Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Impose Fees for Market Data, 41483-41489 [2013-16535]
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Federal Register / Vol. 78, No. 132 / Wednesday, July 10, 2013 / Notices
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–CBOE–2013–069 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.
TKELLEY on DSK3SPTVN1PROD with NOTICES
All submissions should refer to File
Number SR–CBOE–2013–069. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CBOE–
2013–069 and should be submitted on
or before July 31, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013–16589 Filed 7–9–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69936; File No. SR–BATS–
2013–39]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Impose Fees for
Market Data
July 3, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 26,
2013, BATS Exchange, Inc. (‘‘BATS’’ or
the ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed with the
Commission a proposed rule change to
amend its fee schedule applicable to
Exchange Members and other market
data recipients to (i) assess market data
fees for internal and external
distribution of the BATS PITCH
(including both TCP PITCH and
Multicast PITCH) and BATS TOP data
feed products, and (ii) amend the
market data fee for internal and external
distribution of the BATS Last Sale Feed
(PITCH, TOP and Last Sale Feed
collectively referred to in this proposal
as the ‘‘Data Feeds’’). Although changes
to the fee schedule pursuant to this
proposal are effective upon filing, the
Exchange will implement the proposed
revised fees on July 1, 2013.
The text of the proposed rule change
is available at the Exchange’s Web site
at https://www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
1 15
15 17
CFR 200.30–3(a)(12).
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2 17
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
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statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend the ‘‘Equities
Pricing’’ section of the BATS fee
schedule which relates to fees for the
BATS PITCH (including both TCP
PITCH and Multicast PITCH), BATS
TOP and BATS Last Sale Feed data
products. For BATS PITCH, data
recipients would pay a single fee,
regardless if the data recipient receives
BATS TCP PITCH, BATS Multicast
PITCH, or both. The Exchange’s other
data products, other than BATS
Historical Data,3 will continue to be
offered free of charge. Below is a
description of each of the Data Feeds, as
well as a brief description of the other
data products offered by the Exchange
that are impacted by this proposal. As
specified in the descriptions below, the
Data Feeds are applicable to the
Exchange’s equity securities platform
(‘‘BATS Equities’’), its equity options
platform (‘‘BATS Options’’), or both;
however, the proposed fees would only
be applicable to BATS Equities Data
Feeds.
(i) TCP PITCH
The BATS TCP PITCH data feed is
available for BATS Equities only, and
provides Exchange data recipients with
depth of book quotations, execution
information, and auction update
information during auctions for BATS
listed securities. The PITCH feeds
offered by BATS (including Multicast
PITCH) are the data feeds through
which Exchange data recipients can
receive full, real-time quotation and
execution information. Each PITCH
message reflects the addition, deletion
or execution of an order in the System.4
3 The cost of user-accessible BATS Historical TOP
Data, BATS Historical PITCH Data or BATS
Historical Last Sale Data is $500 per month of data
accessed by any individual user. For data that the
Exchange provides on an external hard drive to a
market participant, the cost is $2,500 per 1 terabyte
(TB) drive generated by the Exchange. Securities
Exchange Act Release No. 34–61885 (April 9, 2010),
75 FR 20018 (April 16, 2010) (SR–BATS–2010–
002).
4 As defined in BATS Rule 1.5(aa), the term
‘‘System’’ means ‘‘the electronic communications
and trading facility designated by the Board through
which securities orders of Users are consolidated
Continued
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TCP PITCH is the data feed used by
Exchange data recipients to receive
BATS PITCH information via a TCP/IP
connection.
(ii) Multicast PITCH
The BATS Multicast PITCH data feed
is available for BATS Equities and
BATS Options. The Multicast PITCH
data feed, like TCP PITCH, offers depth
of book quotations, execution
information, and auction information,
however, unlike TCP PITCH, this data
feed is transmitted in a manner that can
be processed more efficiently by
recipients. This is achieved by using
binary messages. BATS offers both
WAN-shaped and Gig-shaped versions
of the Multicast feed. Exchange data
recipients may choose one or more
Multicast PITCH feed options
depending on their location and
connectivity to BATS.
(iii) TOP
The BATS TOP data feed is available
for BATS Equities only, and offers top
of book quotations and last sale
execution information. By only
providing top of book quotations and
last sale information, TOP offers data
recipients a significant reduction in
required bandwidth and processing
when compared to BATS’ standard TCP
PITCH data feed. The quotations made
available via TOP provide an aggregated
size and do not indicate the size or
number of individual orders at the best
bid or ask.
(iv) Last Sale Feed
The BATS Last Sale Feed is available
for BATS Equities only, and offers realtime, intraday trade information,
including price, volume and time of
executions. Because quotes are not
shown, the BATS Last Sale Feed results
in much less data than other BATS data
feeds and requires less technology
development for data recipients.
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(v) Historical Data
The BATS Historical Data (PITCH,
TOP and Last Sale Feed) offers up to
three months of data on a T+1 basis
available via download from the BATS
Web site or additional data beyond three
months available via an external hard
drive.
(vi) Other BATS Data Feeds
The Exchange will continue to offer
certain other market data products to
Members and other market data
for ranking, execution and, when applicable,
routing away.’’ As defined in BATS Rule 1.5(cc),
the term ‘‘User’’ means ‘‘any Member or Sponsored
Participant who is authorized to obtain access to the
[Exchange’s] System pursuant to Rule 11.3.’’
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recipients free of charge. These data
products include (i) Multicast Latency
Feed, which offers real-time latency
information; and (ii) DROP, which
contains order execution and other
information (e.g., modifications and
cancellations) specific to the Exchange
activity of one or more Users.
In SR–BATS–2010–002,5 the
Exchange made available the BATS Last
Sale Feed and BATS Historical Data for
a fee. Currently, the cost of the BATS
Last Sale Feed is $5,000 per month for
any data recipient that chooses to
receive the data feed for internal use
only and $25,000 per month for any
data recipient that distributes the BATS
Last Sale Feed externally. Indirect
recipients do not pay the Exchange for
the BATS Last Sale Feed, nor do they
need to enter into a contract with the
Exchange to receive the BATS Last Sale
Feed. Currently, the cost of useraccessible BATS Historical TOP, BATS
Historical PITCH or BATS Historical
Last Sale is $500 per month of data
accessed by any individual data
recipient. Up to three months of data is
available via download from the BATS
Web site. For data beyond three months,
which the Exchange provides on an
external hard drive to a market
participant, the cost is $2,500 per 1
terabyte (TB) drive generated by the
Exchange, regardless of how much data
is placed on the drive.6
Upon the Exchange’s initial offering
of the BATS PITCH (including both TCP
PITCH and Multicast PITCH) and BATS
TOP data products, such services were
provided at no cost. In SR–BATS–2011–
017, the Exchange stated that ‘‘should
the Exchange determine to charge fees
associated with [BATS PITCH
(including both TCP PITCH and
Multicast PITCH) and BATS TOP], the
Exchange will submit a proposed rule
change to the Commission in order to
implement those fees.’’ 7
This proposal is designed to
implement fees for the receipt of PITCH
(including both TCP PITCH and
Multicast PITCH) and TOP data
products, and revise the fee for the
receipt of the Last Sale Feed data
product.
The proposed amendment to the
BATS fee schedule codifies such fees
associated with the receipt of PITCH
(including both TCP PITCH and
5 Securities Exchange Act Release No. 34–61885
(April 9, 2010), 75 FR 20018 (April 16, 2010) (SR–
BATS–2010–002); see also Securities Exchange Act
Release No. 34–61885 (April 9, 2010), 75 FR 20018
(April 16, 2010) (SR–BATS–2010–002).
6 Id.
7 Securities Exchange Act Release No. 34–64445
(May 9, 2011) 76 FR 28108 (May 13, 2011) (File No.
SR–BATS–2011–017).
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Multicast PITCH), TOP and Last Sale
Feed. The Exchange, like other market
centers and other data providers,
intends to assess fees for individuals
and entities that receive real-time
market data directly or indirectly and
act as either internal or external
distributors of such market data.
A ‘‘Data Recipient’’ of Exchange data
is any entity that receives a Data Feed
directly from the Exchange or indirectly
through another entity and then
distributes such data internally (within
that entity) to ‘‘Internal Subscribers’’ or
externally (outside that entity) to
‘‘External Subscribers’’ or ‘‘Data Feed
Subscribers.’’ An ‘‘Internal Subscriber’’
is any end-user of the Exchange data
affiliated with the Data Recipient where
the Data Recipient can substantially
control the Exchange data for purpose of
reporting usage or qualification of the
end-user. An ‘‘External Subscriber’’ is
any end-user of the Exchange data not
affiliated with the Data Recipient where
the Data Recipient can substantially
control the Exchange data for purpose of
reporting usage or qualification of the
end-user. A ‘‘Data Feed Subscriber’’ is
any end-user of the Exchange data
outside of the Data Recipient that
receives the Exchange data from a Data
Recipient for which the Data Recipient
cannot substantially control the
Exchange data for the purpose of
reporting usage or qualification of the
end-user.
