique
individual person who receives access
through multiple devices as one Subscriber
Entitlement so long as each device is
dedicated specifically to that individual.
v. The Vendor should include in the count
as one Subscriber Entitlement devices
serving no entitled individuals. However, if
the Vendor entitles one or more individuals
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to use the same device, the Vendor should
include only the entitled individuals, and not
the device, in the count.
TKELLEY on DSK3SPTVN1PROD with NOTICES
Rationale for New Non-Display Usage
Fee Structure
As noted in the original NYSE Arca
Unit-of-Count Policy proposal,
‘‘technology has made it increasingly
difficult to define ‘device’ and to control
who has access to devices, [and] the
markets have struggled to make device
counts uniform among their
customers.’’ 12 Significant change has
characterized the industry in recent
years, stemming in large measure from
changes in regulation and technological
advances, which has led to the rise in
automated and algorithmic trading.
Additionally, market data feeds have
become faster and contain a vastly larger
number of quotes and trades. Today, a
majority of trading is done by leveraging
non-display devices consuming massive
amounts of data. Some firms base their
business models largely on
incorporating non-display data into
applications and do not require
widespread data access by the firm’s
employees. Changes in market data
consumption patterns have increased
the use and importance of non-display
data.
Applications that can be used in nondisplay devices provide added value in
their capability to manipulate and
spread the data they consume. Such
applications have the ability to perform
calculations on the live data stream and
manufacture new data out of it. Data can
be processed much faster by a nondisplay device than it can be by a
human being processing information
that he or she views on a data terminal.
Non-display devices also can dispense
data to multiple computer applications
as compared with the restriction of data
to one display terminal.
While the non-display data has
become increasingly valuable to data
recipients who can use it to generate
substantial profits, it has become
increasing difficult for them and the
Exchange to accurately count nondisplay devices. The number and type
of non-display devices, as well as their
complexity and interconnectedness,
have grown in recent years, creating
12 See Securities Exchange Act Release No. 59544
(Mar. 9, 2009), 74 FR 11162 (Mar. 16, 2009) (SR–
NYSE–2008–131). At least one other Exchange also
has noted such administrative challenges. In
establishing a non-display usage fee for internal
distributors of TotalView and OpenView, NASDAQ
Stock Market LLC (‘‘NASDAQ’’) noted that as ‘‘the
number of devices increase, so does the
administrative burden on the end customer of
counting these devices.’’ See Securities Exchange
Act Release No. 61700 (Mar. 12, 2010), 75 FR 13172
(Mar. 18, 2010) (SR–NASDAQ–2010–034).
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administrative challenges for vendors,
data recipients, and the Exchange to
accurately count such devices and audit
such counts. Unlike a display device,
such as a Bloomberg terminal, it is not
possible to simply walk through a
trading floor or areas of a data
recipient’s premises to identify nondisplay devices. During an audit, an
auditor must review a firm’s entitlement
report to determine usage. While
display use is generally associated with
an individual end user and/or unique
user ID, a non-display use is more
difficult to account for because the
entitlement report may show a server
name or Internet protocol (‘‘IP’’) address
or it may not. The auditor must review
each IP or server and further inquire
about downstream use and quantity of
servers with access to data; this type of
counting is very labor-intensive and
prone to inaccuracies.
For these reasons, the Exchange
determined that its current fee structure,
which is based on counting non-display
devices, is no longer appropriate in light
of market and technology developments
and does not reflect the value of the
non-display data and its many profitgenerating uses for subscribers. As such,
the Exchange, in conjunction with its
domestic and foreign affiliate
exchanges, undertook a review of its
market data policies with a goal of
bringing greater consistency and clarity
to its fee structure; easing
administration for itself, vendors, and
subscribers; and setting fees at a level
that better reflects the current value of
the data provided. As a result of this
review, the Exchange has determined to
implement a new fee structure for
display and non-display use of certain
market data products. Initially, the
Exchange will implement the new nondisplay use fee structure for NYSE Arca
Integrated Feed, NYSE ArcaBook, NYSE
Arca BBO, and NYSE Arca Trades,
operative on April 1, 2013. The
Exchange anticipates implementing a
new display use fee structure later this
year; until such time, existing fees for
display use will apply.
further internal or external
redistribution. The proposed nondisplay fees will apply to the nondisplay use of the data product as part
of automated calculations or algorithms
to support trading decision-making
processes or the operation of trading
platforms (‘‘Non-Display Trading
Activities’’). They include, but are not
limited to, high frequency trading,
automated order or quote generation
and/or order pegging, or price
referencing for the purposes of
algorithmic trading and/or smart order
routing. Applications and devices that
solely facilitate display, internal
distribution, or redistribution of the data
product with no other uses and
applications that use the data product
for other non-trading activities, such as
the creation of derived data, quantitative
analysis, fund administration, portfolio
management, and compliance, are not
covered by the proposed non-display fee
structure and are subject to the current
standard per-device fee structure. The
Exchange reserves the right to audit data
recipients’ use of NYSE Arca market
data products in Non-Display Trading
Activities in accordance with NYSE
Arca’s vendor and subscriber
agreements.
There will be two types of fees, which
are described below. The first type of fee
is for internal non-display use. The
second type of fee is for managed nondisplay services. The current NYSE
Arca Unit-of-Count Policy will no
longer apply to any non-display usage
for NYSE Arca BBO and NYSE Arca
Trades.14
Proposed Non-Display Usage Fees
The Exchange proposes to establish
new monthly fees for non-display usage,
which for purposes of the proposed fee
structure will mean accessing,
processing or consuming an NYSE Arca
data product delivered via direct and/or
Redistributor 13 data feeds, for a purpose
other than in support of its display or
Proposed Fees for Internal Non-Display
Use
The proposed internal non-display
use fees will apply to NYSE Arca
Integrated Feed, NYSE ArcaBook, NYSE
Arca BBO, and NYSE Arca Trades.
Internal non-display use occurs when a
data recipient either manages its own
non-display infrastructure and controls
the access to and permissioning of the
market data product on its non-display
applications or when the data
recipient’s non-display applications are
hosted by a third party that has not been
approved to provide the managed nondisplay services as described below.
The fee structure will have three
categories, which recognize the different
uses for the market data. Category 1 Fees
apply where a data recipient’s nondisplay use of real time market data is
for the purpose of principal trading.
13 ‘‘Redistributor’’ means a vendor or any other
person that provides an NYSE Arca data product to
a data recipient or to any system that a data
recipient uses, irrespective of the means of
transmission or access.
14 Existing customers that are approved for the
NYSE Arca Unit-of-Count Policy for NYSE Arca
BBO and NYSE Arca Trades display usage may
continue to follow that Policy until the new display
fees are implemented.
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Category 2 Fees apply where a data
recipient’s non-display use of market
data is for the purpose of broker/agency
trading, i.e., trading-based activities to
facilitate the recipient’s customers’
business. If a data recipient trades both
on a principal and agency basis, then
the data recipient must pay both
categories of fees. Category 3 Fees apply
where a data recipient’s non-display use
of market data is, in whole or in part,
for the purpose of providing reference
prices in the operation of one or more
trading platforms, including but not
limited to multilateral trading facilities,
alternative trading systems, broker
crossing networks, dark pools, and
systematic internalization systems. A
Category 1
trading as
principal
(per month)
Product
NYSE
NYSE
NYSE
NYSE
Arca Integrated Feed ........................................................................................................
ArcaBook ..........................................................................................................................
Arca BBO ..........................................................................................................................
Arca Trades ......................................................................................................................
Subscribers to NYSE Arca Integrated
Feed, which includes access to NYSE
ArcaBook, NYSE Arca BBO, NYSE Arca
Trades, and order imbalance
information, are not required to
subscribe to these individual services as
part of the non-display activity for these
products. Subscribers who are not
currently subscribing to NYSE Arca
Integrated Feed 15 will be responsible
for the individual product licenses for
the non-display activity.
For internal non-display use, there
will be no reporting requirements
regarding non-display device counts,
thus doing away with the administrative
burdens described above. Data
recipients will be required to declare the
market data products used within their
non-display trading applications by
executing an NYSE Euronext NonDisplay Usage Declaration.
TKELLEY on DSK3SPTVN1PROD with NOTICES
data recipient will not be liable for
Category 3 Fees for those market data
products for which it is also paying
Category 1 and/or Category 2 Fees.
The fees for internal non-display use
per data recipient organization for each
category will be as follows:
Proposed Fees for Managed Non-Display
Services
The Exchange also proposes to
establish fees for managed non-display
services for NYSE Arca Integrated Feed,
NYSE ArcaBook, and NYSE Arca
Trades. Under the managed non-display
service, a data recipient’s non-display
applications must be hosted by a
Redistributor approved by the
Exchange, and this Redistributor must
manage and control the access to NYSE
Arca Integrated Feed, NYSE ArcaBook,
and/or NYSE Arca Trades for these
applications and may not allow for
further internal distribution or external
redistribution of these market data
products. The Redistributor of the
managed non-display services and the
data recipient must be approved under
the current NYSE Arca Unit-of-Count
Policy described above,16 which will no
15 See
supra n.8.
16 See supra n.11. The Redistributor and data
recipient will qualify if they are approved for NYSE
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longer be available for non-display use
after the proposed fees are
implemented. If a data recipient is
receiving NYSE Arca Integrated Feed,
NYSE ArcaBook, and/or NYSE Arca
Trades for Non-Display Trading
Activities from a Redistributor that is
not approved under the NYSE Arca
Unit-of-Count Policy, then the internal
non-display fees described above will
apply.
