Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Fees for Display Use of the NYSE Arca BBO and NYSE Arca Trades Market Data Products and Making Certain Technical Changes to the Fee Schedule, 51796-51801 [2013-20340]
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51796
Federal Register / Vol. 78, No. 162 / Wednesday, August 21, 2013 / Notices
listed company will not make any
substantial change in accounting
methods without notifying the Exchange
and disclosing the effect of any such
change in its next interim and annual
report to its stockholders, are being
done in recognition of the fact that,
under Commission disclosure rules, any
changes in accounting methods and its
effect on the company would have to be
disclosed in Commission filings, such as
10–Ks and 10–Qs. Exchange monitoring
of such filings, as well as material news
requirements under Exchange rules,
should give the Exchange the
information necessary to monitor for
compliance with Exchange rules, and
listing standards, along with any
potential trading impact. As a result, the
Commission believes it is consistent
with investor protection and the public
interest to remove this provision from
the listing agreement. Finally, some of
the requirements in the current listing
agreement are being updated to reflect
current requirements. For example, in
terms of publishing quarterly statements
of earnings to the same degree of
consolidation as in the annual report,
the Exchange is adding a provision that
the listed company agrees to file all
required periodic financial reports with
the Commission, including annual
reports and, where applicable, quarterly
or semi- annual reports, by the due
dates established by the Commission. In
summary, the Commission notes that
provisions being deleted from the
Manual because they are covered
elsewhere under Exchange rules, or
under Commission requirements, are
not meant to provide support that the
Commission no longer believes these
provisions are necessary. Rather, based
on the NYSE’s filing, we are satisfied
these substantive provisions are covered
elsewhere in Exchange or Commission
rules.
The proposed deletions of Sections
904.01 through 904.03 of the Manual are
consistent with the protection of
investors and the public interest, as: (i)
The Stock Distribution Schedule in
Section 904.01 is obsolete because the
Exchange has indicated it obtains the
distribution information it needs from
the company’s transfer agent; (ii) the
information required by Section 904.02
would still be required in the revised
listing application.
The proposed modifications to the
listing application are consistent with
the protection of investors and the
public interest, because the Exchange is
simply eliminating from the application
information requirements that are
duplicative of disclosure requirements
under the Federal securities laws or
where similar disclosure provisions
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under the Federal securities laws
provide information sufficient for the
Exchange to make informed
determinations about the suitability of
issuers for listing.
A significant number of changes are
technical in nature and relate to
updating internal cross-references and
rule numbering as a result of the
changes described above. As a result,
the Commission finds these changes
consistent with the act as they work to
protect investors and the public interest
by removing confusion in the
application and organization of the
Manual.
IV. Accelerated Approval of Proposed
Rule Changes, as Modified by
Amendment No. 1
The Amendment No. 1 revised the
proposal to, among other things, ensure
that the rule text provided is properly
marked, therefore reducing confusion
when determining which rule changes
have been proposed and remove
unnecessary provisions from the listing
agreements. In addition, changes
proposed in Amendment No. 1 will
clarify and strengthen the Exchange’s
proposal and listing application process,
and avoid redundancies and ambiguities
that exist in the original filing, thereby
making the listing process more
streamlined and efficient. Accordingly,
the Commission also finds good cause,
pursuant to Section 19(b)(2) of the
Act,42 for approving the proposal, as
modified by Amendment No. 1, prior to
the 30th day after the date of
publication of notice in the Federal
Register.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,43 that the
proposed rule changes (SR–NYSE–
2013–33), as modified by the
Amendment No. 1, be, and hereby are,
approved on an accelerated basis.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.44
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–20346 Filed 8–20–13; 8:45 am]
BILLING CODE 8011–01–P
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(2).
44 17 CFR 200.30–3(a)(12).
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–70213; File No. SR–
NYSEARCA–2013–81]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the Fees for
Display Use of the NYSE Arca BBO
and NYSE Arca 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, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the 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 Arca
BBO and NYSE Arca 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.