All Data Recipients and Data Feed
Subscribers must execute a BATS
Global Markets, Inc. Data Agreement
with BATS Global Markets, Inc., acting
on behalf of itself and the Exchange,
and, as a result, would be charged the
applicable monthly access fee described
below. All External Subscribers must
execute a BATS Global Markets, Inc.
Subscriber Agreement or equivalent
with the Data Recipient that is
distributing the Exchange data to such
External Subscriber; however, neither
External Subscribers nor Internal
Subscribers would be charged the
monthly access fee described below for
the receipt of such data.
Data Recipients (including Data Feed
Subscribers) would be charged a
separate monthly access fee to access: (i)
The BATS PITCH data product; (ii) the
BATS TOP data product; and/or (iii) the
BATS Last Sale Feed data product. The
amount of the monthly access fees
would depend on whether the Data
Recipient is distributing the Exchange
data internally or externally. Data
Recipients distributing the Exchange
data internally are proposed to be
charged $1,000 per month for access to
the BATS PITCH data product, $500 per
month for access to the BATS TOP data
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product, and $500 per month for access
to the BATS Last Sale Feed data
product. Data Recipients distributing
the Exchange data externally are
proposed to be charged $5,000 per
month for access to the BATS PITCH
data product, $2,500 per month for
access to the BATS TOP data product,
and $2,500 for access to the BATS Last
Sale Feed data product. The fee paid by
a Data Recipient distributing the
Exchange data externally includes the
fee for distributing the Exchange data
internally and thus permits a Data
Recipient distributing the Exchange data
externally to also provide the data
internally (i.e., to users within their own
organization) for a single access fee. The
Exchange does not propose to charge
Data Recipients a per user fee for
internal or external distribution of
Exchange Data.
The Exchange will use commercially
reasonable efforts to provide at least 60
days advance notice to Data Recipients
(delivered via email and posted to
BATS’ Web site) of any changes to fees
for the Exchange data, provided,
however, that such notice shall be not
less than 30 days prior to the
effectiveness of the change. Receipt or
use of the Exchange data after the
applicable notice period will constitute
acceptance of such fees.
Data Recipients will only pay one
access fee, regardless of the number of
locations or users to which the Data
Feeds are received or distributed. In
addition, neither Data Recipients nor
their end-users will be charged per-user
device fees when used to receive the
Data Feeds, nor will they be charged
per-user display fees when used to
present the Data Feeds.
If a Data Recipient desires to have one
or more of its affiliates 8 be bound by the
terms and conditions of the BATS
Global Markets, Inc. Data Agreement,
the Data Recipient may submit a list of
any such affiliate(s) to BATS Global
Markets, Inc. Including affiliates under
the same data agreement would entitle
any such affiliate to access and use data
from the Exchange for no additional fee
(assuming either (i) the Data Recipient
and the affiliate each are distributing the
data internally, or (ii) the Data Recipient
is distributing the data externally and
the affiliate is distributing the data
either internally or externally). One or
more of the entities (each a ‘‘Connected
8 An ‘‘affiliate’’ of a Data Recipient includes any
entity that, from time to time, directly or indirectly
Controls, is Controlled by, or is under common
Control with the Data Recipient. ‘‘Control’’ means
the power to direct or cause the direction of the
management of policies of another entity, whether
through the ownership of voting securities, by
contract, or otherwise.
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Entity’’) that is part of the group
comprised of the Data Recipient and the
affiliates included under the same
agreement (collectively, the ‘‘Affiliate
Group’’) is permitted to own
connectivity directly with BATS.
Further, any member of the Affiliate
Group that, in addition to receiving
Exchange data directly from BATS, also
receives uncontrolled Exchange data
indirectly from another Data Recipient
(in addition to the Connected Entity) is
not required to execute a separate data
agreement; rather, that entity is bound
by the same data agreement executed by
the applicable member of the Affiliate
Group. Lastly, if a Data Recipient is
receiving Exchange data from (i)
multiple third-party distributors or (ii)
from one or more third-party
distributors and the Exchange, the Data
Recipient would only be required to pay
one access fee—either the internal
distribution access fee or the external
distribution access fee—depending on
whether the Data Recipient is
distributing the Exchange data
internally or externally.
The Exchange intends to implement
the proposed fees on July 1, 2013.
2. Statutory Basis
The Exchange believes that the rule
change proposed in this submission is
consistent with the requirements of the
Act and the rules and regulations
thereunder that are applicable to a
national securities exchange, and, in
particular, with the requirements of
Section 6(b) of the Act.9 Specifically,
the Exchange believes that the proposed
change is consistent with Section 6(b)(4)
and 6(b)(5) of the Act,10 because it
provides an equitable allocation of
reasonable fees among its Members and
other recipients of Exchange data and is
not designed to permit unfair
discrimination between them. The
Exchange believes that its proposed fees
for the data products described herein
are reasonable in light of the benefits to
data recipients and the fact that certain
other Exchange data feeds will continue
to be provided free of charge.
As described in more detail below,
the proposed fees are based on pricing
conventions and distinctions that exist
in the fee schedules of other exchanges.
These distinctions (depth-of-book
versus top-of-book and internal
distribution versus external
distribution) are each based on
principles of fairness and equity that
have helped for many years to maintain
fair, equitable, and not unreasonably
discriminatory fees, and that apply with
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9 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
10 15
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41485
equal or greater force to the current
proposal.
For example, NASDAQ Exchange
(‘‘NASDAQ’’) charges data recipients of
its NASDAQ TotalView data feed $2,000
per month for NASDAQ-listed security
depth entitlements and $1,000 per
month for non NASDAQ-listed security
depth entitlements to receive the data
feed directly from NASDAQ. If the data
recipient then distributes the data, it
pays an additional internal or external
distribution fee depending on the
method of distribution. NASDAQ
charges $1,000 per month for internal
distribution of NASDAQ-listed security
depth entitlements and $500 per month
for internal distribution of non
NASDAQ-listed security depth
entitlements, and $2,500 per month for
external distribution of NASDAQ-listed
security depth entitlements and $1,250
per month for external distribution of
non NASDAQ-listed security depth
entitlements. NASDAQ also charges
end-user fees per professional and nonprofessional subscriber for NASDAQ
TotalView.11
NASDAQ charges data recipients that
distribute its NASDAQ Basic data feed
$1,500 per month for best bid and offer
and last sale information for all U.S.
exchange-listed securities. Data
recipients that subscribe to the
NASDAQ Basic web service must pay a
fee of $1,500 per month, plus the
applicable distribution and subscriber
fees. NASDAQ also charges end-user
fees per professional and nonprofessional subscriber or, in the
alternative, NASDAQ charges per query
fees for NASDAQ Basic.12
NASDAQ OMX PSX (‘‘PSX’’) charges
data recipients of its book feed, PSX
TotalView, a $1,000 monthly fee to
receive its data feed directly from PSX.
If the data recipient then distributes the
data, it pays an additional internal or
external distribution fee depending on
the method of distribution. These
distribution fees are $500 per month for
internal distribution and $1,250 per
month for external distribution. PSX
also charges end-user fees per
professional and non-professional
subscriber for PSX TotalView.13
NASDAQ OMX BX (‘‘BX’’) charges data
recipients of its book feed, BX
TotalView, the same access fees and
distribution fees as PSX, and also
charges end-user fees per professional
11 See NASDAQ OMX Rule 7019 and NASDAQ
OMX Rule 7023.
12 Id.
13 See NASDAQ PSX Pricing Schedule.
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and non-professional subscriber for BX
TotalView.14
NYSE charges data recipients of its
book feed, NYSE OpenBook, a $5,000
monthly fee to receive its data feed
directly or indirectly from NYSE. NYSE
also charges end-user fees per
professional and non-professional
subscriber for NYSE OpenBook. NYSE
charges data recipients of its last sale
feed, NYSE Real-Time Reference Prices,
a $60,000 monthly fee to receive this
feed containing only NYSE data directly
or indirectly from NYSE. If a data
recipient wishes to receive NYSE, NYSE
Arca and NYSE MKT data, NYSE
charges the data recipient a $100,000
monthly fee to receive this feed.15
Each of EDGX Exchange (‘‘EDGX’’)
and EDGA Exchange (‘‘EDGA’’) charge
$500 per month for internal distribution
and $2,500 per month for external
distribution of their EDGX and EDGA
book feeds, respectively. In addition,
each of EDGX and EDGA charge $2,500
per month for internal distribution and
$5,000 per month for external
distribution of their EdgeBook
Attributed feeds.16 Neither EDGX nor
EDGA charge a per user fee for internal
or external distribution of its data.
Revenue generated from Exchange
data fees will help offset the costs that
the Exchange incurs in operating and
regulating a highly efficient and reliable
platform for the trading of U.S. equities
and options. This increased revenue
stream will permit the Exchange to offer
an innovative service at a reasonable
rate, structured in a manner comparable
to and consistent with other market
centers that provide similar market data
products.17
The Exchange will continue to make
such data available until such time as it
changes its rule.