The fees for managed non-display
services per data recipient organization
will be as follows:
Product
NYSE Arca Integrated
Feed.
NYSE ArcaBook ........
NYSE Arca Trades ...
Managed
Non-Display
Use Fee
(per month)
$1,750
1,500
400
Data recipients will not be liable for
managed non-display fees for those
market data products for which they pay
the internal non-display fee.
Upon request, a Redistributor offering
managed non-display services must
provide the Exchange with a list of data
recipients that are receiving NYSE Arca
Integrated Feed, NYSE ArcaBook, or
NYSE Arca Trades through the
Redistributor’s managed non-display
service. Data recipients of the managed
non-display service have no additional
reporting requirements, thus easing the
administrative burdens described above.
NYSE ArcaBook Redistribution Fee
The Exchange proposes to establish a
monthly redistribution fee of $1,500 for
NYSE ArcaBook that will be operative
on July 1, 2013. The Exchange believes
Arca Unit-of-Count Policy for any NYSE Arca
market data product. The products that are
currently approved for NYSE Arca Unit-of-Count
Policy are NYSE Arca Trades and NYSE Arca BBO.
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$5,000
4,000
1,000
1,000
Category 2
trading as
broker/agency
(per month)
$5,000
4,000
1,000
1,000
Category 3
trading
platform
(per month)
$5,000
4,000
1,000
1,000
that it is reasonable to charge this
redistribution fee because vendors
receive value from redistributing the
data in their business products for their
customers.
Examples
Broker-Dealer A obtains NYSE Arca
Trades directly from the Exchange for
internal use and does not fall under the
NYSE Arca Unit-of-Count Policy.
Broker-Dealer A trades both on a
principal and agency basis and has (i)
80 individual persons who use 100
display devices and (ii) 50 non-display
devices.
• Under the current fee schedule,
Broker-Dealer A pays the Exchange the
$750 access fee plus $10 for each of the
100 display devices (although 80
individual persons use them, the
number of devices is counted), or
$1,000, and $10 for each of the 50 nondisplay devices, or $500, for a total of
$2,250 per month.
• Under the proposed fee schedule,
Broker-Dealer A would pay the
Exchange the $750 access fee plus $10
for each of the 100 display devices, or
$1,000, and Category 1 and Category 2
fees for internal non-display use, or
$2,000, for a total of $3,750 per month.
No redistribution fee would be charged.
Broker-Dealer B, which only trades as
principal, obtains NYSE Arca Trades
from Vendor X. Broker-Dealer B and
Vendor X are both approved for the
NYSE Arca Unit-of-Count Policy.
Broker-Dealer B has (i) 10 individual
persons who use 12 display devices and
(ii) 5 non-display devices.
• Today, Vendor X pays the $750
access fee and Broker-Dealer B pays
$150 ($10 for the 10 individual persons
(under the NYSE Arca Unit-of-Count
Policy, the larger number of display
devices is not counted), or $100, plus
$10 for each of the 5 non-display
devices, or $50).
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• Under the proposed fee schedule,
Broker-Dealer B would pay $100 as it
does today for its individual persons
using display devices, and $400 for
managed non-display use, for a total of
$500 per month in fees. Vendor X
would pay the $750 access fee and, as
of May 1, 2013, the redistribution fee of
$750 for a total of $1,500.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,17
in general, and Sections 6(b)(4) and
6(b)(5) of the Act,18 in particular, in that
it provides an equitable allocation of
reasonable fees among users and
recipients of the data and is not
designed to permit unfair
discrimination among customers,
issuers, and brokers.
As described in detail in the section
‘‘Rationale for New Non-Display Usage
Fee Structure’’ above, which is
incorporated by reference herein,
technology has made it increasingly
difficult to define ‘‘device’’ and to
control who has access to devices.
Significant change has characterized the
industry in recent years, stemming in
large measure from changes in
regulation and technological advances,
which has led to the rise in automated
and algorithmic trading, which have the
potential to generate substantial profits.
Indeed, data used in a single nondisplay device running a single trading
algorithm can generate large profits.
Market data technology and usage has
evolved to the point where it is no
longer practical, nor fair and equitable,
to simply count non-display devices.
The administrative costs and difficulties
of establishing reliable counts and
conducting an effective audit of nondisplay devices have become too
burdensome, impractical, and noneconomic for the Exchange, vendors,
and data recipients. Rather, the
Exchange believes that its proposed flat
fee structure for non-display use is
reasonable, equitable, and not unfairly
discriminatory in light of these
developments.
Other exchanges also have established
differentiated fees based on non-display
usage, including a flat or enterprise fee.
For example, NASDAQ professional
subscribers pay monthly fees for nondisplay usage based upon direct access
to NASDAQ Level 2, NASDAQ
TotalView, or NASDAQ OpenView,
which range from $300 per month for
customers with one to 10 subscribers to
$75,000 for customers with 250 or more
17 15
18 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4), (5).
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subscribers.19 In addition, NASDAQ
OMX PHLX, Inc. (‘‘Phlx’’) offers an
alternative $10,000 per month ‘‘NonDisplay Enterprise License’’ fee that
permits distribution to an unlimited
number of internal non-display
subscribers without incurring additional
fees for each internal subscriber.20 The
Non-Display Enterprise License covers
non-display subscriber fees for all Phlx
proprietary direct data feed products
and is in addition to any other
associated distributor fees for Phlx
proprietary direct data feed products.
NASDAQ OMX BX, Inc. (‘‘BX’’) also
offers an alternative non-display usage
fee of $16,000 for its BX TotalView data
feed.21 NASDAQ and Phlx also both
offer managed non-display data
solutions at higher overall fees than the
Exchange proposes to charge.22
The Exchange also believes that it is
reasonable, equitable, and not unfairly
discriminatory to charge relatively
lower fees for managed non-display
services because the Exchange expects
that they will generally be used by a
small number of Redistributors and data
recipients that are currently eligible for
the NYSE Arca Unit-of-Count Policy.
These data recipients are constrained by
whatever applications are available via
Redistributors operating in the
Exchange’s co-location center and other
hosted facilities. In comparison, a data
recipient that elects internal nondisplay use is free to use the data in any
manner it chooses and create new uses
in an unlimited number of non-display
devices. The lack of constraint in this
regard will make the non-display usage
of the data more valuable to such an
internal use data recipient.
The proposed redistribution fee for
NYSE ArcaBook also is reasonable
because it is comparable to other
redistribution fees that are currently
charged by the Exchange and other
19 See
NASDAQ Rule 7023(b)(4).
Securities Exchange Act Release No. 68576
(Jan. 3, 2013), 78 FR 1886 (Jan. 9, 2013) (SR–Phlx–
2012–145). Alternatively, Phlx charges each
professional subscriber $40 per month.
21 See NASDAQ OMX BX Rule 7023(a)(2).
Alternatively, BX charges each professional
subscriber $40 per month.
22 NASDAQ established fees for a Managed Data
Solution to Distributors, which includes a monthly
Managed Data Solution Administration fee of
$1,500 and monthly Subscriber fees ranging from
$60 to $300. See NASDAQ Rule 7026(b). Phlx also
established a Managed Data Solution, which
includes a monthly Managed Data Solution
Administration fee of $1,500 and a monthly
Subscriber fee of $250. The monthly License fee is
in addition to Phlx’s monthly Distributor fee of
$2,500 (for external usage), and the $250 monthly
Subscriber fee is assessed for each Subscriber of a
Managed Data Solution. See Securities Exchange
Act Release No. 67466 (July 19, 2012), 77 FR 43629
(July 25, 2012) (SR–Phlx–2012–93).
20 See
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exchanges.23 As noted above, the
Exchange believes that it is reasonable
to charge redistribution fees because
vendors receive value from
redistributing the data in their business
products for their customers. The
redistribution fees also are equitable and
not unfairly discriminatory because they
will be charged on an equal basis to
those vendors that choose to redistribute
the data.
The Exchange has not raised the
market data fees for NYSE Arca
Integrated Feed and NYSE Arca BBO
since the fees were adopted in 2011 and
2010, respectively.24 The Exchange set
the NYSE ArcaBook professional
subscriber fee at $15 and nonprofessional subscriber fee for Tape A
and B Securities (including ETFs) or
Tape C Securities (excluding ETFs) in
2006, and the NYSE Arca Trades
professional subscriber fee at $10 in
2010.25 The Exchange believes that the
new fee schedule, which may result in
certain vendors and data recipients
paying more than they have in the last
several years, is fair and reasonable in
light of market and technology
developments. The current per-device
fee structure no longer reflects the
significant overall value that nondisplay data can provide in trading
algorithms and other uses that provide
professional users with the potential to
generate substantial profits. The
Exchange believes that it is equitable
and not unfairly discriminatory to
establish an overall monthly fee that
better reflects the value of the data to
the data recipients in their profitgenerating activities and does away with
the costs and administrative burdens of
counting non-display devices.
The Exchange also notes that products
described herein are entirely optional.