42 15
1 15
43 15
2 15
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U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to amend the
fees for display use of the NYSE Arca
BBO 4 and NYSE Arca 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 $10
per month for professional users and $5
per month for non-professional users for
display use of NYSE Arca BBO.6
Alternatively, the Exchange charges
$0.005 per quote for display use of
NYSE Arca BBO for non-professional
users, capped at $5 per month per nonprofessional user.7 The Exchange
currently charges $10 per month for
professional users for display use of
NYSE Arca Trades. The Exchange
currently does not offer NYSE Arca
Trades for non-professional users under
a per-user fee structure.8
The Exchange also charges an access
fee of $750 per month for NYSE Arca
BBO and an access fee of $750 for NYSE
4 NYSE Arca BBO is an NYSE Arca-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 Arca reports quotes
under the CQ Plan.
5 NYSE Arca Trades is an NYSE Arca-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 Arca
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 Arca’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. 62188 (May
27, 2010), 75 FR 31484 (June 3, 2010) (SR–
NYSEArca–2010–23).
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. 59598
(Mar. 18, 2009), 74 FR 12919 (Mar. 25, 2009) (SR–
NYSEArca–2009–05). When NYSE Arca Trades was
initially offered, the Exchange had not observed a
demand for non-professional use because an
alternative product was available. See id. The
Exchange now offers two last sale market data
products for distribution to non-professional users,
NYSE Arca Trades Digital Media and NYSE Arca
Realtime Reference Prices Digital Media. See
Securities Exchange Act Release No. 69299 (Apr. 4,
2013), 78 FR 21436 (Apr. 10, 2013) (SR–NYSEArca–
2013–31).
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Arca Trades. However, a single access
fee applies for clients receiving both
NYSE Arca BBO and NYSE Arca Trades.
Vendors that redistribute NYSE Arca
Trades data pay a redistribution fee of
$750 per month.
The Exchange proposes to lower the
professional user fees for display use of
NYSE Arca BBO from $10 per month to
$4 per month, lower the nonprofessional user fees for display use of
NYSE Arca BBO from $5 per month to
$0.25 per month, and eliminate the per
quote option for display use of NYSE
Arca BBO for non-professional users.
The Exchange also proposes to lower
the professional user fee for display use
of NYSE Arca Trades from $10 per
month to $4 per month and introduce a
fee for display use of NYSE Arca Trades
by non-professional users of $0.25 per
month.
The Exchange also proposes to
establish a $175,000 per month
enterprise fee for an unlimited number
of professional and non-professional
users for NYSE Arca BBO and a
$175,000 per month enterprise fee for an
unlimited number of professional and
non-professional users for NYSE Arca
Trades. A single enterprise fee will
apply for vendors receiving both NYSE
Arca BBO and NYSE Arca Trades.
As an example, under the current fee
structure, if a firm had 9,000
professional users who each received
NYSE Arca Trades at $10 per month and
NYSE Arca BBO at $10 per month, then
the firm currently pays $180,000 per
month in professional user fees. Under
the proposed enterprise fee, the firm
will pay a flat fee of $175,000 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.
Lastly, the Exchange proposes to
make certain technical corrections to
clarify its fee schedule and to delete
operative dates that are no longer
needed.
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–
NYSEArca–2010–23, supra n.6; SR–NYSEArca–
2009–05, supra n.8. 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. 69315 (Apr. 5,
2013), 78 FR 21668 (Apr. 11, 2013) (SR–NYSEArca–
2013–37).
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51797
The purpose of the foregoing changes
is to encourage greater use of NYSE
Arca BBO and NYSE Arca 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 Arca BBO for nonprofessional users because nonprofessional 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
addition, the existence of alternatives to
NYSE Arca BBO and NYSE Arca Trades,
including real-time consolidated data,
free delayed consolidated data, and
proprietary data from other sources, as
10 NetCoalition,
615 F.3d at 535.
916 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (the
‘‘Dodd-Frank Act’’) amended paragraph (A) of
Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3), to
make clear that all exchange fees for market data
may be filed by exchanges on an immediately
effective basis.