The Exchange believes that the
proposal is also consistent with Section
6(b)(8) of the Act 18 in that it does not
impose any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The fees
charged would be the same for all
similarly-situated market participants,
and therefore do not unreasonably
discriminate among market participants.
In adopting Regulation NMS, the
Commission granted self-regulatory
organizations (‘‘SROs’’) and brokerdealers (‘‘BDs’’) increased authority and
flexibility to offer new and unique
market data to the public. It was
14 See NASDAQ OMX BX Rule 7019 and
NASDAQ OMX BX Rule 7023.
15 See NYSE Schedule of Fees.
16 See EDGX Exchange Fee Schedule; See also
EDGA Exchange Fee Schedule.
17 See infra note 22 and accompanying text.
18 15 U.S.C. 78f(b)(8).
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believed that this authority would
expand the amount of data available to
consumers and also spur innovation and
competition for the provision of market
data.
The Exchange believes that its Data
Feeds are precisely the sort of market
data products that the Commission
envisioned when it adopted Regulation
NMS. The Commission concluded that
Regulation NMS—by deregulating the
market in proprietary data—would itself
further the Act’s goals of facilitating
efficiency and competition:
[E]fficiency is promoted when brokerdealers who do not need the data beyond the
prices, sizes, market center identifications of
the NBBO and consolidated last sale
information are not required to receive (and
pay for) such data. The Commission also
believes that efficiency is promoted when
broker-dealers may choose to receive (and
pay for) additional market data based on their
own internal analysis of the need for such
data.19
By removing ‘‘unnecessary regulatory
restrictions’’ on the ability of exchanges
to sell their own data, Regulation NMS
advanced the goals of the Act and the
principles reflected in its legislative
history. If the free market should
determine whether proprietary data is
sold to BDs at all, it follows that the
price at which such data is sold should
be set by the market as well.
On July 21, 2010, President Barak [sic]
Obama signed into law H.R. 4173, the
Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010
(‘‘Dodd-Frank Act’’), which amended
Section 19 of the Act. Among other
things, Section 916 of the Dodd-Frank
Act amended paragraph (A) of Section
19(b)(3) of the Act by inserting the
phrase ‘‘on any person, whether or not
the person is a member of the selfregulatory organization’’ after ‘‘due, fee
or other charge imposed by the selfregulatory organization.’’ As a result, all
SRO rule proposals establishing or
changing dues, fees, or other charges are
immediately effective upon filing
regardless of whether such dues, fees, or
other charges are imposed on members
of the SRO, non-members, or both.
Section 916 further amended paragraph
(C) of Section 19(b)(3) of the Act to read,
in pertinent part, ‘‘At any time within
the 60-day period beginning on the date
of filing of such a proposed rule change
in accordance with the provisions of
paragraph (1) [of Section 19(b)], the
Commission summarily may
temporarily suspend the change in the
rules of the self-regulatory organization
made thereby, if it appears to the
19 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496 (June 29, 2005).
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Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of this title. If the Commission
takes such action, the Commission shall
institute proceedings under paragraph
(2)(B) [of Section 19(b)] to determine
whether the proposed rule should be
approved or disapproved.’’
The decision of the United States
Court of Appeals for the District of
Columbia Circuit in NetCoalition v.
SEC, 615 F.3d 525 (D.C. Cir. 2010),
although reviewing a Commission
decision made prior to the effective date
of the Dodd-Frank Act, upheld the
Commission’s reliance upon
competitive markets to set reasonable
and equitably allocated fees for market
data. ‘‘In fact, the legislative history
indicates that the Congress intended
that the market system ‘evolve through
the interplay of competitive forces as
unnecessary regulatory restrictions are
removed’ and that the SEC wield its
regulatory power ‘in those situations
where competition may not be
sufficient,’ such as in the creation of a
‘consolidated transactional reporting
system.’ ’’20 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.’ ’’21
The Exchange believes that the
proposed fees are fair and equitable, and
not unreasonably discriminatory.
Specifically, the Exchange believes that
the fees proposed for the Data Feeds are
fair and equitable in that they are
optional and apply uniformly to all data
recipients irrespective of each
recipient’s relationship to the Exchange
(e.g., Member, non-Member data
recipient, etc.) except with respect to
reasonable distinctions as between
internal and external distribution.22 The
proposed fees are based on pricing
conventions and distinctions (e.g.,
internal versus external distribution and
controlled versus uncontrolled data
20 NetCoalition, at 535 (quoting H.R. Rep. no. 94–
229, at 92 (1975), as reprinted in 1975 U.S.C.C.A.N.
321, 323).
21 Id.
22 The Exchange notes that distinctions based on
internal versus external distribution have been
previously filed with the Commission by NASDAQ,
BX, PSX, and EDGX. See Nasdaq Rule 7019(b). See
also Securities Exchange Act Release Nos. 62876
(September 9, 2010), 75 FR 56624 (September 16,
2010) (File No. SR–PHLX–2010–120); 62907
(September 14, 2010), 75 FR 57314 (September 20,
2010) (File No. SR–NASDAQ–2010–110); 63442
(December 6, 2010), FR 77029 (December 10, 2010)
(File No. SR–BX–2010–081); 66864 (April 26, 2012),
77 FR 26064 (May 2, 2012) (File No. SR–EDGX–
2012–14).
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feed) based on established principles of
fairness and equity that have helped to
maintain fair, equitable, and not
unreasonably discriminatory fees, and
that apply with equal or greater force to
the current proposal.
Regardless of a Data Recipient’s
reasons for subscribing to the Data
Feeds, the fees for such feeds apply
equally to all Data Recipients that wish
to use the feeds for internal use only
and equally to all Data Recipients that
wish to redistribute the feeds.
The Exchange proposes charging Data
Recipients that distribute Exchange data
externally more than Data Recipients
that distribute Exchange data internally
because of higher administrative costs
associated with monitoring methods of
distribution and ongoing reporting by
those Data Recipients distributing the
data externally, as required in the BATS
Global Markets, Inc. Data Agreement
and Exchange requirements referenced
therein. The Exchange believes that the
access fees for the Data Feeds are
reasonable and fair in light of
alternatives offered by other market
centers, as described above.
Efficiency is promoted when
Members who do not need the Data
Feeds are not required to receive (and
pay for) such data. The Exchange also
believes that efficiency is promoted
when Members may choose to receive
(and pay for) additional market data
based on their own internal analysis of
the need for such data. Only those
consumers that deem such products to
be of sufficient overall value and
usefulness will purchase them. The
Exchange is not required to make the
Data Feeds available or to offer specific
pricing alternatives for potential
purchases. The Exchange has chosen to
make the Data Feeds available to
improve market quality, attract order
flow, and increase transparency. The
Exchange can discontinue offering a
pricing alternative and firms can
discontinue their use at any time and for
any reason, including due to their
assessment of the reasonableness of fees
charged.
Lastly, competition is promoted as the
Exchange cannot set unreasonable fees
without losing business to its
competitors.23 The Exchange continues
to establish and revise pricing policies
aimed at increasing fairness and
equitable allocation of fees among data
recipients. If the market deems the
proposed fees to be unfair or
23 See infra discussion in Section 4 [sic], ‘‘SelfRegulatory Organization’s Statement on Burden on
Competition.’’
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inequitable, firms can diminish or
discontinue their use of the data.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will result in
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
Notwithstanding its determination that
the Commission may rely upon
competition to establish fair and
equitably allocated fees for market data,
the NetCoalition court found that the
Commission had not, in that case,
compiled a record that adequately
supported its conclusion that the market
for the data at issue in the case was
competitive. The Exchange believes that
a record may readily be established to
demonstrate the competitive nature of
the market in question.
The proposal is, as described below,
pro-competitive. There is intense
competition between trading platforms
that provide transaction execution and
routing services and proprietary data
products. Transaction execution and
proprietary data products are
complementary in that market data is
both an input and a byproduct of the
execution service. In fact, market data
and trade execution are a paradigmatic
example [sic] of joint products with
joint costs. The decision whether and on
which platform to post an order will
depend on the attributes of the platform
where the order can be posted,
including the execution fees, data
quality and price and distribution of its
data products. Without the prospect of
a taking order seeing and reacting to a
posted order on a particular platform,
the posting of the order would
accomplish little. Without orders
entered and trades executed, exchange
data products cannot exist. Data
products are valuable to many end users
only insofar as they provide information
that end users expect will assist them or
their customers in making trading
decisions.
The costs of producing market data
include not only the costs of the data
distribution infrastructure, but also the
costs of designing, maintaining, and
operating the exchange’s transaction
execution platform and the cost of
regulating the exchange to ensure its fair
operation and maintain investor
confidence. The total return that a
trading platform earns reflects the
revenues it receives from both products
and the joint costs it incurs. Moreover,
an exchange’s BD customers view the
costs of transaction executions and of
data as a unified cost of doing business
with the exchange. A BD will direct
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41487
orders to a particular exchange only if
the expected revenues from executing
trades on the exchange exceed net
transaction execution costs and the cost
of data that the BD chooses to buy to
support its trading decisions (or those of
its customers). The choice of data
products is, in turn, a product of the
value of the products in making
profitable trading decisions. If the cost
of the product exceeds its expected
value, the BD will choose not to buy it.
