Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Fees for Display Use of the NYSE BBO and NYSE Trades Market Data Products and Making Certain Technical Changes to the Fee Schedule, 51781-51786 [2013-20337]
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Federal Register / Vol. 78, No. 162 / Wednesday, August 21, 2013 / Notices
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Section 19(b)(2) of the Act 9 provides
that, after initiating disapproval
proceedings, the Commission shall issue
an order approving or disapproving the
proposed rule change not later than 180
days after the date of publication of
notice of the filing of the proposed rule
change. The Commission may extend
the period for issuing an order
approving or disapproving the proposed
rule change, however, by not more than
60 days if the Commission determines
that a longer period is appropriate and
publishes the reasons for such
determination. The proposed rule
change was published for comment in
the Federal Register on February 22,
2013. August 21, 2013 is 180 days from
that date, and October 20, 2013 is an
additional 60 days from that date.
The Commission finds it appropriate
to designate a longer period within
which to issue an order approving or
disapproving the proposed rule change
so that it has sufficient time to consider
the proposed rule change, the issues
raised in the comment letters that have
been submitted in connection with the
proposed rule change, and the NYSE’s
responses to such issues. Specifically, as
the Commission noted in more detail in
the Order Instituting Proceedings, the
proposal raises significant questions as
to whether the Exchange has provided
adequate justification for material
aspects of its proposal such that the
Commission can determine that the
proposal is consistent with the Act.
Extending the time within which to
approve or disapprove the proposed
rule change will enable the Commission
to more fully consider this issue and the
other issues raised in the comment
letters.
Accordingly, the Commission,
pursuant to Section 19(b)(2) of the
Act,10 designates October 20, 2013, as
the date by which the Commission
should either approve or disapprove the
proposed rule change.
Municipal Employees, dated July 3, 2013; Brandon
Rees, Acting Director, American Federation of
Labor and Congress of Industrial Organizations
Office of Investment, dated July 5, 2013; Charles V.
Rossi, President, The Securities Transfer
Association, Inc., dated July 5, 2013; James J. Angel,
dated July 5, 2013; and Michael J. Hogan, Chief
Executive Officer, FOLIOfn Investments, Inc., dated
July 12, 2013; see also letters to the Honorable Mary
Jo White, Chair, Commission from Ann Yerger,
Executive Director, Council of Institutional
Investors, dated May 17, 2013; and Charles E.
Schumer, United States Senator, dated May 23,
2013. See also response letter from Janet McGinnis,
EVP & Corporate Secretary, NYSE Euronext, to
Elizabeth M. Murphy, Secretary, Commission, dated
July 9, 2013.
9 15 U.S.C. 78s(b)(2).
10 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–20345 Filed 8–20–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70211; File No. SR–NYSE–
2013–58]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Amending the
Fees for Display Use of the NYSE BBO
and NYSE Trades Market Data
Products and Making Certain
Technical Changes to the Fee
Schedule
August 15, 2013.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on August
1, 2013, New York Stock Exchange LLC
(‘‘NYSE’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
fees for display use of the NYSE BBO
and NYSE Trades market data products
and make certain technical changes to
the fee schedule. The changes will be
operative on August 1, 2013. The text of
the proposed rule change is available on
the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
11 17
CFR 200.30–3(a)(31).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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51781
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
fees for display use of the NYSE BBO 4
and NYSE Trades 5 market data
products and make certain technical
changes to the fee schedule. The
changes will be operative on August 1,
2013.
The Exchange currently charges $15
per month for professional users and $5
per month for non-professional users for
display use of NYSE BBO.6
Alternatively, the Exchange charges
$0.005 per quote for display use of
NYSE BBO for non-professional users,
capped at $5 per month per nonprofessional user.7 The Exchange
currently charges $15 per month for
professional users for display use of
NYSE Trades. The Exchange currently
does not offer NYSE Trades for nonprofessional users under a per-user fee
structure.8
4 NYSE BBO is an NYSE-only market data feed
that allows a vendor to redistribute on a real-time
basis the same best-bid-and-offer information that
the Exchange reports under the Consolidated
Quotation (‘‘CQ’’) Plan for inclusion in the CQ
Plan’s consolidated quotation information data
stream. The data feed includes the best bids and
offers for all securities that are traded on the
Exchange and for which NYSE reports quotes under
the CQ Plan.
5 NYSE Trades is an NYSE-only market data feed
that allows a vendor to redistribute on a real-time
basis the same last sale information that the
Exchange reports under the Consolidated Tape
Association (‘‘CTA’’) Plan for inclusion in the CTA
Plan’s consolidated data streams and certain other
related data elements. Specifically, NYSE Trades
includes the real-time last sale price, time, size, and
bid-ask quotations for each security traded on the
Exchange and a stock summary message. The stock
summary message updates every minute and
includes NYSE’s opening price, high price, low
price, closing price, and cumulative volume for the
security.
6 The Exchange applies the same criteria for
qualification as a ‘‘non-professional subscriber’’ as
the CTA and CQ Plan participants use. See
Securities Exchange Act Release No. 62181 (May
26, 2010), 75 FR 31488 (June 3, 2010) (SR–NYSE–
2010–30).
7 Id. The cap is referenced in this filing, although
it does not currently appear in the fee schedule.
8 See Securities Exchange Act Release No. 59309
(Jan. 28, 2009), 74 FR 6073 (Feb. 4, 2009) (SR–
NYSE–2009–04). When NYSE Trades was initially
offered, the Exchange had not observed a demand
for non-professional use. See id. The Exchange
Continued
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The Exchange also charges an access
fee of $1,500 per month for NYSE BBO
and an access fee of $1,500 for NYSE
Trades. However, a single access fee
applies for clients receiving both NYSE
BBO and NYSE Trades.
Vendors that redistribute NYSE
Trades data pay a redistribution fee of
$1,000 per month.
The Exchange proposes to lower the
professional user fees for display use of
NYSE BBO from $15 per month to $4
per month, lower the non-professional
user fees for display use of NYSE BBO
from $5 per month to $0.20 per month,
and eliminate the per quote option for
display use of NYSE BBO for nonprofessional users. The Exchange also
proposes to lower the professional user
fee for display use of NYSE Trades from
$15 per month to $4 per month and
introduce a fee for display use of NYSE
Trades by non-professional users of
$0.20 per month.
The Exchange also proposes to
establish a $190,000 per month
enterprise fee for an unlimited number
of professional and non-professional
users for NYSE BBO and a $190,000 per
month enterprise fee for an unlimited
number of professional and nonprofessional users for NYSE Trades. A
single enterprise fee will apply for
vendors receiving both NYSE BBO and
NYSE Trades.
As an example, under the current fee
structure, if a firm had 7,000
professional users who each received
NYSE Trades at $15 per month and
NYSE BBO at $15 per month, then the
firm currently pays $210,000 per month
in professional user fees. Under the
proposed enterprise fee, the firm will
pay a flat fee of $190,000 for an
unlimited number of professional and
non-professional users for both
products.
A vendor that pays the enterprise fee
would not have to report the number of
such users on a monthly basis.9
However, every six months, a vendor
offers two last sale market data products for
distribution to non-professional users, NYSE Trades
Digital Media and NYSE Realtime Reference Prices
Digital Media. See Securities Exchange Act Release
No. 69298 (Apr. 4, 2013), 78 FR 21464 (Apr. 10,
2013) (SR–NYSE–2013–24).
9 Most professional users currently are subject to
a per display device count, except for a small
number of professional users that have qualified for
the Exchange’s Unit-of-Count Policy. See SR–
NYSE–2010–30, supra n.6; Securities Exchange Act
Release No. 59606 (Mar. 19, 2009), 74 FR 13293
(Mar. 26, 2009) (SR–NYSE–2009–04); Securities
Exchange Act Release No. 59544 (Mar. 9, 2009), 74
FR 11162 (Mar. 16, 2009) (SR–NYSE–2008–131)
(establishing Unit-of-Count Policy). That policy
continues to apply to such professional users for
display use only if the proposed enterprise fee does
not apply. See Securities Exchange Act Release No.