11 Section
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described below, further ensures that
the Exchange cannot set unreasonable
fees, or fees that are unreasonably
discriminatory, when vendors and
subscribers can elect such alternatives.
As the NetCoalition decision noted,
the Commission is not required to
undertake a cost-of-service or
ratemaking approach, and the Exchange
incorporates by reference into this
proposed rule change its analysis of this
topic in another rule filing.12
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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 Arca BBO and
lowering the professional user fee for
NYSE Arca Trades is reasonable because
it will make the products more
affordable and result in their greater
availability to professional and nonprofessional users. The Exchange
believes that introducing a nonprofessional fee for NYSE Arca Trades
is reasonable because it provides an
additional method for retail investors to
access NYSE Arca 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 nonprofessional users of NYSE Arca BBO
because non-professional 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 Plan, Tape B market data
includes NYSE Arca and certain other
exchanges’ data. Monthly fees for
professional users range from $13.60$14.60 for consolidated last sale data
and $13.65-$15.60 for bid-ask data; the
monthly fee for each non-professional
subscriber is $1.00 for both last sale and
bid-ask data.19 A monthly enterprise fee
of $500,000 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 substantially less
than the fees currently charged and
proposed for the CTA and CQ Plans. In
contrast to NASDAQ and the CTA and
CQ Plans, the Exchange also will permit
enterprise distribution by a non-brokerdealer.
The proposed enterprise fees for
NYSE Arca BBO and NYSE Arca Trades
also are reasonable because they could
18 See
NASDAQ Rule 7047.
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.
Release No. 70010 (July 19, 2013) (File No. SR–
CTA/CQ–2013–04). Monthly fees will be $24 for
professional subscribers and $1 for non-professional
subscribers for Tape B last sale and bid-ask data,
and the monthly enterprise fee described above will
be increased to $520,000.
19 See
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.
17 See supra n.8.
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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 Arca BBO and/or NYSE Arca
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 Arca
BBO and NYSE Arca 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 Arca BBO
and NYSE Arca Trades and will allow
vendors greater choice in selecting the
most appropriate level of data and fees
for the professional and nonprofessional 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 Arca BBO
and NYSE Arca 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
available.22 The Exchange further
believes that offering NYSE Arca Trades
to non-professional users with the same
data available to professional users
21 See
SR–NYSEArca-2010–23, supra n.6.
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.
22 See,
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results in greater equity among data
recipients. The Exchange believes that
eliminating the per quote nonprofessional user fee for NYSE Arca
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
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
23 15
U.S.C. 78f(b)(8).
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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
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 Arca BBO or NYSE
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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51799
Arca Trades unless those products will
help them maintain current users or
attract new ones. For example, a brokerdealer will not choose to offer NYSE
Arca BBO or NYSE Arca 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 Arca BBO
or NYSE Arca 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
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
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mstockstill on DSK4VPTVN1PROD with NOTICES
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
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
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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16:29 Aug 20, 2013
Jkt 229001
compete for order flow, including 12
equities self-regulatory organization
(‘‘SRO’’) markets, as well as
internalizing broker-dealers (‘‘BDs’’) and
various forms of alternative trading
systems (‘‘ATSs’’), including dark pools
and electronic communication networks
(‘‘ECNs’’). Competition among trading
platforms can be expected to constrain
the aggregate return that each platform
earns from the sale of its joint products,
but different platforms may choose from
a range of possible, and equally
reasonable, pricing strategies as the
means of recovering total costs. For
example, some platforms may choose to
pay rebates to attract orders, charge
relatively low prices for market data
products (or provide market data
products free of charge), and charge
relatively high prices for accessing
posted liquidity. Other platforms may
choose a strategy of paying lower
rebates (or no rebates) to attract orders,
setting relatively high prices for market
data products, and setting relatively low
prices for accessing posted liquidity. In
this environment, there is no economic
basis for regulating maximum prices for
one of the joint products in an industry
in which suppliers face competitive
constraints with regard to the joint
offering.