Moreover, as a BD chooses to direct
fewer orders to a particular exchange,
the value of the product to that BD
decreases, for two reasons. First, the
product will contain less information,
because executions of the BD’s orders
will not be reflected in it. Second, and
perhaps more important, the product
will be less valuable to that BD because
it does not provide information about
the venue to which it is directing its
orders. Data from the competing venue
to which the BD is directing orders will
become correspondingly more valuable.
Thus, a super-competitive increase in
the fees charged for either transactions
or data has the potential to impair
revenues from both products.
‘‘No one disputes that competition for
order flow is ‘fierce’.’’ 24 However, the
existence of fierce competition for order
flow implies a high degree of price
sensitivity on the part of BDs with order
flow, since they may readily reduce
costs by directing orders toward the
lowest-cost trading venues. A BD that
shifted its order flow from one platform
to another in response to order
execution price differentials would both
reduce the value of that platform’s
market data and reduce its own need to
consume data from the disfavored
platform. Similarly, if a platform
increases its market data fees, the
change will affect the overall cost of
doing business with the platform, and
affected BDs will assess whether they
can lower their trading costs by
directing orders elsewhere and thereby
lessening the need for the more
expensive data.
Analyzing the cost of market data
distribution in isolation from the cost of
all of the inputs supporting the creation
of market data will inevitably
underestimate the cost of the data. Thus,
because it is impossible to create data
without a fast, technologically robust,
and well-regulated execution system,
system costs and regulatory costs affect
the price of market data. It would be
equally misleading, however, to
attribute all of an exchange’s costs to the
market data portion of an exchange’s
joint product. Rather, all of an
24 NetCoalition,
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at 24 [sic].
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exchange’s costs are incurred for the
unified purposes of attracting order
flow, executing and/or routing orders,
and generating and selling data about
market activity. The total return that an
exchange earns reflects the revenues it
receives from the joint products and the
total costs of the joint products.
Competition among trading platforms
can be expected to constrain the
aggregate return each platform earns
from the sale of its joint products, but
different platforms may choose from a
range of possible, and equally
reasonable, pricing strategies as the
means of recovering total costs. For
example, some platforms may choose to
pay rebates to attract orders, charge
relatively low prices for market
information (or provide information free
of charge) and charge relatively high
prices for accessing posted liquidity.
Other platforms may choose a strategy
of paying lower rebates (or no rebates)
to attract orders, setting relatively high
prices for market information, and
setting relatively low prices for
accessing posted liquidity. In this
environment, there is no economic basis
for regulating maximum prices for one
of the joint products in an industry in
which suppliers face competitive
constraints with regard to the joint
offering. Such regulation is unnecessary
because an ‘‘excessive’’ price for one of
the joint products will ultimately have
to be reflected in lower prices for other
products sold by the firm, or otherwise
the firm will experience a loss in the
volume of its sales that will be adverse
to its overall profitability. In other
words, an increase in the price of data
will ultimately have to be accompanied
by a decrease in the cost of executions,
or the volume of both data and
executions will fall.
The market for market data products
is competitive and inherently
contestable because there is fierce
competition for the inputs necessary to
the creation of proprietary data and
strict pricing discipline for the
proprietary products themselves.
Numerous exchanges compete with
each other for listings, trades, and
market data itself, providing virtually
limitless opportunities for entrepreneurs
who wish to produce and distribute
their own market data. This proprietary
data is produced by each individual
exchange, as well as other entities, in a
vigorously competitive market.
BDs currently have numerous
alternative venues for their order flow,
including thirteen SRO markets, as well
as internalizing BDs and various forms
of alternative trading systems (‘‘ATSs’’),
including dark pools and electronic
communication networks (‘‘ECNs’’).
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Each SRO market competes to produce
transaction reports via trade executions,
and two FINRA-regulated Trade
Reporting Facilities (‘‘TRFs’’) compete
to attract internalized transaction
reports. Competitive markets for order
flow, executions, and transaction
reports provide pricing discipline for
the inputs of proprietary data products.
The large number of SROs, TRFs, BDs,
and ATSs that currently produce
proprietary data or are currently capable
of producing it provides further pricing
discipline for proprietary data products.
Each SRO, TRF, ATS, and BD is
currently permitted to produce
proprietary data products, and many
currently do or have announced plans to
do so, including, but not limited to,
NASDAQ, NYSE, NYSE MKT, NYSE
Arca, Direct Edge and International
Securities Exchange.
Any ATS or BD can combine with any
other ATS, BD, or multiple ATSs or BDs
to produce joint proprietary data
products. Additionally, order routers
and market data vendors can facilitate
single or multiple BDs’ production of
proprietary data products. The potential
sources of proprietary products are
virtually limitless.
The fact that proprietary data from
ATSs, BDs, and vendors can by-pass
SROs is significant in two respects.
First, non-SROs can compete directly
with SROs for the production and sale
of proprietary data products, as the
Exchange and Arca did before
registering as exchanges by publishing
proprietary book data on the Internet.
Second, because a single order or
transaction report can appear in an SRO
proprietary product, a non-SRO
proprietary product, or both, the data
available in proprietary products is
exponentially greater than the actual
number of orders and transaction
reports that exist in the marketplace.
Indeed, in the case of the Data Feeds,
the data provided through these
products appears both in (i) real-time
core data products offered by the SIPs
for a fee, and (ii) free SIP data products
with a 15-minute delay, and find close
substitutes in products of competing
venues.
Market data vendors provide another
form of price discipline for proprietary
data products because they control the
primary means of access to end users.
Vendors impose price restraints based
upon their business models. For
example, vendors such as Bloomberg
and Reuters that assess a surcharge on
data that they sell may refuse to offer
proprietary products that end users will
not purchase in sufficient numbers.
Internet portals, such as Google, impose
a discipline by providing only data that
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will enable them to attract ‘‘eyeballs’’
that contribute to their advertising
revenue. Retail BDs, such as Schwab
and Fidelity, offer their customers
proprietary data only if it promotes
trading and generates sufficient
commission revenue. Although the
business models may differ, these
vendors’ pricing discipline is the same:
they can simply refuse to purchase any
proprietary data product that fails to
provide sufficient value. The Exchange
and other producers of proprietary data
products must understand and respond
to these varying business models and
pricing disciplines in order to market
proprietary data products successfully.
Moreover, the Exchange believes that
products such as the Data Feeds can
enhance order flow to the Exchange by
providing more widespread distribution
of information about transactions in real
time, thereby encouraging wider
participation in the market by investors
with access to the Internet and
television. Conversely, the value of such
products to distributors and investors
decreases if order flow falls, because the
products contain less content.
In addition to the competition and
price discipline described above, the
market for proprietary data products is
also highly contestable because market
entry is rapid, inexpensive, and
profitable. The history of electronic
trading is replete with examples of
entrants, including the Exchange, that
swiftly grew into some of the largest
electronic trading platforms and
proprietary data producers:
Archipelago, Bloomberg Tradebook,
Island, RediBook, Attain, TracECN and
Direct Edge. A proliferation of dark
pools and other ATSs operate profitably
with fragmentary shares of consolidated
market volume.
Regulation NMS, by deregulating the
market for proprietary data, has
increased the contestability of that
market. While BDs have previously
published their proprietary data
individually, Regulation NMS
encourages market data vendors and
BDs to produce proprietary products
cooperatively in a manner never before
possible. Multiple market data vendors
already have the capability to aggregate
data and disseminate it on a profitable
scale, including Bloomberg, and
Thomson Reuters.
Competition among platforms has
driven the Exchange continually to
improve its market data offerings and to
cater to customers’ data needs. For
example, the Exchange has developed
and maintained multiple delivery
mechanisms that enable customers to
receive data in the form and manner
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Federal Register / Vol. 78, No. 132 / Wednesday, July 10, 2013 / Notices
they prefer and at the lowest cost to
them.
The Exchange offers data via multiple
extranet providers, thereby helping to
reduce network and total cost for its
data products. Despite these
enhancements and a dramatic increase
in message traffic, to date the Exchange
has been able to offer most of its market
data without charge. Moreover, platform
competition has intensified as new
entrants have emerged, constraining
prices for both executions and for data.
The Exchange has witnessed
competitors creating new products and
innovative pricing in this space over the
last few years. In all cases, firms make
decisions on how much and what types
of data to consume on the basis of the
total cost of interacting with the
Exchange or other exchanges. Of course,
the explicit data fees are but one factor
in a total platform analysis. Some
competitors have lower transactions fees
and higher data fees, and others are vice
versa. The market for the proposed data
is highly competitive and continually
evolves as products develop and
change.
