Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish for PHLX Orders Managed Data Solution Fees for Non-Display Usage, 64569-64573 [2013-25571]

Download as PDF Federal Register / Vol. 78, No. 209 / Tuesday, October 29, 2013 / Notices 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of FINRA. 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–FINRA– 2013–045 and should be submitted on or before November 19, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.27 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–25443 Filed 10–28–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–70748; File No. SR–Phlx– 2013–105] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish for PHLX Orders Managed Data Solution Fees for Non-Display Usage mstockstill on DSK4VPTVN1PROD with NOTICES October 23, 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 October 16, 2013, NASDAQ OMX PHLX LLC (‘‘PHLX’’ or the ‘‘Exchange’’) filed with 27 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 18:15 Oct 28, 2013 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change PHLX proposes to establish for PHLX orders (‘‘PHLX Orders’’) Managed Data Solution fees for non-display usage (‘‘Non-Display Usage’’), and to establish that Managed Data Solutions containing Top of PHLX Options (also known as ‘‘TOPO’’) are for non-display usage. While the changes proposed herein are effective upon filing, the Exchange has designated that the amendments be operative on November 1, 2013. The text of the proposed rule change is available at http:// nasdaqomxphlx.cchwallstreet.com/ nasdaqomxphlx/phlx/, at Phlx’s principal office, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose PHLX is proposing to create a new data distribution model (a Managed Data Solution for Non-Display Usage) to further the distribution of the PHLX Orders datafeed. PHLX is also proposing to establish that Managed Data Solutions containing Top of PHLX Options are for non-display usage. The proposed Managed Data Solution for non-display usage is similar to data distribution models currently in use and aligns PHLX with other markets in the NASDAQ OMX Group.3 3 See Securities Exchange Act Release Nos. 70269 (August 27, 2013), 78 FR 54336 (September 3, 2013) (SR–NASDAQ–2013–106) (notice of filing and 1 15 VerDate Mar<15>2010 the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. Jkt 232001 PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 64569 The Managed Data Solution proposal offers a delivery method to firms seeking simplified market data administration. The Managed Data Solution for Non-Display Usage may be offered by Distributors externally distributing data to clients and/or client organizations that are using the PHLX Orders information internally for NonDisplay Usage. This new pricing and administrative option is in response to industry demand, as well as due to changes in the technology used to distribute market data. As such, rather than substantive changes the proposal reflects current data distribution practices in the industry. Distributors offering Managed Data Solutions for Non-Display Usage continue to be fee liable for the applicable distributor fees for the receipt and distribution of PHLX Orders data. This Managed Data Solution for NonDisplay Usage is a delivery option that will assess a new, innovative fee schedule to Distributors of PHLX Orders that provide data feed solutions such as an Application Programming Interface (API) or similar automated delivery solutions to Recipients for Non-Display Usage with only limited entitlement controls (e.g., usernames and/or passwords) (‘‘Managed Data Recipients’’). However, the Distributor must first agree to reformat, redisplay and/or alter the PHLX Orders data prior to retransmission, but not to affect the integrity of the PHLX Orders data and not to render it inaccurate, unfair, uninformative, fictitious, misleading, or discriminatory. A Managed Data Solution for Non-Display Usage is any retransmission data product containing PHLX Orders offered by a Distributor where the Distributor manages and monitors, but does not control, the information. However, the Distributor does maintain contracts with the Managed Data Recipients and is liable for any unauthorized use by the Managed Data Recipients under a Managed Data Solution. The Recipient of a Managed Data Solution may use the information for internal Non-Display purposes only and may not distribute the information outside of their organization. immediate effectiveness of proposed rule change to establish non-display Managed Data Solution for equities on NASDAQ); and 69182 (March 19, 2013), 78 FR 18378 (March 26, 2013) (SR–Phlx–2013–28) (notice of filing and immediate effectiveness of proposed rule change to establish non-display Managed Data Solution for Phlx equities market PSX). See also Securities Exchange Act Release No. 69041 (March 5, 2013), 78 FR 15791 (March 12, 2013) (SR–BX–2013–018) (notice of filing and immediate effectiveness of proposed rule change to establish Managed Data Solution for BX). E:\FR\FM\29OCN1.SGM 29OCN1 64570 Federal Register / Vol. 78, No. 209 / Tuesday, October 29, 2013 / Notices Currently, the Exchange does not distinguish between Managed Data Solution Recipients and a recipient of an uncontrolled data product. Some Distributors believe that the Managed Data Solution for Non-Display Usage is a viable alternative to an uncontrolled data product. Some Distributors