Existence of Alternatives. The large
number of SROs, BDs, and ATSs that
currently produce proprietary data or
are currently capable of producing it
provides further pricing discipline for
proprietary data products. Each SRO,
ATS, and BD is currently permitted to
produce proprietary data products, and
many currently do or have announced
plans to do so, including but not limited
to the Exchange, NYSE, NYSE MKT,
NASDAQ OMX, BATS, and Direct Edge.
The fact that proprietary data from
ATSs, BDs, and vendors can bypass
SROs is significant in two respects.
First, non-SROs can compete directly
with SROs for the production and sale
of proprietary data products. Second,
because a single order or transaction
report can appear in an SRO proprietary
product, a non-SRO proprietary
product, or both, the amount of data
available via proprietary products is
greater in size than the actual number of
orders and transaction reports that exist
in the marketplace. Because market data
users can thus find suitable substitutes
for most proprietary market data
products, 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
PO 00000
Frm 00095
Fmt 4703
Sfmt 4703
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 Arca Trades and NYSE
Arca 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
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
28 See
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.
29 See
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21AUN1
Federal Register / Vol. 78, No. 162 / Wednesday, August 21, 2013 / Notices
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 Arca
BBO and NYSE Arca Trades, thereby
benefitting professional and nonprofessional users, including public
investors. The Exchange also believes
that offering NYSE Arca Trades for nonprofessional 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.
mstockstill on DSK4VPTVN1PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
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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16:29 Aug 20, 2013
Jkt 229001
51801
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.
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–
NYSEARCA–2013–81and should be
submitted on or before September 11,
2013.
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:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Kevin M. O’Neill,
Deputy Secretary.
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml ); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEARCA–2013–81 on the subject
line.
DEPARTMENT OF STATE
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NYSEARCA–2013–81. 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
32 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
34 15 U.S.C. 78s(b)(2)(B).
[FR Doc. 2013–20340 Filed 8–20–13; 8:45 am]
BILLING CODE 8011–01–P
[Public Notice 8426]
30-Day Notice of Proposed Information
Collection: Application for A, G, or
NATO Visa
Notice of request for public
comment and submission to OMB of
proposed collection of information.
ACTION:
The Department of State has
submitted the information collection
described below to the Office of
Management and Budget (OMB) for
approval. In accordance with the
Paperwork Reduction Act of 1995 we
are requesting comments on this
collection from all interested
individuals and organizations. The
purpose of this Notice is to allow 30
days for public comment.
DATES: Submit comments directly to the
Office of Management and Budget
(OMB) up to September 20, 2013.
ADDRESSES: Direct comments to the
Department of State Desk Officer in the
Office of Information and Regulatory
Affairs at the Office of Management and
Budget (OMB). You may submit
comments by the following methods:
SUMMARY:
33 17
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35 17
E:\FR\FM\21AUN1.SGM
CFR 200.30–3(a)(12).
21AUN1
]]>Agencies
[Federal Register Volume 78, Number 162 (Wednesday, August 21, 2013)]
[Notices]
[Pages 51796-51801]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20340]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70213; File No. SR-NYSEARCA-2013-81]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending the Fees
for Display Use of the NYSE Arca BBO and NYSE Arca 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, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the fees for display use of the NYSE
Arca BBO and NYSE Arca 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.
[[Page 51797]]
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
Arca BBO \4\ and NYSE Arca 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 Arca BBO is an NYSE Arca-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 Arca reports quotes under the CQ
Plan.
\5\ NYSE Arca Trades is an NYSE Arca-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 Arca 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 Arca's opening price,
high price, low price, closing price, and cumulative volume for the
security.