In establishing the fees for the Data
Feeds, the Exchange considered the
competitiveness of the market for the
type of data being offered and all of the
implications of that competition. The
Exchange believes that it has considered
all relevant 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 Data Feeds, including real-time
consolidated data, free delayed
consolidated data, and proprietary data
from other sources ensures that the
Exchange cannot set unreasonable fees,
or fees that are unreasonably
discriminatory, without losing business
to these alternatives.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
TKELLEY on DSK3SPTVN1PROD with NOTICES
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any written
comments from members or other
interested parties.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act 25 and Rule
19b–4(f)(2) thereunder,26 because it
establishes a due, fee, or other charge
imposed by BATS.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
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–BATS–2013–39 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–BATS–2013–39. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of BATS. 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–BATS–
2013–39 and should be submitted on or
before July 31, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013–16535 Filed 7–9–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69928; File No. SR–
NASDAQ–2013–094]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness to
Conform Rule 5705 Governing
Exchange Traded Funds to the Listing
Requirements of Another Market
July 3, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that, on June 27,
2013, The NASDAQ Stock Market LLC
(‘‘NASDAQ’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change as described in
Items I and II below, which Items have
been prepared by NASDAQ. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
NASDAQ is filing with the
Commission a proposal to amend Rule
5705 (Exchange Traded Funds: Portfolio
Depository Receipts and Index Fund
Shares) regarding the definition of
Derivative Securities Products, weight
of component stocks of an index or
portfolio, averaging minimum notional
value traded per month, and minimum
number of component stocks. The
Exchange is making these changes to
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
25 15
U.S.C. 78s(b)(3)(A)(ii).
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]]>Agencies
[Federal Register Volume 78, Number 132 (Wednesday, July 10, 2013)]
[Notices]
[Pages 41483-41489]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16535]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69936; File No. SR-BATS-2013-39]
Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change To Impose
Fees for Market Data
July 3, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 26, 2013, BATS Exchange, Inc. (``BATS'' or the ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed with the Commission a proposed rule change to
amend its fee schedule applicable to Exchange Members and other market
data recipients to (i) assess market data fees for internal and
external distribution of the BATS PITCH (including both TCP PITCH and
Multicast PITCH) and BATS TOP data feed products, and (ii) amend the
market data fee for internal and external distribution of the BATS Last
Sale Feed (PITCH, TOP and Last Sale Feed collectively referred to in
this proposal as the ``Data Feeds''). Although changes to the fee
schedule pursuant to this proposal are effective upon filing, the
Exchange will implement the proposed revised fees on July 1, 2013.
The text of the proposed rule change is available at the Exchange's
Web site at https://www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to amend the ``Equities
Pricing'' section of the BATS fee schedule which relates to fees for
the BATS PITCH (including both TCP PITCH and Multicast PITCH), BATS TOP
and BATS Last Sale Feed data products. For BATS PITCH, data recipients
would pay a single fee, regardless if the data recipient receives BATS
TCP PITCH, BATS Multicast PITCH, or both. The Exchange's other data
products, other than BATS Historical Data,\3\ will continue to be
offered free of charge. Below is a description of each of the Data
Feeds, as well as a brief description of the other data products
offered by the Exchange that are impacted by this proposal. As
specified in the descriptions below, the Data Feeds are applicable to
the Exchange's equity securities platform (``BATS Equities''), its
equity options platform (``BATS Options''), or both; however, the
proposed fees would only be applicable to BATS Equities Data Feeds.
---------------------------------------------------------------------------
\3\ The cost of user-accessible BATS Historical TOP Data, BATS
Historical PITCH Data or BATS Historical Last Sale Data is $500 per
month of data accessed by any individual user. For data that the
Exchange provides on an external hard drive to a market participant,
the cost is $2,500 per 1 terabyte (TB) drive generated by the
Exchange. Securities Exchange Act Release No. 34-61885 (April 9,
2010), 75 FR 20018 (April 16, 2010) (SR-BATS-2010-002).
---------------------------------------------------------------------------
(i) TCP PITCH
The BATS TCP PITCH data feed is available for BATS Equities only,
and provides Exchange data recipients with depth of book quotations,
execution information, and auction update information during auctions
for BATS listed securities. The PITCH feeds offered by BATS (including
Multicast PITCH) are the data feeds through which Exchange data
recipients can receive full, real-time quotation and execution
information. Each PITCH message reflects the addition, deletion or
execution of an order in the System.\4\
[[Page 41484]]
TCP PITCH is the data feed used by Exchange data recipients to receive
BATS PITCH information via a TCP/IP connection.
---------------------------------------------------------------------------
\4\ As defined in BATS Rule 1.5(aa), the term ``System'' means
``the electronic communications and trading facility designated by
the Board through which securities orders of Users are consolidated
for ranking, execution and, when applicable, routing away.'' As
defined in BATS Rule 1.5(cc), the term ``User'' means ``any Member
or Sponsored Participant who is authorized to obtain access to the
[Exchange's] System pursuant to Rule 11.3.''
---------------------------------------------------------------------------
(ii) Multicast PITCH
The BATS Multicast PITCH data feed is available for BATS Equities
and BATS Options. The Multicast PITCH data feed, like TCP PITCH, offers
depth of book quotations, execution information, and auction
information, however, unlike TCP PITCH, this data feed is transmitted
in a manner that can be processed more efficiently by recipients. This
is achieved by using binary messages. BATS offers both WAN-shaped and
Gig-shaped versions of the Multicast feed. Exchange data recipients may
choose one or more Multicast PITCH feed options depending on their
location and connectivity to BATS.
(iii) TOP
The BATS TOP data feed is available for BATS Equities only, and
offers top of book quotations and last sale execution information. By
only providing top of book quotations and last sale information, TOP
offers data recipients a significant reduction in required bandwidth
and processing when compared to BATS' standard TCP PITCH data feed. The
quotations made available via TOP provide an aggregated size and do not
indicate the size or number of individual orders at the best bid or
ask.
(iv) Last Sale Feed
The BATS Last Sale Feed is available for BATS Equities only, and
offers real-time, intraday trade information, including price, volume
and time of executions. Because quotes are not shown, the BATS Last
Sale Feed results in much less data than other BATS data feeds and
requires less technology development for data recipients.
(v) Historical Data
The BATS Historical Data (PITCH, TOP and Last Sale Feed) offers up
to three months of data on a T+1 basis available via download from the
BATS Web site or additional data beyond three months available via an
external hard drive.
(vi) Other BATS Data Feeds
The Exchange will continue to offer certain other market data
products to Members and other market data recipients free of charge.
These data products include (i) Multicast Latency Feed, which offers
real-time latency information; and (ii) DROP, which contains order
execution and other information (e.g., modifications and cancellations)
specific to the Exchange activity of one or more Users.
In SR-BATS-2010-002,\5\ the Exchange made available the BATS Last
Sale Feed and BATS Historical Data for a fee. Currently, the cost of
the BATS Last Sale Feed is $5,000 per month for any data recipient that
chooses to receive the data feed for internal use only and $25,000 per
month for any data recipient that distributes the BATS Last Sale Feed
externally. Indirect recipients do not pay the Exchange for the BATS
Last Sale Feed, nor do they need to enter into a contract with the
Exchange to receive the BATS Last Sale Feed. Currently, the cost of
user-accessible BATS Historical TOP, BATS Historical PITCH or BATS
Historical Last Sale is $500 per month of data accessed by any
individual data recipient. Up to three months of data is available via
download from the BATS Web site. For data beyond three months, which
the Exchange provides on an external hard drive to a market
participant, the cost is $2,500 per 1 terabyte (TB) drive generated by
the Exchange, regardless of how much data is placed on the drive.\6\
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\5\ Securities Exchange Act Release No. 34-61885 (April 9,
2010), 75 FR 20018 (April 16, 2010) (SR-BATS-2010-002); see also
Securities Exchange Act Release No. 34-61885 (April 9, 2010), 75 FR
20018 (April 16, 2010) (SR-BATS-2010-002).
\6\ Id.
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Upon the Exchange's initial offering of the BATS PITCH (including
both TCP PITCH and Multicast PITCH) and BATS TOP data products, such
services were provided at no cost. In SR-BATS-2011-017, the Exchange
stated that ``should the Exchange determine to charge fees associated
with [BATS PITCH (including both TCP PITCH and Multicast PITCH) and
BATS TOP], the Exchange will submit a proposed rule change to the
Commission in order to implement those fees.'' \7\
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\7\ Securities Exchange Act Release No. 34-64445 (May 9, 2011)
76 FR 28108 (May 13, 2011) (File No. SR-BATS-2011-017).
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This proposal is designed to implement fees for the receipt of
PITCH (including both TCP PITCH and Multicast PITCH) and TOP data
products, and revise the fee for the receipt of the Last Sale Feed data
product.
The proposed amendment to the BATS fee schedule codifies such fees
associated with the receipt of PITCH (including both TCP PITCH and
Multicast PITCH), TOP and Last Sale Feed. The Exchange, like other
market centers and other data providers, intends to assess fees for
individuals and entities that receive real-time market data directly or
indirectly and act as either internal or external distributors of such
market data.