have even delayed deploying new PHLX Orders offerings, pending the initiation of Managed Data Solutions for NonDisplay Usage. Thus, offering a Managed Data Solution fee schedule would not only result in PHLX offering lower fees for existing Managed Data Recipients utilizing a Managed Data Solution, but will allow new Distributors to deliver Managed Data Solutions to new clients, thereby increasing transparency of the market. PHLX proposes to establish two fees for Distributors that adopt the Managed Data Solution for Non-Display Usage to Distributors, a monthly Managed Data Solution Administration fee of $2,000 and a monthly Subscriber fee of $500.4 The proposed monthly License fee would be in addition to the monthly Distributor fee of $3,500 (for external usage) currently set forth in Section IX of the PHLX Pricing Schedule, and the $500 monthly Subscriber fee would be assessed for each Subscriber of a Managed Data Solution. PHLX proposes to establish that Managed Data Solution for Top of PHLX is for non-display usage only,5 as is done on other markets. The Exchange believes that the proposal is in line with current market practice. mstockstill on DSK4VPTVN1PROD with NOTICES 2. Statutory Basis PHLX believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,6 in general, and with Section 6(b)(4) of the Act,7 in particular, in that it provides an equitable allocation of reasonable fees among Subscribers and Recipients of PHLX data. In adopting Regulation NMS, the Commission granted selfregulatory organizations (‘‘SROs’’) and broker-dealers (‘‘BDs’’) increased authority and flexibility to offer new and unique market data to the public. It 4 Without a Managed Data Solution as proposed herein, the current fee for internal distribution that is not a Managed Data Solution but rather an uncontrolled PHLX Orders data product with a distributor fee of $3,000 per month would apply (along with a $40 professional subscriber fee). Per the proposal for the Managed Data Solution, on the other hand, the managed data recipient fee for nondisplay internal use of PHLX Orders managed data would be $500 per subscriber, thereby providing a reduced cost option where the data is for nondistribution only. 5 The Exchange believes that most firms currently use TOPO in non-display format. 6 15 U.S.C. 78f. 7 15 U.S.C. 78f(b)(4). VerDate Mar<15>2010 18:15 Oct 28, 2013 Jkt 232001 was believed that this authority would expand the amount of data available to consumers, and also spur innovation and competition for the provision of market data. The Commission concluded that Regulation NMS—by lessening the regulation of the market in proprietary data—would itself further the Act’s goals of facilitating efficiency and competition: [E]fficiency is promoted when brokerdealers who do not need the data beyond the prices, sizes, market center identifications of the NBBO and consolidated last sale information are not required to receive (and pay for) such data. The Commission also believes that efficiency is promoted when broker-dealers may choose to receive (and pay for) additional market data based on their own internal analysis of the need for such data.8 By removing ‘‘unnecessary regulatory restrictions’’ on the ability of exchanges to sell their own data, Regulation NMS advanced the goals of the Act and the principles reflected in its legislative history. If the free market should determine whether proprietary data is sold to BDs at all, it follows that the price at which such data is sold should be set by the market as well. The decision of the United States Court of Appeals for the District of Columbia Circuit in NetCoaliton v. SEC, 615 F.3d 525 (D.C. Cir. 2010) (‘‘NetCoalition I’’), upheld the Commission’s reliance upon competitive markets to set reasonable and equitably allocated fees for market data. ‘‘In fact, the legislative history indicates that the Congress intended that the market system ‘evolve through the interplay of competitive forces as unnecessary regulatory restrictions are removed’ and that the SEC wield its regulatory power ‘in those situations where competition may not be sufficient,’ such as in the creation of a ‘consolidated transactional reporting system.’ NetCoaltion I, at 535 (quoting H.R. Rep. No. 94–229, at 92 (1975), as reprinted in 1975 U.S.C.C.A.N. 321, 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.’ ’’ 9 The court in NetCoalition I, while upholding the Commission’s conclusion that competitive forces may be relied upon to establish the fairness of prices, nevertheless concluded that the record 8 Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). 9 NetCoalition I, at 535. PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 in that case did not adequately support the Commission’s conclusions as to the competitive nature of the market for NYSE Arca’s data product at issue in that case. As explained below in PHLX’s Statement on Burden on Competition, however, PHLX believes that there is substantial evidence of competition in the marketplace for data that was not in the record in the NetCoalition I case, and that the Commission is entitled to rely upon such evidence in concluding that the fees established in this filing are the product of competition, and therefore in accordance with the relevant statutory standards.10 Moreover, PHLX further notes that the product at issue in this filing—PHLX Orders Managed Data Solution fees—is quite different from the NYSE Arca depth-of-book data product at issue in NetCoalition I. Accordingly, any findings of the court with respect to that product may not be relevant to the product at issue in this filing. B. Self-Regulatory Organization’s Statement on Burden on Competition PHLX does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. PHLX’s ability to price its PHLX Orders Managed Data Solution fees is constrained by (1) competition between exchanges and other trading platforms that compete with each other in a variety of dimensions; (2) the existence of inexpensive real-time consolidated data and market-specific data and free delayed consolidated data; and (3) the inherent contestability of the market for this data. 