Firms are not required to purchase
NYSE Arca Integrated Feed, NYSE
ArcaBook, NYSE Arca BBO, or NYSE
Arca Trades. Firms have a wide variety
of alternative market data products from
which to choose.26 Moreover, the
Exchange is not required to make these
23 The Exchange charges a $3,000 per month
redistribution fee for the NYSE Arca Integrated
Feed, which includes depth-of-book data. See supra
n.4. In addition, the Exchange and NYSE MKT LLC
(‘‘NYSE MKT’’) charge redistribution fees of $2,000
per month for certain proprietary options market
data products. See Securities Exchange Act Release
Nos. 68005 (Oct. 9, 2012), 77 FR 63362 (Oct. 16,
2012) (SR–NYSEArca–2012–106), and 68004 (Oct.
9, 2012), 77 FR 62582 (Oct. 15, 2012) (SR–
NYSEMKT–2012–49). All distributors of a
NASDAQ Last Sale Data Feed also pay a monthly
fee of $1,500. See NASDAQ Rule 7039(d).
24 See supra nn.4, 6.
25 See Securities Exchange Act Release No. 54597
(Oct. 12, 2006), 71 FR 62029 (Oct. 20, 2006) (SR–
NYSEArca–2006–21); supra n.5.
26 See supra nn.19–22.
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proprietary data products available or to
offer any specific pricing alternatives to
any customers.
The decision of the United States
Court of Appeals for the District of
Columbia Circuit in NetCoalition v.
SEC, 615 F.3d 525 (D.C. Cir. 2010),
upheld reliance by the Securities and
Exchange Commission (‘‘Commission’’)
upon the existence of competitive
market mechanisms to set reasonable
and equitably allocated fees for
proprietary market data:
In fact, the legislative history indicates that
the Congress intended that the market system
‘‘evolve through the interplay of competitive
forces as unnecessary regulatory restrictions
are removed’’ and that the SEC wield its
regulatory power ‘‘in those situations where
competition may not be sufficient,’’ such as
in the creation of a ‘‘consolidated
transactional reporting system.’’
Id. at 535 (quoting H.R. Rep. No. 94–
229 at 92 (1975), as reprinted in 1975
U.S.C.C.A.N. 323). The court agreed
with the Commission’s conclusion that
‘‘Congress intended that ‘competitive
forces should dictate the services and
practices that constitute the U.S.
national market system for trading
equity securities.’’’ 27
As explained below in the Exchange’s
Statement on Burden on Competition,
the Exchange believes that there is
substantial evidence of competition in
the marketplace for data and that the
Commission can rely upon such
evidence in concluding that the fees
established in this filing are the product
of competition and therefore satisfy the
relevant statutory standards.28 In
addition, the existence of alternatives to
these data products, such as proprietary
last sale data from other sources, as
described below, further ensures that
the Exchange cannot set unreasonable
fees, or fees that are unreasonably
discriminatory, when vendors and
subscribers can elect such alternatives.
As the NetCoalition decision noted,
the Commission is not required to
undertake a cost-of-service or
ratemaking approach, and the Exchange
incorporates by reference into this
proposed rule change its analysis of this
topic in another rule filing.29
For these reasons, the Exchange
believes that the proposed fees are
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27 NetCoalition,
615 F.3d at 535.
916 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (the
‘‘Dodd-Frank Act’’) amended paragraph (A) of
Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3), to
make clear that all exchange fees for market data
may be filed by exchanges on an immediately
effective basis.
29 See Securities Exchange Act Release No. 63291
(Nov. 9, 2010), 75 FR 70311 (Nov. 17, 2010) (SR–
NYSEArca–2010–97).
28 Section
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reasonable, equitable, and not unfairly
discriminatory.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. An
exchange’s ability to price its
proprietary data feed products is
constrained by actual competition for
the sale of proprietary market data
products, the joint product nature of
exchange platforms, and the existence of
alternatives to the Exchange’s
proprietary last sale data.
The Existence of Actual Competition.
The market for proprietary data
products is currently competitive and
inherently contestable because there is
fierce competition for the inputs
necessary for the creation of proprietary
data and strict pricing discipline to the
proprietary products themselves.
Numerous exchanges compete with
each other for listings and order flow
and sales of market data itself, providing
virtually limitless opportunities for
entrepreneurs who wish to compete in
any or all of those areas, including
producing and distributing their own
market data. Proprietary data products
are produced and distributed by each
individual exchange, as well as other
entities, in a vigorously competitive
market.
Competitive markets for listings, order
flow, executions, and transaction
reports provide pricing discipline for
the inputs of proprietary data products
and therefore constrain markets from
overpricing proprietary market data.
The U.S. Department of Justice also has
acknowledged the aggressive
competition among exchanges,
including for the sale of proprietary
market data itself. In announcing that
the bid for NYSE Euronext by NASDAQ
OMX Group Inc. and
IntercontinentalExchange Inc. had been
abandoned, Assistant Attorney General
Christine Varney stated that exchanges
‘‘compete head to head to offer real-time
equity data products. These data
products include the best bid and offer
of every exchange and information on
each equity trade, including the last
sale.’’ 30
It is common for broker-dealers to
further exploit this recognized
30 Press
Release, U.S. Department of Justice,
Assistant Attorney General Christine Varney Holds
Conference Call Regarding NASDAQ OMX Group
Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011),
available at: https://www.justice.gov/iso/opa/atr/
speeches/2011/at-speech-110516.html.
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21673
competitive constraint by sending their
order flow and transaction reports to
multiple markets, rather than providing
them all to a single market. As a 2010
Commission Concept Release noted, the
‘‘current market structure can be
described as dispersed and complex’’
with ‘‘trading volume * * * dispersed
among many highly automated trading
centers that compete for order flow in
the same stocks’’ and ‘‘trading centers
offer[ing] a wide range of services that
are designed to attract different types of
market participants with varying trading
needs.’’ 31
In addition, in the case of products
that are distributed through market data
vendors, the market data vendors
themselves provide additional price
discipline for proprietary data products
because they control the primary means
of access to certain end users. These
vendors impose price discipline based
upon their business models. For
example, vendors that assess a
surcharge on data they sell are able to
refuse to offer proprietary products that
their end users do not or will not
purchase in sufficient numbers. Internet
portals, such as Google, impose price
discipline by providing only data that
they believe will enable them to attract
‘‘eyeballs’’ that contribute to their
advertising revenue. Similarly, vendors
will not elect to make available the
NYSE Arca products described herein
unless their customers request them,
and customers will not elect to purchase
them unless they can be used for profitgenerating purposes. All of these
operate as constraints on pricing
proprietary data products.
Joint Product Nature of Exchange
Platform. 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 executions 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
platforms where the order can be
posted, including the execution fees,
data quality, and price and distribution
of their data products. The more trade
executions a platform does, the more
valuable its market data products
become.
31 Concept Release on Equity Market Structure,
Securities Exchange Act Release No. 61358 (Jan. 14,
2010), 75 FR 3594 (Jan. 21, 2010) (File No. S7–02–
10). This Concept Release included data from the
third quarter of 2009 showing that no market center
traded more than 20% of the volume of listed
stocks, further evidencing the dispersal of and
competition for trading activity. Id. at 3598.
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The costs of producing market data
include not only the costs of the data
distribution infrastructure, but also the
costs of designing, maintaining, and
operating the exchange’s transaction
execution platform and the cost of
regulating the exchange to ensure its fair
operation and maintain investor
confidence. The total return that a
trading platform earns reflects the
revenues it receives from both products
and the joint costs it incurs. Moreover,
an exchange’s broker-dealer customers
view the costs of transaction executions
and market data as a unified cost of
doing business with the exchange.
Other market participants have noted
that the liquidity provided by the order
book, trade execution, core market data,
and non-core market data are joint
products of a joint platform and have
common costs.32 The Exchange agrees
with and adopts those discussions and
the arguments therein. The Exchange
also notes that the economics literature
confirms that there is no way to allocate
common costs between joint products
that would shed any light on
competitive or efficient pricing.33
32 See Securities Exchange Act Release No. 62887
(Sept. 10, 2010), 75 FR 57092, 57095 (Sept. 17,
2010) (SR–Phlx–2010–121); Securities Exchange
Act Release No. 62907 (Sept. 14, 2010), 75 FR
57314, 57317 (Sept. 20, 2010) (SR–NASDAQ–2010–
110); and Securities Exchange Act Release No.
62908 (Sept. 14, 2010), 75 FR 57321, 57324 (Sept.
20, 2010) (SR–NASDAQ–2010–111) (‘‘all of the
exchange’s costs are incurred for the unified
purposes of attracting order flow, executing and/or
routing orders, and generating and selling data
about market activity. The total return that an
exchange earns reflects the revenues it receives
from the joint products and the total costs of the
joint products.’’); see also August 1, 2008 Comment
Letter of Jeffrey S. Davis, Vice President and Deputy
General Counsel, NASDAQ OMX Group, Inc.,
Statement of Janusz Ordover and Gustavo
Bamberger (‘‘because market data is both an input
to and a byproduct of executing trades on a
particular platform, market data and trade
execution services are an example of ‘joint
products’ with ‘joint costs.’’’), attachment at pg. 4,
available at www.sec.gov/comments/34-57917/
3457917-12.pdf.
33 See generally Mark Hirschey, Fundamentals of
Managerial Economics, at 600 (2009) (‘‘It is
important to note, however, that although it is
possible to determine the separate marginal costs of
goods produced in variable proportions, it is
impossible to determine their individual average
costs. This is because common costs are expenses
necessary for manufacture of a joint product.