A ``Data Recipient'' of Exchange data is any entity that receives a
Data Feed directly from the Exchange or indirectly through another
entity and then distributes such data internally (within that entity)
to ``Internal Subscribers'' or externally (outside that entity) to
``External Subscribers'' or ``Data Feed Subscribers.'' An ``Internal
Subscriber'' is any end-user of the Exchange data affiliated with the
Data Recipient where the Data Recipient can substantially control the
Exchange data for purpose of reporting usage or qualification of the
end-user. An ``External Subscriber'' is any end-user of the Exchange
data not affiliated with the Data Recipient where the Data Recipient
can substantially control the Exchange data for purpose of reporting
usage or qualification of the end-user. A ``Data Feed Subscriber'' is
any end-user of the Exchange data outside of the Data Recipient that
receives the Exchange data from a Data Recipient for which the Data
Recipient cannot substantially control the Exchange data for the
purpose of reporting usage or qualification of the end-user.
All Data Recipients and Data Feed Subscribers must execute a BATS
Global Markets, Inc. Data Agreement with BATS Global Markets, Inc.,
acting on behalf of itself and the Exchange, and, as a result, would be
charged the applicable monthly access fee described below. All External
Subscribers must execute a BATS Global Markets, Inc. Subscriber
Agreement or equivalent with the Data Recipient that is distributing
the Exchange data to such External Subscriber; however, neither
External Subscribers nor Internal Subscribers would be charged the
monthly access fee described below for the receipt of such data.
Data Recipients (including Data Feed Subscribers) would be charged
a separate monthly access fee to access: (i) The BATS PITCH data
product; (ii) the BATS TOP data product; and/or (iii) the BATS Last
Sale Feed data product. The amount of the monthly access fees would
depend on whether the Data Recipient is distributing the Exchange data
internally or externally. Data Recipients distributing the Exchange
data internally are proposed to be charged $1,000 per month for access
to the BATS PITCH data product, $500 per month for access to the BATS
TOP data
[[Page 41485]]
product, and $500 per month for access to the BATS Last Sale Feed data
product. Data Recipients distributing the Exchange data externally are
proposed to be charged $5,000 per month for access to the BATS PITCH
data product, $2,500 per month for access to the BATS TOP data product,
and $2,500 for access to the BATS Last Sale Feed data product. The fee
paid by a Data Recipient distributing the Exchange data externally
includes the fee for distributing the Exchange data internally and thus
permits a Data Recipient distributing the Exchange data externally to
also provide the data internally (i.e., to users within their own
organization) for a single access fee. The Exchange does not propose to
charge Data Recipients a per user fee for internal or external
distribution of Exchange Data.
The Exchange will use commercially reasonable efforts to provide at
least 60 days advance notice to Data Recipients (delivered via email
and posted to BATS' Web site) of any changes to fees for the Exchange
data, provided, however, that such notice shall be not less than 30
days prior to the effectiveness of the change. Receipt or use of the
Exchange data after the applicable notice period will constitute
acceptance of such fees.
Data Recipients will only pay one access fee, regardless of the
number of locations or users to which the Data Feeds are received or
distributed. In addition, neither Data Recipients nor their end-users
will be charged per-user device fees when used to receive the Data
Feeds, nor will they be charged per-user display fees when used to
present the Data Feeds.
If a Data Recipient desires to have one or more of its affiliates
\8\ be bound by the terms and conditions of the BATS Global Markets,
Inc. Data Agreement, the Data Recipient may submit a list of any such
affiliate(s) to BATS Global Markets, Inc. Including affiliates under
the same data agreement would entitle any such affiliate to access and
use data from the Exchange for no additional fee (assuming either (i)
the Data Recipient and the affiliate each are distributing the data
internally, or (ii) the Data Recipient is distributing the data
externally and the affiliate is distributing the data either internally
or externally). One or more of the entities (each a ``Connected
Entity'') that is part of the group comprised of the Data Recipient and
the affiliates included under the same agreement (collectively, the
``Affiliate Group'') is permitted to own connectivity directly with
BATS. Further, any member of the Affiliate Group that, in addition to
receiving Exchange data directly from BATS, also receives uncontrolled
Exchange data indirectly from another Data Recipient (in addition to
the Connected Entity) is not required to execute a separate data
agreement; rather, that entity is bound by the same data agreement
executed by the applicable member of the Affiliate Group. Lastly, if a
Data Recipient is receiving Exchange data from (i) multiple third-party
distributors or (ii) from one or more third-party distributors and the
Exchange, the Data Recipient would only be required to pay one access
fee--either the internal distribution access fee or the external
distribution access fee--depending on whether the Data Recipient is
distributing the Exchange data internally or externally.
---------------------------------------------------------------------------
\8\ An ``affiliate'' of a Data Recipient includes any entity
that, from time to time, directly or indirectly Controls, is
Controlled by, or is under common Control with the Data Recipient.
``Control'' means the power to direct or cause the direction of the
management of policies of another entity, whether through the
ownership of voting securities, by contract, or otherwise.
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The Exchange intends to implement the proposed fees on July 1,
2013.
2. Statutory Basis
The Exchange believes that the rule change proposed in this
submission is consistent with the requirements of the Act and the rules
and regulations thereunder that are applicable to a national securities
exchange, and, in particular, with the requirements of Section 6(b) of
the Act.\9\ Specifically, the Exchange believes that the proposed
change is consistent with Section 6(b)(4) and 6(b)(5) of the Act,\10\
because it provides an equitable allocation of reasonable fees among
its Members and other recipients of Exchange data and is not designed
to permit unfair discrimination between them. The Exchange believes
that its proposed fees for the data products described herein are
reasonable in light of the benefits to data recipients and the fact
that certain other Exchange data feeds will continue to be provided
free of charge.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------
As described in more detail below, the proposed fees are based on
pricing conventions and distinctions that exist in the fee schedules of
other exchanges. These distinctions (depth-of-book versus top-of-book
and internal distribution versus external distribution) are each based
on principles of fairness and equity that have helped for many years to
maintain fair, equitable, and not unreasonably discriminatory fees, and
that apply with equal or greater force to the current proposal.
For example, NASDAQ Exchange (``NASDAQ'') charges data recipients
of its NASDAQ TotalView data feed $2,000 per month for NASDAQ-listed
security depth entitlements and $1,000 per month for non NASDAQ-listed
security depth entitlements to receive the data feed directly from
NASDAQ. If the data recipient then distributes the data, it pays an
additional internal or external distribution fee depending on the
method of distribution. NASDAQ charges $1,000 per month for internal
distribution of NASDAQ-listed security depth entitlements and $500 per
month for internal distribution of non NASDAQ-listed security depth
entitlements, and $2,500 per month for external distribution of NASDAQ-
listed security depth entitlements and $1,250 per month for external
distribution of non NASDAQ-listed security depth entitlements. NASDAQ
also charges end-user fees per professional and non-professional
subscriber for NASDAQ TotalView.\11\
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\11\ See NASDAQ OMX Rule 7019 and NASDAQ OMX Rule 7023.
---------------------------------------------------------------------------
NASDAQ charges data recipients that distribute its NASDAQ Basic
data feed $1,500 per month for best bid and offer and last sale
information for all U.S. exchange-listed securities. Data recipients
that subscribe to the NASDAQ Basic web service must pay a fee of $1,500
per month, plus the applicable distribution and subscriber fees. NASDAQ
also charges end-user fees per professional and non-professional
subscriber or, in the alternative, NASDAQ charges per query fees for
NASDAQ Basic.\12\
---------------------------------------------------------------------------
\12\ Id.
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NASDAQ OMX PSX (``PSX'') charges data recipients of its book feed,
PSX TotalView, a $1,000 monthly fee to receive its data feed directly
from PSX. If the data recipient then distributes the data, it pays an
additional internal or external distribution fee depending on the
method of distribution. These distribution fees are $500 per month for
internal distribution and $1,250 per month for external distribution.
PSX also charges end-user fees per professional and non-professional
subscriber for PSX TotalView.\13\ NASDAQ OMX BX (``BX'') charges data
recipients of its book feed, BX TotalView, the same access fees and
distribution fees as PSX, and also charges end-user fees per
professional
[[Page 41486]]
and non-professional subscriber for BX TotalView.\14\
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\13\ See NASDAQ PSX Pricing Schedule.
\14\ See NASDAQ OMX BX Rule 7019 and NASDAQ OMX BX Rule 7023.
---------------------------------------------------------------------------
NYSE charges data recipients of its book feed, NYSE OpenBook, a
$5,000 monthly fee to receive its data feed directly or indirectly from
NYSE. NYSE also charges end-user fees per professional and non-
professional subscriber for NYSE OpenBook. NYSE charges data recipients
of its last sale feed, NYSE Real-Time Reference Prices, a $60,000
monthly fee to receive this feed containing only NYSE data directly or
indirectly from NYSE. If a data recipient wishes to receive NYSE, NYSE
Arca and NYSE MKT data, NYSE charges the data recipient a $100,000
monthly fee to receive this feed.\15\
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\15\ See NYSE Schedule of Fees.
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Each of EDGX Exchange (``EDGX'') and EDGA Exchange (``EDGA'')
charge $500 per month for internal distribution and $2,500 per month
for external distribution of their EDGX and EDGA book feeds,
respectively. In addition, each of EDGX and EDGA charge $2,500 per
month for internal distribution and $5,000 per month for external
distribution of their EdgeBook Attributed feeds.\16\ Neither EDGX nor
EDGA charge a per user fee for internal or external distribution of its
data.