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, trades, and market data itself, providing virtually limitless opportunities for entrepreneurs who wish to produce and distribute their own market data. This proprietary data is produced by each individual exchange, as well as other entities, in a vigorously competitive market. 10 It should also be noted that Section 916 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (‘‘Dodd-Frank Act’’) has amended paragraph (A) of Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3), to make it clear that all exchange fees, including fees for market data, may be filed by exchanges on an immediately effective basis. E:\FR\FM\29OCN1.SGM 29OCN1 mstockstill on DSK4VPTVN1PROD with NOTICES Federal Register / Vol. 78, No. 209 / Tuesday, October 29, 2013 / Notices Transaction execution and proprietary data products are complementary in that market data is both an input and a byproduct of the execution service. In fact, market data and trade execution are a paradigmatic example of joint products with joint costs. The decision whether and on which platform to post an order will depend on the attributes of the platform where the order can be posted, including the execution fees, data quality and price and distribution of its data products. Without trade executions, exchange data products cannot exist. Moreover, data products are valuable to many end users only insofar as they provide information that end users expect will assist them or their customers in making trading decisions. The costs of producing market data include not only the costs of the data distribution infrastructure, but also the costs of designing, maintaining, and operating the exchange’s transaction execution platform and the cost of regulating the exchange to ensure its fair operation and maintain investor confidence. The total return that a trading platform earns reflects the revenues it receives from both products and the joint costs it incurs. Moreover, the operation of the exchange is characterized by high fixed costs and low marginal costs. This cost structure is common in content and content distribution industries such as software, where developing new software typically requires a large initial investment (and continuing large investments to upgrade the software), but once the software is developed, the incremental cost of providing that software to an additional user is typically small, or even zero (e.g., if the software can be downloaded over the internet after being purchased).11 In PHLX’s case, it is costly to build and maintain a trading platform, but the incremental cost of trading each additional share on an existing platform, or distributing an additional instance of data, is very low. Market information and executions are each produced jointly (in the sense that the activities of trading and placing orders are the source of the information that is distributed) and are each subject to significant scale economies. In such cases, marginal cost pricing is not feasible because if all sales were priced at the margin, PHLX would be unable to 11 See William J. Baumol and Daniel G. Swanson, ‘‘The New Economy and Ubiquitous Competitive Price Discrimination: Identifying Defensible Criteria of Market Power,’’ Antitrust Law Journal, Vol. 70, No. 3 (2003). VerDate Mar<15>2010 18:15 Oct 28, 2013 Jkt 232001 defray its platform costs of providing the joint products. An exchange’s BD customers view the costs of transaction executions and of data as a unified cost of doing business with the exchange. A BD will direct orders to a particular exchange only if the expected revenues from executing trades on the exchange exceed net transaction execution costs and the cost of data that the BD chooses to buy to support its trading decisions (or those of its customers). The choice of data products is, in turn, a product of the value of the products in making profitable trading decisions. If the cost of the product exceeds its expected value, the BD will choose not to buy it. Moreover, as a BD chooses to direct fewer orders to a particular exchange, the value of the product to that BD decreases, for two reasons. First, the product will contain less information, because executions of the BD’s trading activity will not be reflected in it. Second, and perhaps more important, the product will be less valuable to that BD because it does not provide information about the venue to which it is directing its orders. Data from the competing venue to which the BD is directing orders will become correspondingly more valuable. Similarly, in the case of products such as this that are distributed through market data vendors, the vendors provide price discipline for proprietary