69278 (April 2, 2013) 78 FR 20973 (April 8, 2013)
(SR–NYSE–2013–25).
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must provide the Exchange with a count
of the total number of natural person
users of each product, including both
professional and non-professional users.
Lastly, the Exchange proposes to
make certain technical corrections to
clarify its fee schedule and to delete
operative dates that are no longer
needed.
The purpose of the foregoing changes
is to encourage greater use of NYSE BBO
and NYSE Trades by making them more
affordable, to compete more effectively
with similar products in the
marketplace, and to clarify the fee
schedule. The Exchange is eliminating
the per quote option for display use of
NYSE BBO for non-professional users
because non-professional users are not
electing to use it. The Exchange is not
aware of any significant problems that
persons affected are likely to have in
complying with the proposed rule
change.
The Exchange further believes that the
proposed rule change is consistent with
the market-based approach of the
Securities and Exchange Commission
(‘‘Commission’’). The decision of the
United States Court of Appeals for the
District of Columbia Circuit in
NetCoalition v. SEC, 615 F.3d 525 (D.C.
Cir. 2010), upheld reliance by the
Commission upon the existence of
competitive market mechanisms to set
reasonable and equitably allocated fees
for proprietary market data:
In fact, the legislative history indicates that
the Congress intended that the market system
‘evolve through the interplay of competitive
forces as unnecessary regulatory restrictions
are removed’ and that the SEC wield its
regulatory power ‘in those situations where
competition may not be sufficient,’ such as
in the creation of a ‘consolidated
transactional reporting system.’
Id. at 535 (quoting H.R. Rep. No. 94–
229 at 92 (1975), as reprinted in 1975
U.S.C.C.A.N. 323). The court agreed
with the Commission’s conclusion that
‘‘Congress intended that ‘competitive
forces should dictate the services and
practices that constitute the U.S.
national market system for trading
equity securities.’ ’’ 10
As explained below in the Exchange’s
Statement on Burden on Competition,
the Exchange believes that there is
substantial evidence of competition in
the marketplace for data and that the
Commission can rely upon such
evidence in concluding that the fees
established in this filing are the product
of competition and therefore satisfy the
relevant statutory standards.11 In
10 NetCoalition,
615 F.3d at 535.
916 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (the
11 Section
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addition, the existence of alternatives to
NYSE BBO and NYSE Trades, including
real-time consolidated data, free delayed
consolidated data, and proprietary data
from other sources, as described below,
further ensures that the Exchange
cannot set unreasonable fees, or fees
that are unreasonably discriminatory,
when vendors and subscribers can elect
such alternatives.
As the NetCoalition decision noted,
the Commission is not required to
undertake a cost-of-service or
ratemaking approach, and the Exchange
incorporates by reference into this
proposed rule change its affiliate’s
analysis of this topic in another rule
filing.12
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,13
in general, and Sections 6(b)(4) and
6(b)(5) of the Act,14 in particular, in that
it provides an equitable allocation of
reasonable fees among its members,
issuers, and other persons using its
facilities and is not designed to permit
unfair discrimination among customers,
issuers, brokers, or dealers. The
Exchange also believes that the
proposed rule change is consistent with
Section 11(A) of the Act 15 in that it is
consistent with (i) fair competition
among brokers and dealers, among
exchange markets, and between
exchange markets and markets other
than exchange markets and (ii) the
availability to brokers, dealers, and
investors of information with respect to
quotations for and transactions in
securities. Furthermore, the proposed
rule change is consistent with Rule 603
of Regulation NMS,16 which provides
that any national securities exchange
that distributes information with respect
to quotations for or transactions in an
NMS stock do so on terms that are not
unreasonably discriminatory.
The Exchange believes that lowering
the professional and non-professional
user fees for NYSE BBO and lowering
the professional user fee for NYSE
Trades is reasonable because it will
make the products more affordable and
result in their greater availability to
professional and non-professional users.
‘‘Dodd-Frank Act’’) amended paragraph (A) of
Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3), to
make clear that all exchange fees for market data
may be filed by exchanges on an immediately
effective basis.
12 See Securities Exchange Act Release No. 63291
(Nov. 9, 2010), 75 FR 70311 (Nov. 17, 2010) (SR–
NYSEArca–2010–97).
13 15 U.S.C. 78f(b).
14 15 U.S.C. 78f(b)(4), (5).
15 15 U.S.C. 78k–1.
16 See 17 CFR 242.603.
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The Exchange believes that introducing
a non-professional fee for NYSE Trades
is reasonable because it provides an
additional method for retail investors to
access NYSE last sale data and provides
the same last sale data that is available
to professional users, an option
heretofore unavailable.17 The Exchange
believes it is reasonable to eliminate the
per quote option for non-professional
users of NYSE BBO because nonprofessional users have not elected this
option.
In addition, the Exchange believes
that the proposed fees are reasonable
when compared to fees for comparable
products offered by at least one other
exchange and under the CTA and CQ
Plans. Specifically, The NASDAQ Stock
Market LLC (‘‘NASDAQ’’) offers
NASDAQ Basic, which includes best
bid and offer and last sale data, for a
monthly fee of $10 per professional
subscriber and $0.50 per nonprofessional subscriber; alternatively, a
broker-dealer may purchase an
enterprise license at a rate of $100,000
per month for distribution to an
unlimited number of non-professional
subscribers only.18 The Exchange’s
proposed per-user fees are lower than
NASDAQ’s fees. While the Exchange’s
enterprise fee is higher, the Exchange
will permit broader distribution of its
data for this fee, i.e., to both professional
and non-professional users. Under the
current CTA and CQ Plans, Tape A
consolidated last sale and bid-ask data
are offered together for a monthly fee of
$18.75–$127.25 per device, depending
on the number of professional
subscribers, and $0.50–$1.00 per nonprofessional subscriber, depending on
the number of non-professional
subscribers.19 A monthly enterprise fee
of $660,000 is available under which a
U.S. registered broker-dealer may
distribute data to an unlimited number
of its own employees and its
nonprofessional subscriber brokerage
account customers. Participants in the
CTA and CQ Plans recently submitted
an immediately effective filing with rate
changes that are expected to be
implemented September 1, 2013.20 The
Exchange is proposing professional and
non-professional user fees and
enterprise fees that are less than the fees
17 See
supra n.8.
NASDAQ Rule 7047.
19 See CTA Plan dated July 25, 2012 and CQ Plan
dated August 23, 2010, available at https://
cta.nyxdata.com/CTA.
20 See Securities Exchange Act Release No. 70010
(July 19, 2013) (File No. SR–CTA/CQ–2013–04).
Monthly fees will be $20–50 for professional
subscribers and $1 for non-professional subscribers
for Tape A last sale and bid-ask data, and the
monthly enterprise fee described above will be
increased to $686,400.
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18 See
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currently charged or proposed by the
CTA and CQ Plans, in most cases less
than half of the CTA fee. In contrast to
NASDAQ and the CTA and CQ Plans,
the Exchange also will permit enterprise
distribution by a non-broker-dealer.
The proposed enterprise fees for
NYSE BBO and NYSE Trades also are
reasonable because they could result in
a fee reduction for vendors with a large
number of professional and nonprofessional users, as described in the
example above. If a vendor has a smaller
number of professional users of NYSE
BBO and/or NYSE Trades, then it may
continue using the per user structure
and benefit from the per user fee
reductions. By reducing prices for
vendors with a large number of
professional and non-professional users,
the Exchange believes that more
vendors may choose to offer NYSE BBO
and NYSE Trades, thereby expanding
the distribution of this market data for
the benefit of investors. The Exchange
also believes that offering an enterprise
fee will expand the range of options for
offering NYSE BBO and NYSE Trades
and will allow vendors greater choice in
selecting the most appropriate level of
data and fees for the professional and
non-professional users they are
servicing.