Common costs of production—raw material and
equipment costs, management expenses, and other
overhead—cannot be allocated to each individual
by-product on any economically sound basis. * * *
Any allocation of common costs is wrong and
arbitrary.’’). This is not new economic theory. See,
e.g., F.W. Taussig, ‘‘A Contribution to the Theory
of Railway Rates,’’ Quarterly Journal of Economics
V(4) 438, 465 (July 1891) (‘‘Yet, surely, the division
is purely arbitrary. These items of cost, in fact, are
jointly incurred for both sorts of traffic; and I cannot
share the hope entertained by the statistician of the
Commission, Professor Henry C. Adams, that we
shall ever reach a mode of apportionment that will
lead to trustworthy results.’’).
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Analyzing the cost of market data
product production and distribution in
isolation from the cost of all of the
inputs supporting the creation of market
data and market data products will
inevitably underestimate the cost of the
data and data products. Thus, because it
is impossible to obtain the data inputs
to create market data products without
a fast, technologically robust, and wellregulated execution system, system
costs and regulatory costs affect the
price of both obtaining the market data
itself and creating and distributing
market data products. It would be
equally misleading, however, to
attribute all of an exchange’s costs to the
market data portion of an exchange’s
joint products. Rather, all of an
exchange’s costs are incurred for the
unified purposes of attracting order
flow, executing and/or routing orders,
and generating and selling data about
market activity. The total return that an
exchange earns reflects the revenues it
receives from the joint products and the
total costs of the joint products.
The level of competition and
contestability in the market is evident in
the numerous alternative venues that
compete for order flow, including 12
equities self-regulatory organization
(‘‘SRO’’) markets, as well as
internalizing broker-dealers (‘‘BDs’’) and
various forms of alternative trading
systems (‘‘ATSs’’), including dark pools
and electronic communication networks
(‘‘ECNs’’). Competition among trading
platforms can be expected to constrain
the aggregate return that each platform
earns from the sale of its joint products,
but different platforms may choose from
a range of possible, and equally
reasonable, pricing strategies as the
means of recovering total costs. For
example, some platforms may choose to
pay rebates to attract orders, charge
relatively low prices for market data
products (or provide market data
products 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
data products, 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.
Existence of Alternatives. 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,
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ATS, and BD is currently permitted to
produce proprietary data products, and
many currently do or have announced
plans to do so, including but not limited
to the Exchange, NYSE, NYSE MKT,
NASDAQ OMX, BATS, and Direct Edge.
The fact that proprietary data from
ATSs, BDs, and vendors can bypass
SROs is significant in two respects.
First, non-SROs can compete directly
with SROs for the production and sale
of proprietary data products. Second,
because a single order or transaction
report can appear in an SRO proprietary
product, a non-SRO proprietary
product, or both, the amount of data
available via proprietary products is
greater in size than the actual number of
orders and transaction reports that exist
in the marketplace. Because market data
users can thus find suitable substitutes
for most proprietary market data
products,34 a market that overprices its
market data products stands a high risk
that users may substitute another source
of market data information for its own.
Those competitive pressures imposed
by available alternatives are evident in
the Exchange’s proposed pricing. As
noted above, the proposed non-display
fees for NYSE Arca Integrated Feed,
NYSE ArcaBook, NYSE Arca Trades,
and NYSE Arca BBO are generally lower
than the maximum non-display fees
charged by other exchanges such as
NASDAQ, Phlx, and BX for comparable
products.35 The proposed redistribution
fee for NYSE ArcaBook also is
comparable to the Exchange’s and other
exchanges’ similar fees.36
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 and inexpensive. The
history of electronic trading is replete
with examples of entrants that swiftly
grew into some of the largest electronic
trading platforms and proprietary data
producers: Archipelago, Bloomberg
Tradebook, Island, RediBook, Attain,
TrackECN, BATS, and Direct Edge.
Today, BATS and Direct Edge provide
certain market data at no charge on their
Web sites in order to attract more order
flow, and use revenue rebates from
resulting additional executions to
maintain low execution charges for their
users.37
34 See
supra nn.19–22.
35 Id.
36 See
supra n.23.
is simply a securities market-specific
example of the well-established principle that in
certain circumstances more sales at lower margins
can be more profitable than fewer sales at higher
margins; this example is additional evidence that
market data is an inherent part of a market’s joint
platform.
37 This
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Further, data products are valuable to
certain end users only insofar as they
provide information that end users
expect will assist them or their
customers. The Exchange believes the
proposed non-display fees will benefit
customers by providing them with a
clearer way to determine their fee
liability for non-display devices, and
with respect to internal use, to obviate
the need to count such devices. The
Exchange further believes that only
vendors that expect to derive a
reasonable benefit from redistributing
the market data products described
herein will choose to become
Redistributors and pay the attendant
monthly fees.
In establishing the proposed fees, the
Exchange considered the
competitiveness of the market for
proprietary data and all of the
implications of that competition. The
Exchange believes that it has considered
all relevant factors and has not
considered irrelevant factors in order to
establish fair, reasonable, and not
unreasonably discriminatory fees and an
equitable allocation of fees among all
users. The existence of numerous
alternatives to the Exchange’s products,
including proprietary data from other
sources, ensures that the Exchange
cannot set unreasonable fees, or fees
that are unreasonably discriminatory,
when vendors and subscribers can elect
these alternatives or choose not to
purchase a specific proprietary data
product if its cost to purchase is not
justified by the returns any particular
vendor or subscriber would achieve
through the purchase.
TKELLEY on DSK3SPTVN1PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 38 of the Act and
subparagraph (f)(2) of Rule 19b–4 39
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
38 15
39 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
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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
under Section 19(b)(2)(B) 40 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2013–37 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR– NYSEArca–2013–37. 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 on official business
days between the hours of 10:00 a.m.
and 3:00 p.m. Copies of such filing also
will be available for inspection and
copying at the principal offices of
NYSE. All comments received will be
posted without change; the Commission
does not edit personal identifying
information from submissions. You
40 15
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should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NYSEARCA–2013–37, and
should be submitted on or before May
2, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.41
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–08464 Filed 4–10–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69333; File No. SR–
NASDAQ–2013–043]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Order
Approving, on an Accelerated Basis,
Proposed Rule Change To Adopt
Chapter V, Section 3(d)(iii) Regarding
Quoting Obligations
April 5, 2013.
I. Introduction
On March 5, 2013, The NASDAQ
Stock Market LLC (‘‘NASDAQ’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) 1 of the Securities Exchange Act
of 1934 (‘‘Act’’),2 and Rule 19b–4
thereunder,3 a proposed rule change to
adopt Chapter V, Section 3(d)(iii)
regarding quoting obligations. The
proposed rule change was published for
comment in the Federal Register on
March 13, 2013.4 The Commission
received no comment letters on the
proposal. This order approves the
proposed rule change on an accelerated
basis.
II. Background
On May 6, 2010, the U.S. equity
markets experienced a severe disruption
that, among other things, resulted in the
prices of a large number of individual
securities suddenly declining by
significant amounts in a very short time
period before suddenly reversing to
prices consistent with their pre-decline
levels.5 This severe price volatility led
41 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 See Securities Exchange Act Release No. 69069
(March 7, 2013), 78 FR 15995.
5 The events of May 6 are described more fully
in a joint report by the staffs of the Commodity
Futures Trading Commission (‘‘CFTC’’) and the
Commission. See Report of the Staffs of the CFTC
1 15
U.S.C. 78s(b)(2)(B).
Frm 00086
Fmt 4703
21675
Continued
Sfmt 4703
E:\FR\FM\11APN1.SGM
11APN1
]]>Agencies
[Federal Register Volume 78, Number 70 (Thursday, April 11, 2013)]
[Notices]
[Pages 21668-21675]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08464]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69315; File No. SR-NYSEArca-2013-37]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Establishing Non-
Display Usage Fees for NYSE Arca Integrated Feed, NYSE ArcaBook, NYSE
Arca Trades, and NYSE Arca BBO, and a Redistribution Fee for NYSE
ArcaBook
April 5, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on March 28, 2013, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to establish non-display usage fees for NYSE
Arca Integrated Feed, NYSE ArcaBook, NYSE Arca Trades, and NYSE Arca
BBO, all of which will be operative on April 1, 2013, and a
redistribution fee for NYSE ArcaBook, which will be operative on July
1, 2013. The text of the proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to establish non-display usage fees for NYSE
Arca Integrated Feed, NYSE ArcaBook, NYSE Arca Trades, and NYSE Arca
BBO, all of which will be operative on April 1, 2013, and a
redistribution fee for NYSE ArcaBook, which will be operative on July
1, 2013. The subsections below describe (1) The background on the
current fees for these real-time products; (2) the rationale for
creating a new non-display usage fee structure; (3) the proposed fees
for non-display use, which will include internal non-display use and
managed non-display use; (4) the proposed redistribution fee for NYSE
ArcaBook; and (5) examples comparing the current and proposed fees.
[[Page 21669]]
Background on Current Fees
The current monthly fees for NYSE Arca Integrated Feed,\4\ NYSE
ArcaBook,\5\ NYSE Arca BBO,\6\ and NYSE Arca Trades \7\ are as follows:
----------------------------------------------------------------------------------------------------------------
Digital media Redistribution
Product Access fee Subscriber fees enterprise fee fee
----------------------------------------------------------------------------------------------------------------
NYSE Arca Integrated Feed \8\... $3,000 Professional: $40....... N/A $3,000
Non-professional: $20...
NYSE ArcaBook................... $750 Tape A & B Securities NA NA
(including ETFs).
................ Professional: $15.
................ Non-professional: $5.
................ Tape C Securities
(excluding ETFs)
................ Professional: $15.