---------------------------------------------------------------------------
The Exchange currently charges $10 per month for professional users
and $5 per month for non-professional users for display use of NYSE
Arca BBO.\6\ Alternatively, the Exchange charges $0.005 per quote for
display use of NYSE Arca BBO for non-professional users, capped at $5
per month per non-professional user.\7\ The Exchange currently charges
$10 per month for professional users for display use of NYSE Arca
Trades. The Exchange currently does not offer NYSE Arca 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. 62188 (May
27, 2010), 75 FR 31484 (June 3, 2010) (SR-NYSEArca-2010-23).
\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. 59598 (Mar. 18,
2009), 74 FR 12919 (Mar. 25, 2009) (SR-NYSEArca-2009-05). When NYSE
Arca Trades was initially offered, the Exchange had not observed a
demand for non-professional use because an alternative product was
available. See id. The Exchange now offers two last sale market data
products for distribution to non-professional users, NYSE Arca
Trades Digital Media and NYSE Arca Realtime Reference Prices Digital
Media. See Securities Exchange Act Release No. 69299 (Apr. 4, 2013),
78 FR 21436 (Apr. 10, 2013) (SR-NYSEArca-2013-31).
---------------------------------------------------------------------------
The Exchange also charges an access fee of $750 per month for NYSE
Arca BBO and an access fee of $750 for NYSE Arca Trades. However, a
single access fee applies for clients receiving both NYSE Arca BBO and
NYSE Arca Trades.
Vendors that redistribute NYSE Arca Trades data pay a
redistribution fee of $750 per month.
The Exchange proposes to lower the professional user fees for
display use of NYSE Arca BBO from $10 per month to $4 per month, lower
the non-professional user fees for display use of NYSE Arca BBO from $5
per month to $0.25 per month, and eliminate the per quote option for
display use of NYSE Arca BBO for non-professional users. The Exchange
also proposes to lower the professional user fee for display use of
NYSE Arca Trades from $10 per month to $4 per month and introduce a fee
for display use of NYSE Arca Trades by non-professional users of $0.25
per month.
The Exchange also proposes to establish a $175,000 per month
enterprise fee for an unlimited number of professional and non-
professional users for NYSE Arca BBO and a $175,000 per month
enterprise fee for an unlimited number of professional and non-
professional users for NYSE Arca Trades. A single enterprise fee will
apply for vendors receiving both NYSE Arca BBO and NYSE Arca Trades.
As an example, under the current fee structure, if a firm had 9,000
professional users who each received NYSE Arca Trades at $10 per month
and NYSE Arca BBO at $10 per month, then the firm currently pays
$180,000 per month in professional user fees. Under the proposed
enterprise fee, the firm will pay a flat fee of $175,000 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-NYSEArca-2010-23, supra n.6; SR-NYSEArca-2009-05, supra n.8.
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. 69315 (Apr. 5, 2013), 78 FR
21668 (Apr. 11, 2013) (SR-NYSEArca-2013-37).
---------------------------------------------------------------------------
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 Arca BBO and NYSE Arca 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 Arca 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 Arca BBO and NYSE Arca Trades, including real-time
consolidated data, free delayed consolidated data, and proprietary data
from other sources, as
[[Page 51798]]
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 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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
The Exchange believes that lowering the professional and non-
professional user fees for NYSE Arca BBO and lowering the professional
user fee for NYSE Arca Trades is reasonable because it will make the
products more affordable and result in their greater availability to
professional and non-professional users. The Exchange believes that
introducing a non-professional fee for NYSE Arca Trades is reasonable
because it provides an additional method for retail investors to access
NYSE Arca 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 Arca 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 Plan,
Tape B market data includes NYSE Arca and certain other exchanges'
data. Monthly fees for professional users range from $13.60-$14.60 for
consolidated last sale data and $13.65-$15.60 for bid-ask data; the
monthly fee for each non-professional subscriber is $1.00 for both last
sale and bid-ask data.\19\ A monthly enterprise fee of $500,000 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 substantially less than the fees
currently charged and proposed for the CTA and CQ Plans. 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. Release No. 70010
(July 19, 2013) (File No. SR-CTA/CQ-2013-04). Monthly fees will be
$24 for professional subscribers and $1 for non-professional
subscribers for Tape B last sale and bid-ask data, and the monthly
enterprise fee described above will be increased to $520,000.