The Exchange further believes that the
proposed enterprise fees are reasonable
because they will simplify billing for
certain recipients that have large
numbers of professional and nonprofessional users. Firms that pay the
proposed enterprise fees will not have
to report the number of users on a
monthly basis as they currently do, but
rather will only have to count natural
person users every six months; this is a
significant reduction in administrative
burdens and is a significant value. The
Exchange believes that it is reasonable
to charge a single enterprise fee for
clients receiving both NYSE BBO and
NYSE Trades because the Exchange has
charged a single access fee for both
products since 2010,21 and the products
will continue to be offered separately for
vendors and users that so choose.
The Exchange believes that the
proposed fees are equitable and not
unfairly discriminatory because they
will be charged uniformly to vendors
and users that select these products. The
Exchange notes that the fee structure of
differentiated professional and nonprofessional fees has long been used by
the Exchange for other products, by
other exchanges for their products, and
by the CTA and CQ Plans in order to
reduce the price of data to retail
investors and make it more broadly
21 See
PO 00000
SR–NYSE–2010–30, supra n.6.
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51783
available.22 The Exchange further
believes that offering NYSE Trades to
non-professional users with the same
data available to professional users
results in greater equity among data
recipients. The Exchange believes that
eliminating the per quote nonprofessional user fee for NYSE BBO is
equitable and not unfairly
discriminatory because non-professional
users have not elected this option and
the Exchange will continue offering
other methods by which nonprofessional users can access this data.
Finally, the Exchange believes that it is
equitable and not unfairly
discriminatory to establish an enterprise
fee because it reduces the Exchange’s
costs and administrative burdens in
tracking and auditing large numbers of
users.
The proposed technical corrections to
the fee schedule will benefit vendors
and users by making the fee schedule
clearer and easier to understand.
For these reasons, the Exchange
believes that the proposed fees are
reasonable, equitable, and not unfairly
discriminatory.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
In accordance with Section 6(b)(8) of
the Act,23 the Exchange does not believe
that the proposed rule change will
impose any burden on competition that
is not necessary or appropriate in
furtherance of the purposes of the Act.
An exchange’s ability to price its
proprietary data feed products is
constrained by (1) The inherent
contestability of the market for
proprietary data and actual competition
for the sale of such data, (2) the joint
product nature of exchange platforms,
and (3) the existence of alternatives to
proprietary data.
The Existence of Actual Competition.
The market for proprietary data
products is currently competitive and
inherently contestable because there is
fierce competition for the inputs
necessary to the creation of proprietary
data and strict pricing discipline for the
proprietary products themselves.
Numerous exchanges compete with
each other for listings and order flow
and sales of market data itself, providing
virtually limitless opportunities for
entrepreneurs who wish to compete in
any or all of those areas, including
producing and distributing their own
market data. Proprietary data products
are produced and distributed by each
22 See, e.g., Securities Exchange Act Release No.
20002, File No. S7–433 (July 22, 1983) (establishing
nonprofessional fees for CTA data); NASDAQ Rules
7023(b), 7047.
23 15 U.S.C. 78f(b)(8).
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individual exchange, as well as other
entities, in a vigorously competitive
market.
Competitive markets for listings, order
flow, executions, and transaction
reports provide pricing discipline for
the inputs of proprietary data products
and therefore constrain markets from
overpricing proprietary market data.
The U.S. Department of Justice also has
acknowledged the aggressive
competition among exchanges,
including for the sale of proprietary
market data itself. In announcing that
the bid for NYSE Euronext by NASDAQ
OMX Group Inc. and
IntercontinentalExchange Inc. had been
abandoned, Assistant Attorney General
Christine Varney stated that exchanges
‘‘compete head to head to offer real-time
equity data products. These data
products include the best bid and offer
of every exchange and information on
each equity trade, including the last
sale.’’ 24
It is common for broker-dealers to
further exploit this recognized
competitive constraint by sending their
order flow and transaction reports to
multiple markets, rather than providing
them all to a single market. As a 2010
Commission Concept Release noted, the
‘‘current market structure can be
described as dispersed and complex’’
with ‘‘trading volume . . . dispersed
among many highly automated trading
centers that compete for order flow in
the same stocks’’ and ‘‘trading centers
offer[ing] a wide range of services that
are designed to attract different types of
market participants with varying trading
needs.’’ 25
In addition, in the case of products
that are distributed through market data
vendors, the market data vendors
themselves provide additional price
discipline for proprietary data products
because they control the primary means
of access to certain end users. These
vendors impose price discipline based
upon their business models. For
example, vendors that assess a
surcharge on data they sell are able to
refuse to offer proprietary products that
their end users do not or will not
24 Press Release, U.S. Department of Justice,
Assistant Attorney General Christine Varney Holds
Conference Call Regarding NASDAQ OMX Group
Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011),
available at https://www.justice.gov/iso/opa/atr/
speeches/2011/at-speech-110516.html.
25 Concept Release on Equity Market Structure,
Securities Exchange Act Release No. 61358 (Jan. 14,
2010), 75 FR 3594 (Jan. 21, 2010) (File No. S7–02–
10). This Concept Release included data from the
third quarter of 2009 showing that no market center
traded more than 20% of the volume of listed
stocks, further evidencing the dispersal of and
competition for trading activity. Id. at 3598.
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purchase in sufficient numbers. Internet
portals, such as Google, impose price
discipline by providing only data that
they believe will enable them to attract
‘‘eyeballs’’ that contribute to their
advertising revenue. Similarly, vendors
will not offer NYSE BBO or NYSE
Trades unless those products will help
them maintain current users or attract
new ones. For example, a broker-dealer
will not choose to offer NYSE BBO or
NYSE Trades to its retail customers
unless the broker-dealer believes that
the retail customers will use and value
the data and the provision of such data
will help the broker-dealer maintain the
customer relationship, which allows the
broker-dealer to generate profits for
itself. Professional users will not request
NYSE BBO or NYSE Trades from market
data vendors unless they can use the
data for profit-generating purposes in
their businesses. All of these operate as
constraints on pricing proprietary data
products.
Joint Product Nature of Exchange
Platform. Transaction execution and
proprietary data products are
complementary in that market data is
both an input and a byproduct of the
execution service. In fact, market data
and trade executions are a paradigmatic
example of joint products with joint
costs. The decision whether and on
which platform to post an order will
depend on the attributes of the
platforms where the order can be
posted, including the execution fees,
data quality, and price and distribution
of their data products. The more trade
executions a platform does, the more
valuable its market data products
become.
The costs of producing market data
include not only the costs of the data
distribution infrastructure, but also the
costs of designing, maintaining, and
operating the exchange’s transaction
execution platform and the cost of
regulating the exchange to ensure its fair
operation and maintain investor
confidence. The total return that a
trading platform earns reflects the
revenues it receives from both products
and the joint costs it incurs. Moreover,
an exchange’s broker-dealer customers
view the costs of transaction executions
and market data as a unified cost of
doing business with the exchange.
Other market participants have noted
that the liquidity provided by the order
book, trade execution, core market data,
and non-core market data are joint
products of a joint platform and have
common costs.26 The Exchange agrees
26 See Securities Exchange Act Release No. 62887
(Sept. 10, 2010), 75 FR 57092, 57095 (Sept. 17,
2010) (SR–Phlx–2010–121); Securities Exchange
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with and adopts those discussions and
the arguments therein. The Exchange
also notes that the economics literature
confirms that there is no way to allocate
common costs between joint products
that would shed any light on
competitive or efficient pricing.27
Analyzing the cost of market data
product production and distribution in
isolation from the cost of all of the
inputs supporting the creation of market
data and market data products will
inevitably underestimate the cost of the
data and data products. Thus, because it
is impossible to obtain the data inputs
to create market data products without
a fast, technologically robust, and wellregulated execution system, system
costs and regulatory costs affect the
price of both obtaining the market data
itself and creating and distributing
market data products. It would be
equally misleading, however, to
attribute all of an exchange’s costs to the
market data portion of an exchange’s
joint products. Rather, all of an
exchange’s costs are incurred for the
unified purposes of attracting order
flow, executing and/or routing orders,
and generating and selling data about
market activity. The total return that an
Act Release No. 62907 (Sept. 14, 2010), 75 FR
57314, 57317 (Sept. 20, 2010) (SR–NASDAQ–2010–
110); and Securities Exchange Act Release No.