................ Non-professional: $5.
................ Non-professional Fee
Cap: $20,000.
NYSE Arca BBO................... $750 Professional: $10....... NA NA
Non-professional: $5....
NYSE Arca Trades................ \9\ $750 Professional: $10....... $20,000 * $750
----------------------------------------------------------------------------------------------------------------
* (Operative May 1, 2013).
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 66128 (Jan. 10,
2012), 77 FR 2331 (Jan. 17, 2012) (SR-NYSEArca-2011-96).
\5\ See Securities Exchange Act Release No. 63291 (Nov. 9,
2010), 75 FR 70311 (Nov. 17, 2010) (SR-NYSEArca-2010-97).
\6\ See Securities Exchange Act Release No. 62188 (May 27,
2010), 75 FR 31484 (June 3, 2010) (SR-NYSEArca-2010-23).
\7\ See SR-NYSEArca-2013-31.
\8\ The NYSE Arca Integrated Feed includes: (i) NYSE ArcaBook;
(ii) NYSE Arca BBO; (iii) NYSE Arca Trades; and (iv) order imbalance
information. See supra n.4.
\9\ One $750 monthly access fee entitles a vendor to receive
both the NYSE Arca BBO data feed as well as the Exchange's NYSE Arca
Trades data feed. See supra n.6.
---------------------------------------------------------------------------
While the majority of subscribers pay the subscriber fee for each
display or non-display device that has access to NYSE Arca BBO and NYSE
Arca Trades as set forth above, a small number of vendors and
subscribers are eligible for, and have elected, the NYSE Arca Unit-of-
Count Policy that was first introduced by the Exchange's affiliate, New
York Stock Exchange LLC (``NYSE''), 2009 \10\ and is now also available
for NYSE Arca BBO and NYSE Arca Trades.\11\ Under this fee structure,
these vendors and subscribers are subject to a fee structure that
utilizes the following basic principles:
---------------------------------------------------------------------------
\10\ See Securities Exchange Act Release Nos. 62038 (May 5,
2010), 75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22); 62181 (May 26,
2010), 75 FR 31488 (June 3, 2010) (SR-NYSE-2010-30); and 59290 (Jan.
23, 2009), 74 FR 5707 (Jan. 30, 2009) (SR-NYSE-2009-05).
\11\ See supra n.6.
i. Vendors.
``Vendors'' are market data vendors, broker-dealers,
private network providers, and other entities that control
Subscribers' access to a market data product through Subscriber
Entitlement Controls (as described below).
ii. Subscribers.
``Subscribers'' are unique individual persons or
devices (which include both display and non-display devices) to
which a Vendor provides a market data product. Any individual or
device that receives the market data product from a Vendor is a
Subscriber, whether the individual or device works for or belongs to
the Vendor, or works for or belongs to an entity other than the
Vendor.
Only a Vendor may control Subscriber access to the
market data product.
Subscribers may not redistribute the market data
product in any manner.
iii. Subscriber Entitlements.
A Subscriber Entitlement is a Vendor's permitting a
Subscriber to receive access to the market data product through an
Exchange-approved Subscriber Entitlement Control.
A Vendor may not provide access to a market data
product to a Subscriber except through a unique Subscriber
Entitlement.
The Exchange will require each Vendor to provide a
unique Subscriber Entitlement to each unique Subscriber.
At prescribed intervals (normally monthly), the
Exchange will require each Vendor to report each unique Subscriber
Entitlement.
iv. Subscriber Entitlement Controls.
A Subscriber Entitlement Control is the Vendor's
process of permitting Subscribers' access to a market data product.
Prior to using any Subscriber Entitlement Control or
changing a previously approved Subscriber Entitlement Control, a
Vendor must provide the Exchange with a demonstration and a detailed
written description of the control or change and the Exchange must
have approved it in writing.
The Exchange will approve a Subscriber Entitlement
Control if it allows only authorized, unique end-users or devices to
access the market data product or monitors access to the market data
product by each unique end-user or device.
Vendors must design Subscriber Entitlement Controls to
produce an audit report and make each audit report available to the
Exchange upon request. The audit report must identify:
Each entitlement update to the Subscriber Entitlement
Control;
The status of the Subscriber Entitlement Control; and
Any other changes to the Subscriber Entitlement Control
over a given period.
Only the Vendor may have access to Subscriber
Entitlement Controls.
Vendors must count every Subscriber Entitlement, whether it be an
individual person or a device. Thus, the Vendor's count would include
every person and device that accesses the data regardless of the
purpose for which the individual or device uses the data.
Vendors must report all Subscriber Entitlements in accordance with
the following:
i. In connection with a Vendor's external distribution of the
market data product, the Vendor should count as one Subscriber
Entitlement each unique Subscriber that the Vendor has entitled to
have access to the market data product. However, where a device is
dedicated specifically to a single individual, the Vendor should
count only the individual and need not count the device.
ii. In connection with a Vendor's internal distribution of a
market data product, the Vendor should count as one Subscriber
Entitlement each unique individual (but not devices) that the Vendor
has entitled to have access to such market data.
iii. The Vendor should identify and report each unique
Subscriber. If a Subscriber uses the same unique Subscriber
Entitlement to gain access to multiple market data services, the
Vendor should count that as one Subscriber Entitlement.
However, if a unique Subscriber uses multiple Subscriber
Entitlements to gain access to one or more market data services
(e.g., a single Subscriber has multiple passwords and user
identifications), the Vendor should report all of those Subscriber
Entitlements.
iv. Vendors should report each unique individual person who
receives access through multiple devices as one Subscriber
Entitlement so long as each device is dedicated specifically to that
individual.
v. The Vendor should include in the count as one Subscriber
Entitlement devices serving no entitled individuals. However, if the
Vendor entitles one or more individuals
[[Page 21670]]
to use the same device, the Vendor should include only the entitled
individuals, and not the device, in the count.
Rationale for New Non-Display Usage Fee Structure
As noted in the original NYSE Arca Unit-of-Count Policy proposal,
``technology has made it increasingly difficult to define `device' and
to control who has access to devices, [and] the markets have struggled
to make device counts uniform among their customers.'' \12\ Significant
change has characterized the industry in recent years, stemming in
large measure from changes in regulation and technological advances,
which has led to the rise in automated and algorithmic trading.
Additionally, market data feeds have become faster and contain a vastly
larger number of quotes and trades. Today, a majority of trading is
done by leveraging non-display devices consuming massive amounts of
data. Some firms base their business models largely on incorporating
non-display data into applications and do not require widespread data
access by the firm's employees. Changes in market data consumption
patterns have increased the use and importance of non-display data.
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release No. 59544 (Mar. 9,
2009), 74 FR 11162 (Mar. 16, 2009) (SR-NYSE-2008-131). At least one
other Exchange also has noted such administrative challenges. In
establishing a non-display usage fee for internal distributors of
TotalView and OpenView, NASDAQ Stock Market LLC (``NASDAQ'') noted
that as ``the number of devices increase, so does the administrative
burden on the end customer of counting these devices.'' See
Securities Exchange Act Release No. 61700 (Mar. 12, 2010), 75 FR
13172 (Mar. 18, 2010) (SR-NASDAQ-2010-034).
---------------------------------------------------------------------------
Applications that can be used in non-display devices provide added
value in their capability to manipulate and spread the data they
consume. Such applications have the ability to perform calculations on
the live data stream and manufacture new data out of it. Data can be
processed much faster by a non-display device than it can be by a human
being processing information that he or she views on a data terminal.
Non-display devices also can dispense data to multiple computer
applications as compared with the restriction of data to one display
terminal.
While the non-display data has become increasingly valuable to data
recipients who can use it to generate substantial profits, it has
become increasing difficult for them and the Exchange to accurately
count non-display devices. The number and type of non-display devices,
as well as their complexity and interconnectedness, have grown in
recent years, creating administrative challenges for vendors, data
recipients, and the Exchange to accurately count such devices and audit
such counts. Unlike a display device, such as a Bloomberg terminal, it
is not possible to simply walk through a trading floor or areas of a
data recipient's premises to identify non-display devices. During an
audit, an auditor must review a firm's entitlement report to determine
usage. While display use is generally associated with an individual end
user and/or unique user ID, a non-display use is more difficult to
account for because the entitlement report may show a server name or
Internet protocol (``IP'') address or it may not. The auditor must
review each IP or server and further inquire about downstream use and
quantity of servers with access to data; this type of counting is very
labor-intensive and prone to inaccuracies.
For these reasons, the Exchange determined that its current fee
structure, which is based on counting non-display devices, is no longer
appropriate in light of market and technology developments and does not
reflect the value of the non-display data and its many profit-
generating uses for subscribers. As such, the Exchange, in conjunction
with its domestic and foreign affiliate exchanges, undertook a review
of its market data policies with a goal of bringing greater consistency
and clarity to its fee structure; easing administration for itself,
vendors, and subscribers; and setting fees at a level that better
reflects the current value of the data provided. As a result of this
review, the Exchange has determined to implement a new fee structure
for display and non-display use of certain market data products.
Initially, the Exchange will implement the new non-display use fee
structure for NYSE Arca Integrated Feed, NYSE ArcaBook, NYSE Arca BBO,
and NYSE Arca Trades, operative on April 1, 2013. The Exchange
anticipates implementing a new display use fee structure later this
year; until such time, existing fees for display use will apply.