---------------------------------------------------------------------------
\16\ See EDGX Exchange Fee Schedule; See also EDGA Exchange Fee
Schedule.
---------------------------------------------------------------------------
Revenue generated from Exchange data fees will help offset the
costs that the Exchange incurs in operating and regulating a highly
efficient and reliable platform for the trading of U.S. equities and
options. This increased revenue stream will permit the Exchange to
offer an innovative service at a reasonable rate, structured in a
manner comparable to and consistent with other market centers that
provide similar market data products.\17\
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\17\ See infra note 22 and accompanying text.
---------------------------------------------------------------------------
The Exchange will continue to make such data available until such
time as it changes its rule.
The Exchange believes that the proposal is also consistent with
Section 6(b)(8) of the Act \18\ in that it does not impose any burden
on competition not necessary or appropriate in furtherance of the
purposes of the Act. The fees charged would be the same for all
similarly-situated market participants, and therefore do not
unreasonably discriminate among market participants.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
In adopting Regulation NMS, the Commission granted self-regulatory
organizations (``SROs'') and broker-dealers (``BDs'') increased
authority and flexibility to offer new and unique market data to the
public. It was believed that this authority would expand the amount of
data available to consumers and also spur innovation and competition
for the provision of market data.
The Exchange believes that its Data Feeds are precisely the sort of
market data products that the Commission envisioned when it adopted
Regulation NMS. The Commission concluded that Regulation NMS--by
deregulating the market in proprietary data--would itself further the
Act's goals of facilitating efficiency and competition:
[E]fficiency is promoted when broker-dealers who do not need the
data beyond the prices, sizes, market center identifications of the
NBBO and consolidated last sale information are not required to
receive (and pay for) such data. The Commission also believes that
efficiency is promoted when broker-dealers may choose to receive
(and pay for) additional market data based on their own internal
analysis of the need for such data.\19\
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\19\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496 (June 29, 2005).
By removing ``unnecessary regulatory restrictions'' on the ability of
exchanges to sell their own data, Regulation NMS advanced the goals of
the Act and the principles reflected in its legislative history. If the
free market should determine whether proprietary data is sold to BDs at
all, it follows that the price at which such data is sold should be set
by the market as well.
On July 21, 2010, President Barak [sic] Obama signed into law H.R.
4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (``Dodd-Frank Act''), which amended Section 19 of the Act. Among
other things, Section 916 of the Dodd-Frank Act amended paragraph (A)
of Section 19(b)(3) of the Act by inserting the phrase ``on any person,
whether or not the person is a member of the self-regulatory
organization'' after ``due, fee or other charge imposed by the self-
regulatory organization.'' As a result, all SRO rule proposals
establishing or changing dues, fees, or other charges are immediately
effective upon filing regardless of whether such dues, fees, or other
charges are imposed on members of the SRO, non-members, or both.
Section 916 further amended paragraph (C) of Section 19(b)(3) of the
Act to read, in pertinent part, ``At any time within the 60-day period
beginning on the date of filing of such a proposed rule change in
accordance with the provisions of paragraph (1) [of Section 19(b)], the
Commission summarily may temporarily suspend the change in the rules of
the self-regulatory organization made thereby, if it appears to the
Commission that such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of this title. If the Commission takes such action, the
Commission shall institute proceedings under paragraph (2)(B) [of
Section 19(b)] to determine whether the proposed rule should be
approved or disapproved.''
The decision of the United States Court of Appeals for the District
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010), although reviewing a Commission decision made prior to the
effective date of the Dodd-Frank Act, upheld the Commission's reliance
upon competitive markets to set reasonable and equitably allocated fees
for market data. ``In fact, the legislative history indicates that the
Congress intended that the market system `evolve through the interplay
of competitive forces as unnecessary regulatory restrictions are
removed' and that the SEC wield its regulatory power `in those
situations where competition may not be sufficient,' such as in the
creation of a `consolidated transactional reporting system.' ''\20\ 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.' ''\21\
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\20\ NetCoalition, at 535 (quoting H.R. Rep. no. 94-229, at 92
(1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323).
\21\ Id.
---------------------------------------------------------------------------
The Exchange believes that the proposed fees are fair and
equitable, and not unreasonably discriminatory. Specifically, the
Exchange believes that the fees proposed for the Data Feeds are fair
and equitable in that they are optional and apply uniformly to all data
recipients irrespective of each recipient's relationship to the
Exchange (e.g., Member, non-Member data recipient, etc.) except with
respect to reasonable distinctions as between internal and external
distribution.\22\ The proposed fees are based on pricing conventions
and distinctions (e.g., internal versus external distribution and
controlled versus uncontrolled data
[[Page 41487]]
feed) based on established principles of fairness and equity that have
helped to maintain fair, equitable, and not unreasonably discriminatory
fees, and that apply with equal or greater force to the current
proposal.
---------------------------------------------------------------------------
\22\ The Exchange notes that distinctions based on internal
versus external distribution have been previously filed with the
Commission by NASDAQ, BX, PSX, and EDGX. See Nasdaq Rule 7019(b).
See also Securities Exchange Act Release Nos. 62876 (September 9,
2010), 75 FR 56624 (September 16, 2010) (File No. SR-PHLX-2010-120);
62907 (September 14, 2010), 75 FR 57314 (September 20, 2010) (File
No. SR-NASDAQ-2010-110); 63442 (December 6, 2010), FR 77029
(December 10, 2010) (File No. SR-BX-2010-081); 66864 (April 26,
2012), 77 FR 26064 (May 2, 2012) (File No. SR-EDGX-2012-14).
---------------------------------------------------------------------------
Regardless of a Data Recipient's reasons for subscribing to the
Data Feeds, the fees for such feeds apply equally to all Data
Recipients that wish to use the feeds for internal use only and equally
to all Data Recipients that wish to redistribute the feeds.
The Exchange proposes charging Data Recipients that distribute
Exchange data externally more than Data Recipients that distribute
Exchange data internally because of higher administrative costs
associated with monitoring methods of distribution and ongoing
reporting by those Data Recipients distributing the data externally, as
required in the BATS Global Markets, Inc. Data Agreement and Exchange
requirements referenced therein. The Exchange believes that the access
fees for the Data Feeds are reasonable and fair in light of
alternatives offered by other market centers, as described above.
Efficiency is promoted when Members who do not need the Data Feeds
are not required to receive (and pay for) such data. The Exchange also
believes that efficiency is promoted when Members may choose to receive
(and pay for) additional market data based on their own internal
analysis of the need for such data. Only those consumers that deem such
products to be of sufficient overall value and usefulness will purchase
them. The Exchange is not required to make the Data Feeds available or
to offer specific pricing alternatives for potential purchases. The
Exchange has chosen to make the Data Feeds available to improve market
quality, attract order flow, and increase transparency. The Exchange
can discontinue offering a pricing alternative and firms can
discontinue their use at any time and for any reason, including due to
their assessment of the reasonableness of fees charged.
Lastly, competition is promoted as the Exchange cannot set
unreasonable fees without losing business to its competitors.\23\ The
Exchange continues to establish and revise pricing policies aimed at
increasing fairness and equitable allocation of fees among data
recipients. If the market deems the proposed fees to be unfair or
inequitable, firms can diminish or discontinue their use of the data.
---------------------------------------------------------------------------
\23\ See infra discussion in Section 4 [sic], ``Self-Regulatory
Organization's Statement on Burden on Competition.''
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
Notwithstanding its determination that the Commission may rely upon
competition to establish fair and equitably allocated fees for market
data, the NetCoalition court found that the Commission had not, in that
case, compiled a record that adequately supported its conclusion that
the market for the data at issue in the case was competitive. The
Exchange believes that a record may readily be established to
demonstrate the competitive nature of the market in question.
The proposal is, as described below, pro-competitive. There is
intense competition between trading platforms that provide transaction
execution and routing services and proprietary data products.
Transaction execution and proprietary data products are complementary
in that market data is both an input and a byproduct of the execution
service. In fact, market data and trade execution are a paradigmatic
example [sic] of joint products with joint costs. The decision whether
and on which platform to post an order will depend on the attributes of
the platform where the order can be posted, including the execution
fees, data quality and price and distribution of its data products.
Without the prospect of a taking order seeing and reacting to a posted
order on a particular platform, the posting of the order would
accomplish little. Without orders entered and trades executed, exchange
data products cannot exist. Data products are valuable to many end
users only insofar as they provide information that end users expect
will assist them or their customers in making trading decisions.
The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's transaction execution
platform and the cost of regulating the exchange to ensure its fair
operation and maintain investor confidence. The total return that a
trading platform earns reflects the revenues it receives from both
products and the joint costs it incurs. Moreover, an exchange's BD
customers view the costs of transaction executions and of data as a
unified cost of doing business with the exchange. A BD will direct
orders to a particular exchange only if the expected revenues from
executing trades on the exchange exceed net transaction execution costs
and the cost of data that the BD chooses to buy to support its trading
decisions (or those of its customers). The choice of data products is,
in turn, a product of the value of the products in making profitable
trading decisions. If the cost of the product exceeds its expected
value, the BD will choose not to buy it.