62908 (Sept. 14, 2010), 75 FR 57321, 57324 (Sept.
20, 2010) (SR–NASDAQ–2010–111) (‘‘all of the
exchange’s costs are incurred for the unified
purposes of attracting order flow, executing and/or
routing orders, and generating and selling data
about market activity. The total return that an
exchange earns reflects the revenues it receives
from the joint products and the total costs of the
joint products.’’); see also August 1, 2008 Comment
Letter of Jeffrey S. Davis, Vice President and Deputy
General Counsel, NASDAQ OMX Group, Inc.,
Statement of Janusz Ordover and Gustavo
Bamberger (‘‘because market data is both an input
to and a byproduct of executing trades on a
particular platform, market data and trade
execution services are an example of ‘joint
products’ with ‘joint costs.’ ’’), attachment at pg. 4,
available at www.sec.gov/comments/34-57917/
3457917-12.pdf.
27 See generally Mark Hirschey, Fundamentals of
Managerial Economics, at 600 (2009) (‘‘It is
important to note, however, that although it is
possible to determine the separate marginal costs of
goods produced in variable proportions, it is
impossible to determine their individual average
costs. This is because common costs are expenses
necessary for manufacture of a joint product.
Common costs of production—raw material and
equipment costs, management expenses, and other
overhead—cannot be allocated to each individual
by-product on any economically sound basis. . . .
Any allocation of common costs is wrong and
arbitrary.’’). This is not new economic theory. See,
e.g., F. W. Taussig, ‘‘A Contribution to the Theory
of Railway Rates,’’ Quarterly Journal of Economics
V(4) 438, 465 (July 1891) (‘‘Yet, surely, the division
is purely arbitrary. These items of cost, in fact, are
jointly incurred for both sorts of traffic; and I cannot
share the hope entertained by the statistician of the
Commission, Professor Henry C. Adams, that we
shall ever reach a mode of apportionment that will
lead to trustworthy results.’’).
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Federal Register / Vol. 78, No. 162 / Wednesday, August 21, 2013 / Notices
exchange earns reflects the revenues it
receives from the joint products and the
total costs of the joint products.
The level of competition and
contestability in the market is evident in
the numerous alternative venues that
compete for order flow, including 12
equities self-regulatory organization
(‘‘SRO’’) markets, as well as
internalizing broker-dealers (‘‘BDs’’) and
various forms of alternative trading
systems (‘‘ATSs’’), including dark pools
and electronic communication networks
(‘‘ECNs’’). Competition among trading
platforms can be expected to constrain
the aggregate return that each platform
earns from the sale of its joint products,
but different platforms may choose from
a range of possible, and equally
reasonable, pricing strategies as the
means of recovering total costs. For
example, some platforms may choose to
pay rebates to attract orders, charge
relatively low prices for market data
products (or provide market data
products free of charge), and charge
relatively high prices for accessing
posted liquidity. Other platforms may
choose a strategy of paying lower
rebates (or no rebates) to attract orders,
setting relatively high prices for market
data products, and setting relatively low
prices for accessing posted liquidity. In
this environment, there is no economic
basis for regulating maximum prices for
one of the joint products in an industry
in which suppliers face competitive
constraints with regard to the joint
offering.
Existence of Alternatives. The large
number of SROs, BDs, and ATSs that
currently produce proprietary data or
are currently capable of producing it
provides further pricing discipline for
proprietary data products. Each SRO,
ATS, and BD is currently permitted to
produce proprietary data products, and
many currently do or have announced
plans to do so, including but not limited
to the Exchange, NYSE MKT, NYSE
Arca, NASDAQ OMX, BATS, and Direct
Edge.
The fact that proprietary data from
ATSs, BDs, and vendors can bypass
SROs is significant in two respects.
First, non-SROs can compete directly
with SROs for the production and sale
of proprietary data products. Second,
because a single order or transaction
report can appear in an SRO proprietary
product, a non-SRO proprietary
product, or both, the amount of data
available via proprietary products is
greater in size than the actual number of
orders and transaction reports that exist
in the marketplace. Because market data
users can thus find suitable substitutes
for most proprietary market data
products, a market that overprices its
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market data products stands a high risk
that users may substitute another source
of market data information for its own.
Moreover, consolidated data provides
two additional measures of pricing
discipline for proprietary data products
that are a subset of the consolidated data
stream. First, the consolidated data is
widely available in real-time at $0.50–
$1 per month for non-professional users.
Second, consolidated data is also
available at no cost with a 15- or 20minute delay. Because consolidated
data contains marketwide information,
it effectively places a cap on the fees
assessed for proprietary data that is
simply a subset of the consolidated data
(such as NYSE Trades and NYSE BBO).
The mere availability of low-cost or free
consolidated data provides a powerful
form of pricing discipline for
proprietary data products that contain
data elements that are a subset of the
consolidated data by highlighting the
optional nature of proprietary products.
Those competitive pressures imposed
by available alternatives are clearly
evident in the Exchange’s proposed
pricing. As noted above, the Exchange’s
proposed per-user fees are lower than
NASDAQ’s fees. While the Exchange’s
enterprise fee is higher, the Exchange
will permit broader distribution of its
data, i.e., to both professional and nonprofessional users.28 The Exchange’s
proposed user and enterprise fees are
less (in most cases substantially less)
than the fees charged by the CTA and
CQ Plans, and the Exchange’s enterprise
fee also permits distribution by a nonbroker-dealer.29
In addition to the competition and
price discipline described above, the
market for proprietary data products is
also highly contestable because market
entry is rapid and inexpensive. The
history of electronic trading is replete
with examples of entrants that swiftly
grew into some of the largest electronic
trading platforms and proprietary data
producers: Archipelago, Bloomberg
Tradebook, Island, RediBook, Attain,
TrackECN, BATS Trading and Direct
Edge. Today, BATS and Direct Edge
provide certain market data at no charge
on their Web sites in order to attract
more order flow, and use revenue
rebates from resulting additional
executions to maintain low execution
charges for their users.30
supra n. 18.
supra nn. 19–20.
30 This is simply a securities market-specific
example of the well-established principle that in
certain circumstances more sales at lower margins
can be more profitable than fewer sales at higher
margins; this example is additional evidence that
market data is an inherent part of a market’s joint
platform.
51785
Further, data products are valuable to
professional users only if they can be
used for profit-generating purposes in
their businesses and valuable to nonprofessional users only insofar as they
provide information that such users
expect will assist them in tracking
prices and market trends and making
order routing and trading decisions.31
The Exchange believes that the
proposed lower user fees and the
enterprise fees, which may permit wider
distribution of last sale and quote
information at a lower cost to vendors
with a large number of professional and
non-professional users, may encourage
more users to demand and more
vendors to choose to offer NYSE BBO
and NYSE Trades, thereby benefitting
professional and non-professional users,
including public investors. The
Exchange also believes that offering
NYSE Trades for non-professional users
on a per user basis and providing the
same information as is provided to
professional users will create more
choices for vendors that will allow them
to offer products with the appropriate
level of information at a range of prices,
thereby encouraging wider distribution
of the data.