Proposed Non-Display Usage Fees
The Exchange proposes to establish new monthly fees for non-display
usage, which for purposes of the proposed fee structure will mean
accessing, processing or consuming an NYSE Arca data product delivered
via direct and/or Redistributor \13\ data feeds, for a purpose other
than in support of its display or further internal or external
redistribution. The proposed non-display fees will apply to the non-
display use of the data product as part of automated calculations or
algorithms to support trading decision-making processes or the
operation of trading platforms (``Non-Display Trading Activities'').
They include, but are not limited to, high frequency trading, automated
order or quote generation and/or order pegging, or price referencing
for the purposes of algorithmic trading and/or smart order routing.
Applications and devices that solely facilitate display, internal
distribution, or redistribution of the data product with no other uses
and applications that use the data product for other non-trading
activities, such as the creation of derived data, quantitative
analysis, fund administration, portfolio management, and compliance,
are not covered by the proposed non-display fee structure and are
subject to the current standard per-device fee structure. The Exchange
reserves the right to audit data recipients' use of NYSE Arca market
data products in Non-Display Trading Activities in accordance with NYSE
Arca's vendor and subscriber agreements.
---------------------------------------------------------------------------
\13\ ``Redistributor'' means a vendor or any other person that
provides an NYSE Arca data product to a data recipient or to any
system that a data recipient uses, irrespective of the means of
transmission or access.
---------------------------------------------------------------------------
There will be two types of fees, which are described below. The
first type of fee is for internal non-display use. The second type of
fee is for managed non-display services. The current NYSE Arca Unit-of-
Count Policy will no longer apply to any non-display usage for NYSE
Arca BBO and NYSE Arca Trades.\14\
---------------------------------------------------------------------------
\14\ Existing customers that are approved for the NYSE Arca
Unit-of-Count Policy for NYSE Arca BBO and NYSE Arca Trades display
usage may continue to follow that Policy until the new display fees
are implemented.
---------------------------------------------------------------------------
Proposed Fees for Internal Non-Display Use
The proposed internal non-display use fees will apply to NYSE Arca
Integrated Feed, NYSE ArcaBook, NYSE Arca BBO, and NYSE Arca Trades.
Internal non-display use occurs when a data recipient either manages
its own non-display infrastructure and controls the access to and
permissioning of the market data product on its non-display
applications or when the data recipient's non-display applications are
hosted by a third party that has not been approved to provide the
managed non-display services as described below.
The fee structure will have three categories, which recognize the
different uses for the market data. Category 1 Fees apply where a data
recipient's non-display use of real time market data is for the purpose
of principal trading.
[[Page 21671]]
Category 2 Fees apply where a data recipient's non-display use of
market data is for the purpose of broker/agency trading, i.e., trading-
based activities to facilitate the recipient's customers' business. If
a data recipient trades both on a principal and agency basis, then the
data recipient must pay both categories of fees. Category 3 Fees apply
where a data recipient's non-display use of market data is, in whole or
in part, for the purpose of providing reference prices in the operation
of one or more trading platforms, including but not limited to
multilateral trading facilities, alternative trading systems, broker
crossing networks, dark pools, and systematic internalization systems.
A data recipient will not be liable for Category 3 Fees for those
market data products for which it is also paying Category 1 and/or
Category 2 Fees.
The fees for internal non-display use per data recipient
organization for each category will be as follows:
----------------------------------------------------------------------------------------------------------------
Category 1 Category 2 Category 3
trading as trading as trading
Product principal (per broker/agency platform (per
month) (per month) month)
----------------------------------------------------------------------------------------------------------------
NYSE Arca Integrated Feed....................................... $5,000 $5,000 $5,000
NYSE ArcaBook................................................... 4,000 4,000 4,000
NYSE Arca BBO................................................... 1,000 1,000 1,000
NYSE Arca Trades................................................ 1,000 1,000 1,000
----------------------------------------------------------------------------------------------------------------
Subscribers to NYSE Arca Integrated Feed, which includes access to
NYSE ArcaBook, NYSE Arca BBO, NYSE Arca Trades, and order imbalance
information, are not required to subscribe to these individual services
as part of the non-display activity for these products. Subscribers who
are not currently subscribing to NYSE Arca Integrated Feed \15\ will be
responsible for the individual product licenses for the non-display
activity.
---------------------------------------------------------------------------
\15\ See supra n.8.
---------------------------------------------------------------------------
For internal non-display use, there will be no reporting
requirements regarding non-display device counts, thus doing away with
the administrative burdens described above. Data recipients will be
required to declare the market data products used within their non-
display trading applications by executing an NYSE Euronext Non-Display
Usage Declaration.
Proposed Fees for Managed Non-Display Services
The Exchange also proposes to establish fees for managed non-
display services for NYSE Arca Integrated Feed, NYSE ArcaBook, and NYSE
Arca Trades. Under the managed non-display service, a data recipient's
non-display applications must be hosted by a Redistributor approved by
the Exchange, and this Redistributor must manage and control the access
to NYSE Arca Integrated Feed, NYSE ArcaBook, and/or NYSE Arca Trades
for these applications and may not allow for further internal
distribution or external redistribution of these market data products.
The Redistributor of the managed non-display services and the data
recipient must be approved under the current NYSE Arca Unit-of-Count
Policy described above,\16\ which will no longer be available for non-
display use after the proposed fees are implemented. If a data
recipient is receiving NYSE Arca Integrated Feed, NYSE ArcaBook, and/or
NYSE Arca Trades for Non-Display Trading Activities from a
Redistributor that is not approved under the NYSE Arca Unit-of-Count
Policy, then the internal non-display fees described above will apply.
---------------------------------------------------------------------------
\16\ See supra n.11. The Redistributor and data recipient will
qualify if they are approved for NYSE Arca Unit-of-Count Policy for
any NYSE Arca market data product. The products that are currently
approved for NYSE Arca Unit-of-Count Policy are NYSE Arca Trades and
NYSE Arca BBO.
---------------------------------------------------------------------------
The fees for managed non-display services per data recipient
organization will be as follows:
------------------------------------------------------------------------
Managed Non-Display Use Fee
Product (per month)
------------------------------------------------------------------------
NYSE Arca Integrated Feed................. $1,750
NYSE ArcaBook............................. 1,500
NYSE Arca Trades.......................... 400
------------------------------------------------------------------------
Data recipients will not be liable for managed non-display fees for
those market data products for which they pay the internal non-display
fee.
Upon request, a Redistributor offering managed non-display services
must provide the Exchange with a list of data recipients that are
receiving NYSE Arca Integrated Feed, NYSE ArcaBook, or NYSE Arca Trades
through the Redistributor's managed non-display service. Data
recipients of the managed non-display service have no additional
reporting requirements, thus easing the administrative burdens
described above.
NYSE ArcaBook Redistribution Fee
The Exchange proposes to establish a monthly redistribution fee of
$1,500 for NYSE ArcaBook that will be operative on July 1, 2013. The
Exchange believes that it is reasonable to charge this redistribution
fee because vendors receive value from redistributing the data in their
business products for their customers.
Examples
Broker-Dealer A obtains NYSE Arca Trades directly from the Exchange
for internal use and does not fall under the NYSE Arca Unit-of-Count
Policy. Broker-Dealer A trades both on a principal and agency basis and
has (i) 80 individual persons who use 100 display devices and (ii) 50
non-display devices.
Under the current fee schedule, Broker-Dealer A pays the
Exchange the $750 access fee plus $10 for each of the 100 display
devices (although 80 individual persons use them, the number of devices
is counted), or $1,000, and $10 for each of the 50 non-display devices,
or $500, for a total of $2,250 per month.
Under the proposed fee schedule, Broker-Dealer A would pay
the Exchange the $750 access fee plus $10 for each of the 100 display
devices, or $1,000, and Category 1 and Category 2 fees for internal
non-display use, or $2,000, for a total of $3,750 per month. No
redistribution fee would be charged.
Broker-Dealer B, which only trades as principal, obtains NYSE Arca
Trades from Vendor X. Broker-Dealer B and Vendor X are both approved
for the NYSE Arca Unit-of-Count Policy. Broker-Dealer B has (i) 10
individual persons who use 12 display devices and (ii) 5 non-display
devices.
Today, Vendor X pays the $750 access fee and Broker-Dealer
B pays $150 ($10 for the 10 individual persons (under the NYSE Arca
Unit-of-Count Policy, the larger number of display devices is not
counted), or $100, plus $10 for each of the 5 non-display devices, or
$50).
[[Page 21672]]
Under the proposed fee schedule, Broker-Dealer B would pay
$100 as it does today for its individual persons using display devices,
and $400 for managed non-display use, for a total of $500 per month in
fees. Vendor X would pay the $750 access fee and, as of May 1, 2013,
the redistribution fee of $750 for a total of $1,500.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\17\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\18\ in particular, in that it
provides an equitable allocation of reasonable fees among users and
recipients of the data and is not designed to permit unfair
discrimination among customers, issuers, and brokers.
---------------------------------------------------------------------------
\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------
As described in detail in the section ``Rationale for New Non-
Display Usage Fee Structure'' above, which is incorporated by reference
herein, technology has made it increasingly difficult to define
``device'' and to control who has access to devices. Significant change
has characterized the industry in recent years, stemming in large
measure from changes in regulation and technological advances, which
has led to the rise in automated and algorithmic trading, which have
the potential to generate substantial profits. Indeed, data used in a
single non-display device running a single trading algorithm can
generate large profits. Market data technology and usage has evolved to
the point where it is no longer practical, nor fair and equitable, to
simply count non-display devices. The administrative costs and
difficulties of establishing reliable counts and conducting an
effective audit of non-display devices have become too burdensome,
impractical, and non-economic for the Exchange, vendors, and data
recipients. Rather, the Exchange believes that its proposed flat fee
structure for non-display use is reasonable, equitable, and not
unfairly discriminatory in light of these developments.