---------------------------------------------------------------------------
The proposed enterprise fees for NYSE Arca BBO and NYSE Arca 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 Arca BBO and/or NYSE Arca 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 Arca BBO and NYSE Arca 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 Arca BBO and
NYSE Arca 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 Arca BBO and NYSE Arca
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-NYSEArca-2010-23, 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 Arca
Trades to non-professional users with the same data available to
professional users
[[Page 51799]]
results in greater equity among data recipients. The Exchange believes
that eliminating the per quote non-professional user fee for NYSE Arca
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 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\
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\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.
---------------------------------------------------------------------------
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\
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\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 Arca BBO or
NYSE Arca 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 Arca BBO or NYSE Arca 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 Arca BBO or NYSE Arca 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
[[Page 51800]]
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 exchange earns reflects the revenues it receives
from the joint products and the total costs of the joint products.
The level of competition and contestability in the market is
evident in the numerous alternative venues that compete for order flow,
including 12 equities self-regulatory organization (``SRO'') markets,
as well as internalizing broker-dealers (``BDs'') and various forms of
alternative trading systems (``ATSs''), including dark pools and
electronic communication networks (``ECNs''). Competition among trading
platforms can be expected to constrain the aggregate return that each
platform earns from the sale of its joint products, but different
platforms may choose from a range of possible, and equally reasonable,
pricing strategies as the means of recovering total costs. For example,
some platforms may choose to pay rebates to attract orders, charge
relatively low prices for market data products (or provide market data
products free of charge), and charge relatively high prices for
accessing posted liquidity. Other platforms may choose a strategy of
paying lower rebates (or no rebates) to attract orders, setting
relatively high prices for market data products, and setting relatively
low prices for accessing posted liquidity. In this environment, there
is no economic basis for regulating maximum prices for one of the joint
products in an industry in which suppliers face competitive constraints
with regard to the joint offering.
Existence of Alternatives. The large number of SROs, BDs, and ATSs
that currently produce proprietary data or are currently capable of
producing it provides further pricing discipline for proprietary data
products. Each SRO, ATS, and BD is currently permitted to produce
proprietary data products, and many currently do or have announced
plans to do so, including but not limited to the Exchange, NYSE, NYSE
MKT, NASDAQ OMX, BATS, and Direct Edge.
The fact that proprietary data from ATSs, BDs, and vendors can
bypass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and sale of proprietary data
products. Second, because a single order or transaction report can
appear in an SRO proprietary product, a non-SRO proprietary product, or
both, the amount of data available via proprietary products is greater
in size than the actual number of orders and transaction reports that
exist in the marketplace. Because market data users can thus find
suitable substitutes for most proprietary market data products, 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 Arca Trades and NYSE Arca 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.
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In addition to the competition and price discipline described
above, the market for proprietary data products is also highly
contestable because market entry is rapid and inexpensive. The history
of electronic trading is replete with examples of entrants that swiftly
grew into some of the largest electronic trading platforms and
proprietary data producers: Archipelago, Bloomberg Tradebook, Island,
RediBook, Attain, TrackECN, BATS 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
[[Page 51801]]
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 Arca BBO and NYSE Arca Trades, thereby benefitting
professional and non-professional users, including public investors.
The Exchange also believes that offering NYSE Arca 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.
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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
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.
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-NYSEARCA-2013-81 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEARCA-2013-81. 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-NYSEARCA-2013-81and should
be submitted on or before September 11, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20340 Filed 8-20-13; 8:45 am]
BILLING CODE 8011-01-P