In establishing the proposed fees, the
Exchange considered the
competitiveness of the market for
proprietary data and all of the
implications of that competition. The
Exchange believes that it has considered
all relevant factors and has not
considered irrelevant factors in order to
establish fair, reasonable, and not
unreasonably discriminatory fees and an
equitable allocation of fees among all
users. The existence of numerous
alternatives to the Exchange’s products,
including 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, when
vendors and subscribers can elect these
alternatives or choose not to purchase a
specific proprietary data product if its
cost to purchase is not justified by the
returns any particular vendor or
subscriber would achieve through the
purchase.
28 See
29 See
PO 00000
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31 Rule 603(c) of Regulation NMS requires
vendors to make the consolidated core data feeds
available to customers when trading and orderrouting decisions can be implemented. See 17 CFR
242.603(c).
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51786
Federal Register / Vol. 78, No. 162 / Wednesday, August 21, 2013 / Notices
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 32 of the Act and
subparagraph (f)(2) of Rule 19b–4 33
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 34 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
mstockstill on DSK4VPTVN1PROD with NOTICES
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–
NYSE–2013–58 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–NYSE–2013–58. 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
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
34 15 U.S.C. 78s(b)(2)(B).
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 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–NYSE–
2013–58 and should be submitted on or
before September 11, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–20337 Filed 8–20–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70207; File No. SR–OCC–
2013–12]
Self-Regulatory Organizations; The
Options Clearing Corporation; Notice
of Filing of Proposed Rule Change To
Revise Its By-Laws and Rules To Make
Structural Changes to OCC’s
Membership/Risk Committee
Regarding Public Directors and the
Process for Designating Membership/
Risk Committee Members
August 15, 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 August 2,
2013, The Options Clearing Corporation
(‘‘OCC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
32 15
35 17
33 17
1 15
VerDate Mar<15>2010
16:29 Aug 20, 2013
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
Jkt 229001
PO 00000
Frm 00081
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have been prepared by OCC. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Clearing Agency’s Statement of the
Terms of Substance of the Proposed
Rule Change
OCC proposes to revise its By-Laws
and Rules to make structural changes to
OCC’s Membership/Risk Committee
(‘‘MRC’’) regarding Public Directors and
the process for designating MRC
members.
II. Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
In its filing with the Commission,
OCC 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. OCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.
(A) Clearing Agency’s Statement of the
Purpose of, and Statutory Basis for, the
Proposed Rule Change
(1) Purpose
The purpose of this proposed rule
change is to revise OCC’s By-Laws and
Rules to make structural changes to
OCC’s MRC regarding Public Directors 3
and the process for designating MRC
members. The proposed rule change
would require that at least one Public
Director must serve on the MRC, that
the MRC Chairman be a Public Director,
and that all MRC members would be
designated on an annual basis.
Currently, Article III, Section 9 of
OCC’s By-Laws specifies that at the first
meeting of the Board of Directors that
follows each annual meeting the Board
must designate the Chairman of the
Board, the Vice Chairman of the Board,
and at least three other Member
Directors to serve on the MRC. The ByLaws would be modified to provide that
at least one Public Director must serve
on the MRC and that the MRC Chairman
must be a Public Director. These
modifications would correspond to
OCC’s existing practice of having at
least one Public Director serve on the
MRC, and OCC believes that including
this requirement in the By-Laws would
help ensure that the MRC will continue
3 In relevant part, Article III, Section 6A of OCC’s
By-Laws defines a Public Director as a person who
is ‘‘not affiliated with any national securities
exchange or national securities association or with
any broker or dealer in securities[.]’’
E:\FR\FM\21AUN1.SGM
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]]>Agencies
[Federal Register Volume 78, Number 162 (Wednesday, August 21, 2013)]
[Notices]
[Pages 51781-51786]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20337]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70211; File No. SR-NYSE-2013-58]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending the Fees for Display Use of the NYSE BBO and NYSE Trades
Market Data Products and Making Certain Technical Changes to the Fee
Schedule
August 15, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on August 1, 2013, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the fees for display use of the NYSE
BBO and NYSE Trades market data products and make certain technical
changes to the fee schedule. The changes will be operative on August 1,
2013. The text of the proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the fees for display use of the NYSE
BBO \4\ and NYSE Trades \5\ market data products and make certain
technical changes to the fee schedule. The changes will be operative on
August 1, 2013.
---------------------------------------------------------------------------
\4\ NYSE BBO is an NYSE-only market data feed that allows a
vendor to redistribute on a real-time basis the same best-bid-and-
offer information that the Exchange reports under the Consolidated
Quotation (``CQ'') Plan for inclusion in the CQ Plan's consolidated
quotation information data stream. The data feed includes the best
bids and offers for all securities that are traded on the Exchange
and for which NYSE reports quotes under the CQ Plan.
\5\ NYSE Trades is an NYSE-only market data feed that allows a
vendor to redistribute on a real-time basis the same last sale
information that the Exchange reports under the Consolidated Tape
Association (``CTA'') Plan for inclusion in the CTA Plan's
consolidated data streams and certain other related data elements.
Specifically, NYSE Trades includes the real-time last sale price,
time, size, and bid-ask quotations for each security traded on the
Exchange and a stock summary message. The stock summary message
updates every minute and includes NYSE's opening price, high price,
low price, closing price, and cumulative volume for the security.
---------------------------------------------------------------------------
The Exchange currently charges $15 per month for professional users
and $5 per month for non-professional users for display use of NYSE
BBO.\6\ Alternatively, the Exchange charges $0.005 per quote for
display use of NYSE BBO for non-professional users, capped at $5 per
month per non-professional user.\7\ The Exchange currently charges $15
per month for professional users for display use of NYSE Trades. The
Exchange currently does not offer NYSE Trades for non-professional
users under a per-user fee structure.\8\
---------------------------------------------------------------------------
\6\ The Exchange applies the same criteria for qualification as
a ``non-professional subscriber'' as the CTA and CQ Plan
participants use. See Securities Exchange Act Release No. 62181 (May
26, 2010), 75 FR 31488 (June 3, 2010) (SR-NYSE-2010-30).
\7\ Id. The cap is referenced in this filing, although it does
not currently appear in the fee schedule.
\8\ See Securities Exchange Act Release No. 59309 (Jan. 28,
2009), 74 FR 6073 (Feb. 4, 2009) (SR-NYSE-2009-04). When NYSE Trades
was initially offered, the Exchange had not observed a demand for
non-professional use. See id. The Exchange offers two last sale
market data products for distribution to non-professional users,
NYSE Trades Digital Media and NYSE Realtime Reference Prices Digital
Media. See Securities Exchange Act Release No. 69298 (Apr. 4, 2013),
78 FR 21464 (Apr. 10, 2013) (SR-NYSE-2013-24).
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[[Page 51782]]
The Exchange also charges an access fee of $1,500 per month for
NYSE BBO and an access fee of $1,500 for NYSE Trades. However, a single
access fee applies for clients receiving both NYSE BBO and NYSE Trades.
Vendors that redistribute NYSE Trades data pay a redistribution fee
of $1,000 per month.
The Exchange proposes to lower the professional user fees for
display use of NYSE BBO from $15 per month to $4 per month, lower the
non-professional user fees for display use of NYSE BBO from $5 per
month to $0.20 per month, and eliminate the per quote option for
display use of NYSE BBO for non-professional users. The Exchange also
proposes to lower the professional user fee for display use of NYSE
Trades from $15 per month to $4 per month and introduce a fee for
display use of NYSE Trades by non-professional users of $0.20 per
month.
The Exchange also proposes to establish a $190,000 per month
enterprise fee for an unlimited number of professional and non-
professional users for NYSE BBO and a $190,000 per month enterprise fee
for an unlimited number of professional and non-professional users for
NYSE Trades. A single enterprise fee will apply for vendors receiving
both NYSE BBO and NYSE Trades.
As an example, under the current fee structure, if a firm had 7,000
professional users who each received NYSE Trades at $15 per month and
NYSE BBO at $15 per month, then the firm currently pays $210,000 per
month in professional user fees. Under the proposed enterprise fee, the
firm will pay a flat fee of $190,000 for an unlimited number of
professional and non-professional users for both products.