Other exchanges also have established differentiated fees based on
non-display usage, including a flat or enterprise fee. For example,
NASDAQ professional subscribers pay monthly fees for non-display usage
based upon direct access to NASDAQ Level 2, NASDAQ TotalView, or NASDAQ
OpenView, which range from $300 per month for customers with one to 10
subscribers to $75,000 for customers with 250 or more subscribers.\19\
In addition, NASDAQ OMX PHLX, Inc. (``Phlx'') offers an alternative
$10,000 per month ``Non-Display Enterprise License'' fee that permits
distribution to an unlimited number of internal non-display subscribers
without incurring additional fees for each internal subscriber.\20\ The
Non-Display Enterprise License covers non-display subscriber fees for
all Phlx proprietary direct data feed products and is in addition to
any other associated distributor fees for Phlx proprietary direct data
feed products. NASDAQ OMX BX, Inc. (``BX'') also offers an alternative
non-display usage fee of $16,000 for its BX TotalView data feed.\21\
NASDAQ and Phlx also both offer managed non-display data solutions at
higher overall fees than the Exchange proposes to charge.\22\
---------------------------------------------------------------------------
\19\ See NASDAQ Rule 7023(b)(4).
\20\ See Securities Exchange Act Release No. 68576 (Jan. 3,
2013), 78 FR 1886 (Jan. 9, 2013) (SR-Phlx-2012-145). Alternatively,
Phlx charges each professional subscriber $40 per month.
\21\ See NASDAQ OMX BX Rule 7023(a)(2). Alternatively, BX
charges each professional subscriber $40 per month.
\22\ NASDAQ established fees for a Managed Data Solution to
Distributors, which includes a monthly Managed Data Solution
Administration fee of $1,500 and monthly Subscriber fees ranging
from $60 to $300. See NASDAQ Rule 7026(b). Phlx also established a
Managed Data Solution, which includes a monthly Managed Data
Solution Administration fee of $1,500 and a monthly Subscriber fee
of $250. The monthly License fee is in addition to Phlx's monthly
Distributor fee of $2,500 (for external usage), and the $250 monthly
Subscriber fee is assessed for each Subscriber of a Managed Data
Solution. See Securities Exchange Act Release No. 67466 (July 19,
2012), 77 FR 43629 (July 25, 2012) (SR-Phlx-2012-93).
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The Exchange also believes that it is reasonable, equitable, and
not unfairly discriminatory to charge relatively lower fees for managed
non-display services because the Exchange expects that they will
generally be used by a small number of Redistributors and data
recipients that are currently eligible for the NYSE Arca Unit-of-Count
Policy. These data recipients are constrained by whatever applications
are available via Redistributors operating in the Exchange's co-
location center and other hosted facilities. In comparison, a data
recipient that elects internal non-display use is free to use the data
in any manner it chooses and create new uses in an unlimited number of
non-display devices. The lack of constraint in this regard will make
the non-display usage of the data more valuable to such an internal use
data recipient.
The proposed redistribution fee for NYSE ArcaBook also is
reasonable because it is comparable to other redistribution fees that
are currently charged by the Exchange and other exchanges.\23\ As noted
above, the Exchange believes that it is reasonable to charge
redistribution fees because vendors receive value from redistributing
the data in their business products for their customers. The
redistribution fees also are equitable and not unfairly discriminatory
because they will be charged on an equal basis to those vendors that
choose to redistribute the data.
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\23\ The Exchange charges a $3,000 per month redistribution fee
for the NYSE Arca Integrated Feed, which includes depth-of-book
data. See supra n.4. In addition, the Exchange and NYSE MKT LLC
(``NYSE MKT'') charge redistribution fees of $2,000 per month for
certain proprietary options market data products. See Securities
Exchange Act Release Nos. 68005 (Oct. 9, 2012), 77 FR 63362 (Oct.
16, 2012) (SR-NYSEArca-2012-106), and 68004 (Oct. 9, 2012), 77 FR
62582 (Oct. 15, 2012) (SR-NYSEMKT-2012-49). All distributors of a
NASDAQ Last Sale Data Feed also pay a monthly fee of $1,500. See
NASDAQ Rule 7039(d).
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The Exchange has not raised the market data fees for NYSE Arca
Integrated Feed and NYSE Arca BBO since the fees were adopted in 2011
and 2010, respectively.\24\ The Exchange set the NYSE ArcaBook
professional subscriber fee at $15 and non-professional subscriber fee
for Tape A and B Securities (including ETFs) or Tape C Securities
(excluding ETFs) in 2006, and the NYSE Arca Trades professional
subscriber fee at $10 in 2010.\25\ The Exchange believes that the new
fee schedule, which may result in certain vendors and data recipients
paying more than they have in the last several years, is fair and
reasonable in light of market and technology developments. The current
per-device fee structure no longer reflects the significant overall
value that non-display data can provide in trading algorithms and other
uses that provide professional users with the potential to generate
substantial profits. The Exchange believes that it is equitable and not
unfairly discriminatory to establish an overall monthly fee that better
reflects the value of the data to the data recipients in their profit-
generating activities and does away with the costs and administrative
burdens of counting non-display devices.
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\24\ See supra nn.4, 6.
\25\ See Securities Exchange Act Release No. 54597 (Oct. 12,
2006), 71 FR 62029 (Oct. 20, 2006) (SR-NYSEArca-2006-21); supra n.5.
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The Exchange also notes that products described herein are entirely
optional. Firms are not required to purchase NYSE Arca Integrated Feed,
NYSE ArcaBook, NYSE Arca BBO, or NYSE Arca Trades. Firms have a wide
variety of alternative market data products from which to choose.\26\
Moreover, the Exchange is not required to make these
[[Page 21673]]
proprietary data products available or to offer any specific pricing
alternatives to any customers.
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\26\ See supra nn.19-22.
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The decision of the United States Court of Appeals for the District
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010), upheld reliance by the Securities and Exchange Commission
(``Commission'') upon the existence of competitive market mechanisms to
set reasonable and equitably allocated fees for proprietary market
data:
In fact, the legislative history indicates that the Congress
intended that the market system ``evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed'' and that the SEC wield its regulatory power ``in those
situations where competition may not be sufficient,'' such as in the
creation of a ``consolidated transactional reporting system.''
Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted
in 1975 U.S.C.C.A.N. 323). The court agreed with the Commission's
conclusion that ``Congress intended that `competitive forces should
dictate the services and practices that constitute the U.S. national
market system for trading equity securities.''' \27\
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\27\ NetCoalition, 615 F.3d at 535.
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As explained below in the Exchange's Statement on Burden on
Competition, the Exchange believes that there is substantial evidence
of competition in the marketplace for data and that the Commission can
rely upon such evidence in concluding that the fees established in this
filing are the product of competition and therefore satisfy the
relevant statutory standards.\28\ In addition, the existence of
alternatives to these data products, such as proprietary last sale data
from other sources, as described below, further ensures that the
Exchange cannot set unreasonable fees, or fees that are unreasonably
discriminatory, when vendors and subscribers can elect such
alternatives.
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\28\ Section 916 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (the ``Dodd-Frank Act'') amended
paragraph (A) of Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3),
to make clear that all exchange fees for market data may be filed by
exchanges on an immediately effective basis.
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As the NetCoalition decision noted, the Commission is not required
to undertake a cost-of-service or ratemaking approach, and the Exchange
incorporates by reference into this proposed rule change its analysis
of this topic in another rule filing.\29\
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\29\ See Securities Exchange Act Release No. 63291 (Nov. 9,
2010), 75 FR 70311 (Nov. 17, 2010) (SR-NYSEArca-2010-97).
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For these reasons, the Exchange believes that the proposed fees are
reasonable, equitable, and not unfairly discriminatory.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. An exchange's ability to
price its proprietary data feed products is constrained by actual
competition for the sale of proprietary market data products, the joint
product nature of exchange platforms, and the existence of alternatives
to the Exchange's proprietary last sale data.
The Existence of Actual Competition. The market for proprietary
data products is currently competitive and inherently contestable
because there is fierce competition for the inputs necessary for the
creation of proprietary data and strict pricing discipline to the
proprietary products themselves. Numerous exchanges compete with each
other for listings and order flow and sales of market data itself,
providing virtually limitless opportunities for entrepreneurs who wish
to compete in any or all of those areas, including producing and
distributing their own market data. Proprietary data products are
produced and distributed by each individual exchange, as well as other
entities, in a vigorously competitive market.
Competitive markets for listings, order flow, executions, and
transaction reports provide pricing discipline for the inputs of
proprietary data products and therefore constrain markets from
overpricing proprietary market data. The U.S. Department of Justice
also has acknowledged the aggressive competition among exchanges,
including for the sale of proprietary market data itself. In announcing
that the bid for NYSE Euronext by NASDAQ OMX Group Inc. and
IntercontinentalExchange Inc. had been abandoned, Assistant Attorney
General Christine Varney stated that exchanges ``compete head to head
to offer real-time equity data products. These data products include
the best bid and offer of every exchange and information on each equity
trade, including the last sale.'' \30\
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\30\ Press Release, U.S. Department of Justice, Assistant
Attorney General Christine Varney Holds Conference Call Regarding
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011), available at: https://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html.