Moreover, as a BD chooses to direct fewer orders to a particular
exchange, the value of the product to that BD decreases, for two
reasons. First, the product will contain less information, because
executions of the BD's orders will not be reflected in it. Second, and
perhaps more important, the product will be less valuable to that BD
because it does not provide information about the venue to which it is
directing its orders. Data from the competing venue to which the BD is
directing orders will become correspondingly more valuable. Thus, a
super-competitive increase in the fees charged for either transactions
or data has the potential to impair revenues from both products.
``No one disputes that competition for order flow is `fierce'.''
\24\ However, the existence of fierce competition for order flow
implies a high degree of price sensitivity on the part of BDs with
order flow, since they may readily reduce costs by directing orders
toward the lowest-cost trading venues. A BD that shifted its order flow
from one platform to another in response to order execution price
differentials would both reduce the value of that platform's market
data and reduce its own need to consume data from the disfavored
platform. Similarly, if a platform increases its market data fees, the
change will affect the overall cost of doing business with the
platform, and affected BDs will assess whether they can lower their
trading costs by directing orders elsewhere and thereby lessening the
need for the more expensive data.
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\24\ NetCoalition, at 24 [sic].
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Analyzing the cost of market data distribution in isolation from
the cost of all of the inputs supporting the creation of market data
will inevitably underestimate the cost of the data. Thus, because it is
impossible to create data without a fast, technologically robust, and
well-regulated execution system, system costs and regulatory costs
affect the price of market data. It would be equally misleading,
however, to attribute all of an exchange's costs to the market data
portion of an exchange's joint product. Rather, all of an
[[Page 41488]]
exchange's costs are incurred for the unified purposes of attracting
order flow, executing and/or routing orders, and generating and selling
data about market activity. The total return that an exchange earns
reflects the revenues it receives from the joint products and the total
costs of the joint products.
Competition among trading platforms can be expected to constrain
the aggregate return each platform earns from the sale of its joint
products, but different platforms may choose from a range of possible,
and equally reasonable, pricing strategies as the means of recovering
total costs. For example, some platforms may choose to pay rebates to
attract orders, charge relatively low prices for market information (or
provide information free of charge) and charge relatively high prices
for accessing posted liquidity. Other platforms may choose a strategy
of paying lower rebates (or no rebates) to attract orders, setting
relatively high prices for market information, and setting relatively
low prices for accessing posted liquidity. In this environment, there
is no economic basis for regulating maximum prices for one of the joint
products in an industry in which suppliers face competitive constraints
with regard to the joint offering. Such regulation is unnecessary
because an ``excessive'' price for one of the joint products will
ultimately have to be reflected in lower prices for other products sold
by the firm, or otherwise the firm will experience a loss in the volume
of its sales that will be adverse to its overall profitability. In
other words, an increase in the price of data will ultimately have to
be accompanied by a decrease in the cost of executions, or the volume
of both data and executions will fall.
The market for market data products is competitive and inherently
contestable because there is fierce competition for the inputs
necessary to the creation of proprietary data and strict pricing
discipline for the proprietary products themselves. Numerous exchanges
compete with each other for listings, trades, and market data itself,
providing virtually limitless opportunities for entrepreneurs who wish
to produce and distribute their own market data. This proprietary data
is produced by each individual exchange, as well as other entities, in
a vigorously competitive market.
BDs currently have numerous alternative venues for their order
flow, including thirteen SRO markets, as well as internalizing BDs and
various forms of alternative trading systems (``ATSs''), including dark
pools and electronic communication networks (``ECNs''). Each SRO market
competes to produce transaction reports via trade executions, and two
FINRA-regulated Trade Reporting Facilities (``TRFs'') compete to
attract internalized transaction reports. Competitive markets for order
flow, executions, and transaction reports provide pricing discipline
for the inputs of proprietary data products.
The large number of SROs, TRFs, BDs, and ATSs that currently
produce proprietary data or are currently capable of producing it
provides further pricing discipline for proprietary data products. Each
SRO, TRF, ATS, and BD is currently permitted to produce proprietary
data products, and many currently do or have announced plans to do so,
including, but not limited to, NASDAQ, NYSE, NYSE MKT, NYSE Arca,
Direct Edge and International Securities Exchange.
Any ATS or BD can combine with any other ATS, BD, or multiple ATSs
or BDs to produce joint proprietary data products. Additionally, order
routers and market data vendors can facilitate single or multiple BDs'
production of proprietary data products. The potential sources of
proprietary products are virtually limitless.
The fact that proprietary data from ATSs, BDs, and vendors can by-
pass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and sale of proprietary data
products, as the Exchange and Arca did before registering as exchanges
by publishing proprietary book data on the Internet. Second, because a
single order or transaction report can appear in an SRO proprietary
product, a non-SRO proprietary product, or both, the data available in
proprietary products is exponentially greater than the actual number of
orders and transaction reports that exist in the marketplace. Indeed,
in the case of the Data Feeds, the data provided through these products
appears both in (i) real-time core data products offered by the SIPs
for a fee, and (ii) free SIP data products with a 15-minute delay, and
find close substitutes in products of competing venues.
Market data vendors provide another form of price discipline for
proprietary data products because they control the primary means of
access to end users. Vendors impose price restraints based upon their
business models. For example, vendors such as Bloomberg and Reuters
that assess a surcharge on data that they sell may refuse to offer
proprietary products that end users will not purchase in sufficient
numbers. Internet portals, such as Google, impose a discipline by
providing only data that will enable them to attract ``eyeballs'' that
contribute to their advertising revenue. Retail BDs, such as Schwab and
Fidelity, offer their customers proprietary data only if it promotes
trading and generates sufficient commission revenue. Although the
business models may differ, these vendors' pricing discipline is the
same: they can simply refuse to purchase any proprietary data product
that fails to provide sufficient value. The Exchange and other
producers of proprietary data products must understand and respond to
these varying business models and pricing disciplines in order to
market proprietary data products successfully. Moreover, the Exchange
believes that products such as the Data Feeds can enhance order flow to
the Exchange by providing more widespread distribution of information
about transactions in real time, thereby encouraging wider
participation in the market by investors with access to the Internet
and television. Conversely, the value of such products to distributors
and investors decreases if order flow falls, because the products
contain less content.
In addition to the competition and price discipline described
above, the market for proprietary data products is also highly
contestable because market entry is rapid, inexpensive, and profitable.
The history of electronic trading is replete with examples of entrants,
including the Exchange, that swiftly grew into some of the largest
electronic trading platforms and proprietary data producers:
Archipelago, Bloomberg Tradebook, Island, RediBook, Attain, TracECN and
Direct Edge. A proliferation of dark pools and other ATSs operate
profitably with fragmentary shares of consolidated market volume.
Regulation NMS, by deregulating the market for proprietary data,
has increased the contestability of that market. While BDs have
previously published their proprietary data individually, Regulation
NMS encourages market data vendors and BDs to produce proprietary
products cooperatively in a manner never before possible. Multiple
market data vendors already have the capability to aggregate data and
disseminate it on a profitable scale, including Bloomberg, and Thomson
Reuters.
Competition among platforms has driven the Exchange continually to
improve its market data offerings and to cater to customers' data
needs. For example, the Exchange has developed and maintained multiple
delivery mechanisms that enable customers to receive data in the form
and manner
[[Page 41489]]
they prefer and at the lowest cost to them.
The Exchange offers data via multiple extranet providers, thereby
helping to reduce network and total cost for its data products. Despite
these enhancements and a dramatic increase in message traffic, to date
the Exchange has been able to offer most of its market data without
charge. Moreover, platform competition has intensified as new entrants
have emerged, constraining prices for both executions and for data.
The Exchange has witnessed competitors creating new products and
innovative pricing in this space over the last few years. In all cases,
firms make decisions on how much and what types of data to consume on
the basis of the total cost of interacting with the Exchange or other
exchanges. Of course, the explicit data fees are but one factor in a
total platform analysis. Some competitors have lower transactions fees
and higher data fees, and others are vice versa. The market for the
proposed data is highly competitive and continually evolves as products
develop and change.
In establishing the fees for the Data Feeds, the Exchange
considered the competitiveness of the market for the type of data being
offered and all of the implications of that competition. The Exchange
believes that it has considered all relevant 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 Data Feeds, including real-time
consolidated data, free delayed consolidated data, and proprietary data
from other sources ensures that the Exchange cannot set unreasonable
fees, or fees that are unreasonably discriminatory, without losing
business to these alternatives.
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 written comments from members or other interested parties.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act \25\ and Rule 19b-4(f)(2) thereunder,\26\
because it establishes a due, fee, or other charge imposed by BATS.
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\25\ 15 U.S.C. 78s(b)(3)(A)(ii).
\26\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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-BATS-2013-39 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-BATS-2013-39. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of BATS. 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-BATS-2013-39 and should be
submitted on or before July 31, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16535 Filed 7-9-13; 8:45 am]
BILLING CODE 8011-01-P