A vendor that pays the enterprise fee would not have to report the
number of such users on a monthly basis.\9\ However, every six months,
a vendor must provide the Exchange with a count of the total number of
natural person users of each product, including both professional and
non-professional users.
---------------------------------------------------------------------------
\9\ Most professional users currently are subject to a per
display device count, except for a small number of professional
users that have qualified for the Exchange's Unit-of-Count Policy.
See SR-NYSE-2010-30, supra n.6; Securities Exchange Act Release No.
59606 (Mar. 19, 2009), 74 FR 13293 (Mar. 26, 2009) (SR-NYSE-2009-
04); Securities Exchange Act Release No. 59544 (Mar. 9, 2009), 74 FR
11162 (Mar. 16, 2009) (SR-NYSE-2008-131) (establishing Unit-of-Count
Policy). That policy continues to apply to such professional users
for display use only if the proposed enterprise fee does not apply.
See Securities Exchange Act Release No. 69278 (April 2, 2013) 78 FR
20973 (April 8, 2013) (SR-NYSE-2013-25).
---------------------------------------------------------------------------
Lastly, the Exchange proposes to make certain technical corrections
to clarify its fee schedule and to delete operative dates that are no
longer needed.
The purpose of the foregoing changes is to encourage greater use of
NYSE BBO and NYSE Trades by making them more affordable, to compete
more effectively with similar products in the marketplace, and to
clarify the fee schedule. The Exchange is eliminating the per quote
option for display use of NYSE BBO for non-professional users because
non-professional users are not electing to use it. The Exchange is not
aware of any significant problems that persons affected are likely to
have in complying with the proposed rule change.
The Exchange further believes that the proposed rule change is
consistent with the market-based approach of the Securities and
Exchange Commission (``Commission''). The decision of the United States
Court of Appeals for the District of Columbia Circuit in NetCoalition
v. SEC, 615 F.3d 525 (D.C. Cir. 2010), upheld reliance by the
Commission upon the existence of competitive market mechanisms to set
reasonable and equitably allocated fees for proprietary market data:
In fact, the legislative history indicates that the Congress
intended that the market system `evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed' and that the SEC wield its regulatory power `in those
situations where competition may not be sufficient,' such as in the
creation of a `consolidated transactional reporting system.'
Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted
in 1975 U.S.C.C.A.N. 323). The court agreed with the Commission's
conclusion that ``Congress intended that `competitive forces should
dictate the services and practices that constitute the U.S. national
market system for trading equity securities.' '' \10\
---------------------------------------------------------------------------
\10\ NetCoalition, 615 F.3d at 535.
---------------------------------------------------------------------------
As explained below in the Exchange's Statement on Burden on
Competition, the Exchange believes that there is substantial evidence
of competition in the marketplace for data and that the Commission can
rely upon such evidence in concluding that the fees established in this
filing are the product of competition and therefore satisfy the
relevant statutory standards.\11\ In addition, the existence of
alternatives to NYSE BBO and NYSE Trades, including real-time
consolidated data, free delayed consolidated data, and proprietary data
from other sources, as described below, further ensures that the
Exchange cannot set unreasonable fees, or fees that are unreasonably
discriminatory, when vendors and subscribers can elect such
alternatives.
---------------------------------------------------------------------------
\11\ Section 916 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (the ``Dodd-Frank Act'') amended
paragraph (A) of Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3),
to make clear that all exchange fees for market data may be filed by
exchanges on an immediately effective basis.
---------------------------------------------------------------------------
As the NetCoalition decision noted, the Commission is not required
to undertake a cost-of-service or ratemaking approach, and the Exchange
incorporates by reference into this proposed rule change its
affiliate's analysis of this topic in another rule filing.\12\
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release No. 63291 (Nov. 9,
2010), 75 FR 70311 (Nov. 17, 2010) (SR-NYSEArca-2010-97).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\13\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ in particular, in that it
provides an equitable allocation of reasonable fees among its members,
issuers, and other persons using its facilities and is not designed to
permit unfair discrimination among customers, issuers, brokers, or
dealers. The Exchange also believes that the proposed rule change is
consistent with Section 11(A) of the Act \15\ in that it is consistent
with (i) fair competition among brokers and dealers, among exchange
markets, and between exchange markets and markets other than exchange
markets and (ii) the availability to brokers, dealers, and investors of
information with respect to quotations for and transactions in
securities. Furthermore, the proposed rule change is consistent with
Rule 603 of Regulation NMS,\16\ which provides that any national
securities exchange that distributes information with respect to
quotations for or transactions in an NMS stock do so on terms that are
not unreasonably discriminatory.
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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(4), (5).
\15\ 15 U.S.C. 78k-1.
\16\ See 17 CFR 242.603.
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The Exchange believes that lowering the professional and non-
professional user fees for NYSE BBO and lowering the professional user
fee for NYSE Trades is reasonable because it will make the products
more affordable and result in their greater availability to
professional and non-professional users.
[[Page 51783]]
The Exchange believes that introducing a non-professional fee for NYSE
Trades is reasonable because it provides an additional method for
retail investors to access NYSE last sale data and provides the same
last sale data that is available to professional users, an option
heretofore unavailable.\17\ The Exchange believes it is reasonable to
eliminate the per quote option for non-professional users of NYSE BBO
because non-professional users have not elected this option.
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\17\ See supra n.8.
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In addition, the Exchange believes that the proposed fees are
reasonable when compared to fees for comparable products offered by at
least one other exchange and under the CTA and CQ Plans. Specifically,
The NASDAQ Stock Market LLC (``NASDAQ'') offers NASDAQ Basic, which
includes best bid and offer and last sale data, for a monthly fee of
$10 per professional subscriber and $0.50 per non-professional
subscriber; alternatively, a broker-dealer may purchase an enterprise
license at a rate of $100,000 per month for distribution to an
unlimited number of non-professional subscribers only.\18\ The
Exchange's proposed per-user fees are lower than NASDAQ's fees. While
the Exchange's enterprise fee is higher, the Exchange will permit
broader distribution of its data for this fee, i.e., to both
professional and non-professional users. Under the current CTA and CQ
Plans, Tape A consolidated last sale and bid-ask data are offered
together for a monthly fee of $18.75-$127.25 per device, depending on
the number of professional subscribers, and $0.50-$1.00 per non-
professional subscriber, depending on the number of non-professional
subscribers.\19\ A monthly enterprise fee of $660,000 is available
under which a U.S. registered broker-dealer may distribute data to an
unlimited number of its own employees and its nonprofessional
subscriber brokerage account customers. Participants in the CTA and CQ
Plans recently submitted an immediately effective filing with rate
changes that are expected to be implemented September 1, 2013.\20\ The
Exchange is proposing professional and non-professional user fees and
enterprise fees that are less than the fees currently charged or
proposed by the CTA and CQ Plans, in most cases less than half of the
CTA fee. In contrast to NASDAQ and the CTA and CQ Plans, the Exchange
also will permit enterprise distribution by a non-broker-dealer.
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\18\ See NASDAQ Rule 7047.
\19\ See CTA Plan dated July 25, 2012 and CQ Plan dated August
23, 2010, available at https://cta.nyxdata.com/CTA.
\20\ See Securities Exchange Act Release No. 70010 (July 19,
2013) (File No. SR-CTA/CQ-2013-04). Monthly fees will be $20-50 for
professional subscribers and $1 for non-professional subscribers for
Tape A last sale and bid-ask data, and the monthly enterprise fee
described above will be increased to $686,400.
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The proposed enterprise fees for NYSE BBO and NYSE Trades also are
reasonable because they could result in a fee reduction for vendors
with a large number of professional and non-professional users, as
described in the example above. If a vendor has a smaller number of
professional users of NYSE BBO and/or NYSE Trades, then it may continue
using the per user structure and benefit from the per user fee
reductions. By reducing prices for vendors with a large number of
professional and non-professional users, the Exchange believes that
more vendors may choose to offer NYSE BBO and NYSE Trades, thereby
expanding the distribution of this market data for the benefit of
investors. The Exchange also believes that offering an enterprise fee
will expand the range of options for offering NYSE BBO and NYSE Trades
and will allow vendors greater choice in selecting the most appropriate
level of data and fees for the professional and non-professional users
they are servicing.