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It is common for broker-dealers to further exploit this recognized
competitive constraint by sending their order flow and transaction
reports to multiple markets, rather than providing them all to a single
market. As a 2010 Commission Concept Release noted, the ``current
market structure can be described as dispersed and complex'' with
``trading volume * * * dispersed among many highly automated trading
centers that compete for order flow in the same stocks'' and ``trading
centers offer[ing] a wide range of services that are designed to
attract different types of market participants with varying trading
needs.'' \31\
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\31\ Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21,
2010) (File No. S7-02-10). This Concept Release included data from
the third quarter of 2009 showing that no market center traded more
than 20% of the volume of listed stocks, further evidencing the
dispersal of and competition for trading activity. Id. at 3598.
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In addition, in the case of products that are distributed through
market data vendors, the market data vendors themselves provide
additional price discipline for proprietary data products because they
control the primary means of access to certain end users. These vendors
impose price discipline based upon their business models. For example,
vendors that assess a surcharge on data they sell are able to refuse to
offer proprietary products that their end users do not or will not
purchase in sufficient numbers. Internet portals, such as Google,
impose price discipline by providing only data that they believe will
enable them to attract ``eyeballs'' that contribute to their
advertising revenue. Similarly, vendors will not elect to make
available the NYSE Arca products described herein unless their
customers request them, and customers will not elect to purchase them
unless they can be used for profit-generating purposes. All of these
operate as constraints on pricing proprietary data products.
Joint Product Nature of Exchange Platform. 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 executions 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 platforms where the order
can be posted, including the execution fees, data quality, and price
and distribution of their data products. The more trade executions a
platform does, the more valuable its market data products become.
[[Page 21674]]
The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's transaction execution
platform and the cost of regulating the exchange to ensure its fair
operation and maintain investor confidence. The total return that a
trading platform earns reflects the revenues it receives from both
products and the joint costs it incurs. Moreover, an exchange's broker-
dealer customers view the costs of transaction executions and market
data as a unified cost of doing business with the exchange.
Other market participants have noted that the liquidity provided by
the order book, trade execution, core market data, and non-core market
data are joint products of a joint platform and have common costs.\32\
The Exchange agrees with and adopts those discussions and the arguments
therein. The Exchange also notes that the economics literature confirms
that there is no way to allocate common costs between joint products
that would shed any light on competitive or efficient pricing.\33\
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\32\ See Securities Exchange Act Release No. 62887 (Sept. 10,
2010), 75 FR 57092, 57095 (Sept. 17, 2010) (SR-Phlx-2010-121);
Securities Exchange Act Release No. 62907 (Sept. 14, 2010), 75 FR
57314, 57317 (Sept. 20, 2010) (SR-NASDAQ-2010-110); and Securities
Exchange Act Release No. 62908 (Sept. 14, 2010), 75 FR 57321, 57324
(Sept. 20, 2010) (SR-NASDAQ-2010-111) (``all of the exchange's costs
are incurred for the unified purposes of attracting order flow,
executing and/or routing orders, and generating and selling data
about market activity. The total return that an exchange earns
reflects the revenues it receives from the joint products and the
total costs of the joint products.''); see also August 1, 2008
Comment Letter of Jeffrey S. Davis, Vice President and Deputy
General Counsel, NASDAQ OMX Group, Inc., Statement of Janusz Ordover
and Gustavo Bamberger (``because market data is both an input to and
a byproduct of executing trades on a particular platform, market
data and trade execution services are an example of `joint products'
with `joint costs.'''), attachment at pg. 4, available at
www.sec.gov/comments/34-57917/3457917-12.pdf.
\33\ See generally Mark Hirschey, Fundamentals of Managerial
Economics, at 600 (2009) (``It is important to note, however, that
although it is possible to determine the separate marginal costs of
goods produced in variable proportions, it is impossible to
determine their individual average costs. This is because common
costs are expenses necessary for manufacture of a joint product.
Common costs of production--raw material and equipment costs,
management expenses, and other overhead--cannot be allocated to each
individual by-product on any economically sound basis. * * * Any
allocation of common costs is wrong and arbitrary.''). This is not
new economic theory. See, e.g., F.W. Taussig, ``A Contribution to
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4)
438, 465 (July 1891) (``Yet, surely, the division is purely
arbitrary. These items of cost, in fact, are jointly incurred for
both sorts of traffic; and I cannot share the hope entertained by
the statistician of the Commission, Professor Henry C. Adams, that
we shall ever reach a mode of apportionment that will lead to
trustworthy results.'').
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Analyzing the cost of market data product production and
distribution in isolation from the cost of all of the inputs supporting
the creation of market data and market data products will inevitably
underestimate the cost of the data and data products. Thus, because it
is impossible to obtain the data inputs to create market data products
without a fast, technologically robust, and well-regulated execution
system, system costs and regulatory costs affect the price of both
obtaining the market data itself and creating and distributing market
data products. It would be equally misleading, however, to attribute
all of an exchange's costs to the market data portion of an exchange's
joint products. Rather, all of an exchange's costs are incurred for the
unified purposes of attracting order flow, executing and/or routing
orders, and generating and selling data about market activity. The
total return that an exchange earns reflects the revenues it receives
from the joint products and the total costs of the joint products.
The level of competition and contestability in the market is
evident in the numerous alternative venues that compete for order flow,
including 12 equities self-regulatory organization (``SRO'') markets,
as well as internalizing broker-dealers (``BDs'') and various forms of
alternative trading systems (``ATSs''), including dark pools and
electronic communication networks (``ECNs''). Competition among trading
platforms can be expected to constrain the aggregate return that each
platform earns from the sale of its joint products, but different
platforms may choose from a range of possible, and equally reasonable,
pricing strategies as the means of recovering total costs. For example,
some platforms may choose to pay rebates to attract orders, charge
relatively low prices for market data products (or provide market data
products 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 data products, 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.
Existence of Alternatives. 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 but not limited to the Exchange, NYSE, NYSE
MKT, NASDAQ OMX, BATS, and Direct Edge.
The fact that proprietary data from ATSs, BDs, and vendors can
bypass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and sale of proprietary data
products. Second, because a single order or transaction report can
appear in an SRO proprietary product, a non-SRO proprietary product, or
both, the amount of data available via proprietary products is greater
in size than the actual number of orders and transaction reports that
exist in the marketplace. Because market data users can thus find
suitable substitutes for most proprietary market data products,\34\ a
market that overprices its market data products stands a high risk that
users may substitute another source of market data information for its
own.
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\34\ See supra nn.19-22.
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Those competitive pressures imposed by available alternatives are
evident in the Exchange's proposed pricing. As noted above, the
proposed non-display fees for NYSE Arca Integrated Feed, NYSE ArcaBook,
NYSE Arca Trades, and NYSE Arca BBO are generally lower than the
maximum non-display fees charged by other exchanges such as NASDAQ,
Phlx, and BX for comparable products.\35\ The proposed redistribution
fee for NYSE ArcaBook also is comparable to the Exchange's and other
exchanges' similar fees.\36\
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\35\ Id.
\36\ See supra n.23.
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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 and inexpensive. The history
of electronic trading is replete with examples of entrants that swiftly
grew into some of the largest electronic trading platforms and
proprietary data producers: Archipelago, Bloomberg Tradebook, Island,
RediBook, Attain, TrackECN, BATS, and Direct Edge. Today, BATS and
Direct Edge provide certain market data at no charge on their Web sites
in order to attract more order flow, and use revenue rebates from
resulting additional executions to maintain low execution charges for
their users.\37\
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\37\ This is simply a securities market-specific example of the
well-established principle that in certain circumstances more sales
at lower margins can be more profitable than fewer sales at higher
margins; this example is additional evidence that market data is an
inherent part of a market's joint platform.
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[[Page 21675]]
Further, data products are valuable to certain end users only
insofar as they provide information that end users expect will assist
them or their customers. The Exchange believes the proposed non-display
fees will benefit customers by providing them with a clearer way to
determine their fee liability for non-display devices, and with respect
to internal use, to obviate the need to count such devices. The
Exchange further believes that only vendors that expect to derive a
reasonable benefit from redistributing the market data products
described herein will choose to become Redistributors and pay the
attendant monthly fees.
In establishing the proposed fees, the Exchange considered the
competitiveness of the market for proprietary data and all of the
implications of that competition. The Exchange believes that it has
considered all relevant factors and has not considered irrelevant
factors in order to establish fair, reasonable, and not unreasonably
discriminatory fees and an equitable allocation of fees among all
users. The existence of numerous alternatives to the Exchange's
products, including proprietary data from other sources, ensures that
the Exchange cannot set unreasonable fees, or fees that are
unreasonably discriminatory, when vendors and subscribers can elect
these alternatives or choose not to purchase a specific proprietary
data product if its cost to purchase is not justified by the returns
any particular vendor or subscriber would achieve through the purchase.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \38\ of the Act and subparagraph (f)(2) of Rule
19b-4 \39\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\38\ 15 U.S.C. 78s(b)(3)(A).
\39\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \40\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\40\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSEArca-2013-37 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR- NYSEArca-2013-37. 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 on official business
days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for inspection and copying at the
principal offices of NYSE. 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-2013-37, and should be submitted on or before May 2, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08464 Filed 4-10-13; 8:45 am]
BILLING CODE 8011-01-P