The Exchange further believes that the proposed enterprise fees are
reasonable because they will simplify billing for certain recipients
that have large numbers of professional and non-professional users.
Firms that pay the proposed enterprise fees will not have to report the
number of users on a monthly basis as they currently do, but rather
will only have to count natural person users every six months; this is
a significant reduction in administrative burdens and is a significant
value. The Exchange believes that it is reasonable to charge a single
enterprise fee for clients receiving both NYSE BBO and NYSE Trades
because the Exchange has charged a single access fee for both products
since 2010,\21\ and the products will continue to be offered separately
for vendors and users that so choose.
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\21\ See SR-NYSE-2010-30, supra n.6.
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The Exchange believes that the proposed fees are equitable and not
unfairly discriminatory because they will be charged uniformly to
vendors and users that select these products. The Exchange notes that
the fee structure of differentiated professional and non-professional
fees has long been used by the Exchange for other products, by other
exchanges for their products, and by the CTA and CQ Plans in order to
reduce the price of data to retail investors and make it more broadly
available.\22\ The Exchange further believes that offering NYSE Trades
to non-professional users with the same data available to professional
users results in greater equity among data recipients. The Exchange
believes that eliminating the per quote non-professional user fee for
NYSE BBO is equitable and not unfairly discriminatory because non-
professional users have not elected this option and the Exchange will
continue offering other methods by which non-professional users can
access this data. Finally, the Exchange believes that it is equitable
and not unfairly discriminatory to establish an enterprise fee because
it reduces the Exchange's costs and administrative burdens in tracking
and auditing large numbers of users.
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\22\ See, e.g., Securities Exchange Act Release No. 20002, File
No. S7-433 (July 22, 1983) (establishing nonprofessional fees for
CTA data); NASDAQ Rules 7023(b), 7047.
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The proposed technical corrections to the fee schedule will benefit
vendors and users by making the fee schedule clearer and easier to
understand.
For these reasons, the Exchange believes that the proposed fees are
reasonable, equitable, and not unfairly discriminatory.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\23\ the Exchange
does not believe that the proposed rule change will impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of the Act. An exchange's ability to price its proprietary
data feed products is constrained by (1) The inherent contestability of
the market for proprietary data and actual competition for the sale of
such data, (2) the joint product nature of exchange platforms, and (3)
the existence of alternatives to proprietary data.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
The Existence of Actual Competition. The market for proprietary
data products is currently competitive and inherently contestable
because there is fierce competition for the inputs necessary to the
creation of proprietary data and strict pricing discipline for the
proprietary products themselves. Numerous exchanges compete with each
other for listings and order flow and sales of market data itself,
providing virtually limitless opportunities for entrepreneurs who wish
to compete in any or all of those areas, including producing and
distributing their own market data. Proprietary data products are
produced and distributed by each
[[Page 51784]]
individual exchange, as well as other entities, in a vigorously
competitive market.
Competitive markets for listings, order flow, executions, and
transaction reports provide pricing discipline for the inputs of
proprietary data products and therefore constrain markets from
overpricing proprietary market data. The U.S. Department of Justice
also has acknowledged the aggressive competition among exchanges,
including for the sale of proprietary market data itself. In announcing
that the bid for NYSE Euronext by NASDAQ OMX Group Inc. and
IntercontinentalExchange Inc. had been abandoned, Assistant Attorney
General Christine Varney stated that exchanges ``compete head to head
to offer real-time equity data products. These data products include
the best bid and offer of every exchange and information on each equity
trade, including the last sale.'' \24\
---------------------------------------------------------------------------
\24\ Press Release, U.S. Department of Justice, Assistant
Attorney General Christine Varney Holds Conference Call Regarding
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011), available at https://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html.
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It is common for broker-dealers to further exploit this recognized
competitive constraint by sending their order flow and transaction
reports to multiple markets, rather than providing them all to a single
market. As a 2010 Commission Concept Release noted, the ``current
market structure can be described as dispersed and complex'' with
``trading volume . . . dispersed among many highly automated trading
centers that compete for order flow in the same stocks'' and ``trading
centers offer[ing] a wide range of services that are designed to
attract different types of market participants with varying trading
needs.'' \25\
---------------------------------------------------------------------------
\25\ Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21,
2010) (File No. S7-02-10). This Concept Release included data from
the third quarter of 2009 showing that no market center traded more
than 20% of the volume of listed stocks, further evidencing the
dispersal of and competition for trading activity. Id. at 3598.
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In addition, in the case of products that are distributed through
market data vendors, the market data vendors themselves provide
additional price discipline for proprietary data products because they
control the primary means of access to certain end users. These vendors
impose price discipline based upon their business models. For example,
vendors that assess a surcharge on data they sell are able to refuse to
offer proprietary products that their end users do not or will not
purchase in sufficient numbers. Internet portals, such as Google,
impose price discipline by providing only data that they believe will
enable them to attract ``eyeballs'' that contribute to their
advertising revenue. Similarly, vendors will not offer NYSE BBO or NYSE
Trades unless those products will help them maintain current users or
attract new ones. For example, a broker-dealer will not choose to offer
NYSE BBO or NYSE Trades to its retail customers unless the broker-
dealer believes that the retail customers will use and value the data
and the provision of such data will help the broker-dealer maintain the
customer relationship, which allows the broker-dealer to generate
profits for itself. Professional users will not request NYSE BBO or
NYSE Trades from market data vendors unless they can use the data for
profit-generating purposes in their businesses. All of these operate as
constraints on pricing proprietary data products.
Joint Product Nature of Exchange Platform. Transaction execution
and proprietary data products are complementary in that market data is
both an input and a byproduct of the execution service. In fact, market
data and trade executions are a paradigmatic example of joint products
with joint costs. The decision whether and on which platform to post an
order will depend on the attributes of the platforms where the order
can be posted, including the execution fees, data quality, and price
and distribution of their data products. The more trade executions a
platform does, the more valuable its market data products become.
The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's transaction execution
platform and the cost of regulating the exchange to ensure its fair
operation and maintain investor confidence. The total return that a
trading platform earns reflects the revenues it receives from both
products and the joint costs it incurs. Moreover, an exchange's broker-
dealer customers view the costs of transaction executions and market
data as a unified cost of doing business with the exchange.
Other market participants have noted that the liquidity provided by
the order book, trade execution, core market data, and non-core market
data are joint products of a joint platform and have common costs.\26\
The Exchange agrees with and adopts those discussions and the arguments
therein. The Exchange also notes that the economics literature confirms
that there is no way to allocate common costs between joint products
that would shed any light on competitive or efficient pricing.\27\
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\26\ See Securities Exchange Act Release No. 62887 (Sept. 10,
2010), 75 FR 57092, 57095 (Sept. 17, 2010) (SR-Phlx-2010-121);
Securities Exchange Act Release No. 62907 (Sept. 14, 2010), 75 FR
57314, 57317 (Sept. 20, 2010) (SR-NASDAQ-2010-110); and Securities
Exchange Act Release No. 62908 (Sept. 14, 2010), 75 FR 57321, 57324
(Sept. 20, 2010) (SR-NASDAQ-2010-111) (``all of the exchange's costs
are incurred for the unified purposes of attracting order flow,
executing and/or routing orders, and generating and selling data
about market activity. The total return that an exchange earns
reflects the revenues it receives from the joint products and the
total costs of the joint products.''); see also August 1, 2008
Comment Letter of Jeffrey S. Davis, Vice President and Deputy
General Counsel, NASDAQ OMX Group, Inc., Statement of Janusz Ordover
and Gustavo Bamberger (``because market data is both an input to and
a byproduct of executing trades on a particular platform, market
data and trade execution services are an example of `joint products'
with `joint costs.' ''), attachment at pg. 4, available at
www.sec.gov/comments/34-57917/3457917-12.pdf.
\27\ See generally Mark Hirschey, Fundamentals of Managerial
Economics, at 600 (2009) (``It is important to note, however, that
although it is possible to determine the separate marginal costs of
goods produced in variable proportions, it is impossible to
determine their individual average costs. This is because common
costs are expenses necessary for manufacture of a joint product.
Common costs of production--raw material and equipment costs,
management expenses, and other overhead--cannot be allocated to each
individual by-product on any economically sound basis. . . . Any
allocation of common costs is wrong and arbitrary.''). This is not
new economic theory. See, e.g., F. W. Taussig, ``A Contribution to
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4)
438, 465 (July 1891) (``Yet, surely, the division is purely
arbitrary. These items of cost, in fact, are jointly incurred for
both sorts of traffic; and I cannot share the hope entertained by
the statistician of the Commission, Professor Henry C. Adams, that
we shall ever reach a mode of apportionment that will lead to
trustworthy results.'').
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Analyzing the cost of market data product production and
distribution in isolation from the cost of all of the inputs supporting
the creation of market data and market data products will inevitably
underestimate the cost of the data and data products. Thus, because it
is impossible to obtain the data inputs to create market data products
without a fast, technologically robust, and well-regulated execution
system, system costs and regulatory costs affect the price of both
obtaining the market data itself and creating and distributing market
data products. It would be equally misleading, however, to attribute
all of an exchange's costs to the market data portion of an exchange's
joint products. Rather, all of an exchange's costs are incurred for the
unified purposes of attracting order flow, executing and/or routing
orders, and generating and selling data about market activity. The
total return that an
[[Page 51785]]
exchange earns reflects the revenues it receives from the joint
products and the total costs of the joint products.
The level of competition and contestability in the market is
evident in the numerous alternative venues that compete for order flow,
including 12 equities self-regulatory organization (``SRO'') markets,
as well as internalizing broker-dealers (``BDs'') and various forms of
alternative trading systems (``ATSs''), including dark pools and
electronic communication networks (``ECNs''). Competition among trading
platforms can be expected to constrain the aggregate return that each
platform earns from the sale of its joint products, but different
platforms may choose from a range of possible, and equally reasonable,
pricing strategies as the means of recovering total costs. For example,
some platforms may choose to pay rebates to attract orders, charge
relatively low prices for market data products (or provide market data
products free of charge), and charge relatively high prices for
accessing posted liquidity. Other platforms may choose a strategy of
paying lower rebates (or no rebates) to attract orders, setting
relatively high prices for market data products, and setting relatively
low prices for accessing posted liquidity. In this environment, there
is no economic basis for regulating maximum prices for one of the joint
products in an industry in which suppliers face competitive constraints
with regard to the joint offering.
Existence of Alternatives. The large number of SROs, BDs, and ATSs
that currently produce proprietary data or are currently capable of
producing it provides further pricing discipline for proprietary data
products. Each SRO, ATS, and BD is currently permitted to produce
proprietary data products, and many currently do or have announced
plans to do so, including but not limited to the Exchange, NYSE MKT,
NYSE Arca, NASDAQ OMX, BATS, and Direct Edge.
The fact that proprietary data from ATSs, BDs, and vendors can
bypass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and sale of proprietary data
products. Second, because a single order or transaction report can
appear in an SRO proprietary product, a non-SRO proprietary product, or
both, the amount of data available via proprietary products is greater
in size than the actual number of orders and transaction reports that
exist in the marketplace. Because market data users can thus find
suitable substitutes for most proprietary market data products, a
market that overprices its market data products stands a high risk that
users may substitute another source of market data information for its
own.
Moreover, consolidated data provides two additional measures of
pricing discipline for proprietary data products that are a subset of
the consolidated data stream. First, the consolidated data is widely
available in real-time at $0.50-$1 per month for non-professional
users. Second, consolidated data is also available at no cost with a
15- or 20-minute delay. Because consolidated data contains marketwide
information, it effectively places a cap on the fees assessed for
proprietary data that is simply a subset of the consolidated data (such
as NYSE Trades and NYSE BBO). The mere availability of low-cost or free
consolidated data provides a powerful form of pricing discipline for
proprietary data products that contain data elements that are a subset
of the consolidated data by highlighting the optional nature of
proprietary products.
Those competitive pressures imposed by available alternatives are
clearly evident in the Exchange's proposed pricing. As noted above, the
Exchange's proposed per-user fees are lower than NASDAQ's fees. While
the Exchange's enterprise fee is higher, the Exchange will permit
broader distribution of its data, i.e., to both professional and non-
professional users.\28\ The Exchange's proposed user and enterprise
fees are less (in most cases substantially less) than the fees charged
by the CTA and CQ Plans, and the Exchange's enterprise fee also permits
distribution by a non-broker-dealer.\29\
---------------------------------------------------------------------------
\28\ See supra n. 18.
\29\ See supra nn. 19-20.
---------------------------------------------------------------------------
In addition to the competition and price discipline described
above, the market for proprietary data products is also highly
contestable because market entry is rapid and inexpensive. The history
of electronic trading is replete with examples of entrants that swiftly
grew into some of the largest electronic trading platforms and
proprietary data producers: Archipelago, Bloomberg Tradebook, Island,
RediBook, Attain, TrackECN, BATS Trading and Direct Edge. Today, BATS
and Direct Edge provide certain market data at no charge on their Web
sites in order to attract more order flow, and use revenue rebates from
resulting additional executions to maintain low execution charges for
their users.\30\
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\30\ This is simply a securities market-specific example of the
well-established principle that in certain circumstances more sales
at lower margins can be more profitable than fewer sales at higher
margins; this example is additional evidence that market data is an
inherent part of a market's joint platform.
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Further, data products are valuable to professional users only if
they can be used for profit-generating purposes in their businesses and
valuable to non-professional users only insofar as they provide
information that such users expect will assist them in tracking prices
and market trends and making order routing and trading decisions.\31\
The Exchange believes that the proposed lower user fees and the
enterprise fees, which may permit wider distribution of last sale and
quote information at a lower cost to vendors with a large number of
professional and non-professional users, may encourage more users to
demand and more vendors to choose to offer NYSE BBO and NYSE Trades,
thereby benefitting professional and non-professional users, including
public investors. The Exchange also believes that offering NYSE Trades
for non-professional users on a per user basis and providing the same
information as is provided to professional users will create more
choices for vendors that will allow them to offer products with the
appropriate level of information at a range of prices, thereby
encouraging wider distribution of the data.
---------------------------------------------------------------------------
\31\ Rule 603(c) of Regulation NMS requires vendors to make the
consolidated core data feeds available to customers when trading and
order-routing decisions can be implemented. See 17 CFR 242.603(c).
---------------------------------------------------------------------------
In establishing the proposed fees, the Exchange considered the
competitiveness of the market for proprietary data and all of the
implications of that competition. The Exchange believes that it has
considered all relevant factors and has not considered irrelevant
factors in order to establish fair, reasonable, and not unreasonably
discriminatory fees and an equitable allocation of fees among all
users. The existence of numerous alternatives to the Exchange's
products, including 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, when vendors and subscribers can elect
these alternatives or choose not to purchase a specific proprietary
data product if its cost to purchase is not justified by the returns
any particular vendor or subscriber would achieve through the purchase.
[[Page 51786]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \32\ of the Act and subparagraph (f)(2) of Rule
19b-4 \33\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \34\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\34\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
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-NYSE-2013-58 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-NYSE-2013-58. 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 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-NYSE-2013-58 and should be
submitted on or before September 11, 2013.
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\35\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20337 Filed 8-20-13; 8:45 am]
BILLING CODE 8011-01-P