data products because they control the primary means of access to end users. Vendors impose price restraints based upon their business models. For example, vendors such as Bloomberg and Reuters that assess a surcharge on data they sell may refuse to offer proprietary products that end users will not purchase in sufficient numbers. Internet portals, such as Google, impose a discipline by providing only data that will enable them to attract ‘‘eyeballs’’ that contribute to their advertising revenue. Retail BDs, such as Schwab and Fidelity, offer their customers proprietary data only if it promotes trading and generates sufficient commission revenue. Although the business models may differ, these vendors’ pricing discipline is the same: They can simply refuse to purchase any proprietary data product that fails to provide sufficient value. PHLX and other producers of proprietary data products must understand and respond to these varying business models and pricing disciplines in order to market proprietary data products successfully. Moreover, PHLX believes that products such as this can enhance order flow to PHLX, thereby encouraging wider participation in the market by investors PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 64571 with access to the Internet or television. Conversely, the value of such products to distributors and investors decreases if order flow falls, because the products contain less content. Analyzing the cost of market data distribution in isolation from the cost of all of the inputs supporting the creation of market data will inevitably underestimate the cost of the data. Thus, because it is impossible to create data without a fast, technologically robust, and well-regulated execution system, system costs and regulatory costs affect the price of market data. It would be equally misleading, however, to attribute all of the exchange’s costs to the market data portion of an exchange’s joint product. Rather, all of the exchange’s costs are incurred for the unified purposes of attracting order flow, executing and/or routing orders, and generating and selling data about market activity. The total return that an exchange earns reflects the revenues it receives from the joint products and the total costs of the joint products. Competition among trading platforms can be expected to constrain the aggregate return each platform earns from the sale of its joint products, but different platforms may choose from a range of possible, and equally reasonable, pricing strategies as the means of recovering total costs. For example, some platforms may choose to pay rebates to attract orders, charge relatively low prices for market information (or provide information free of charge) and charge relatively high prices for accessing posted liquidity. Other platforms may choose a strategy of paying lower liquidity rebates to attract orders, setting relatively low prices for accessing posted liquidity and setting relatively high prices for market information. Still others may provide most data free of charge and rely exclusively on transaction fees to recover their costs. Finally, some platforms may incentivize use by providing opportunities for equity ownership, which may allow them to charge lower direct fees for executions and data. In this environment, there is no economic basis for regulating maximum prices for one of the joint products in an industry in which suppliers face competitive constraints with regard to the joint offering. Such regulation is unnecessary because an ‘‘excessive’’ price for one of the joint products will ultimately have to be reflected in lower prices for other products sold by the firm, or otherwise the firm will experience a loss in the volume of its sales that will be adverse to its overall profitability. In other words, an increase E:\FR\FM\29OCN1.SGM 29OCN1 mstockstill on DSK4VPTVN1PROD with NOTICES 64572 Federal Register / Vol. 78, No. 209 / Tuesday, October 29, 2013 / Notices in the price of data will ultimately have to be accompanied by a decrease in the cost of executions, or the volume of both data and executions will fall. The level of competition and contestability in the market is evident in the numerous alternative venues that compete for order flow, including thirteen SRO markets, as well as internalizing BDs and various forms of alternative trading systems (‘‘ATSs’’), including dark pools and electronic communication networks (ECNs’’). Each SRO market competes to produce transaction reports via trade executions, and two FINRA-regulated TRFs compete to attract internalized transaction reports. It is common for BDs to further and exploit this competition by sending their order flow and transaction reports to multiple markets, rather than providing them all to a single market. Competitive markets for order flow, executions, and transaction reports provide pricing discipline for the inputs of proprietary data products. The large number of SROs, TRFs, BDs, and ATSs that currently produce proprietary data or are currently capable of producing it provides further pricing discipline for proprietary data products. Each SRO, TRF, ATS, and BD is currently permitted to produce proprietary data products, and many currently do or have announced plans to do so, including NASDAQ, NYSE, NYSE MKT, NYSE Arca, BATS, and Direct Edge. Any ATS or BD can combine with any other ATS, BD, or multiple ATSs or BDs to produce joint proprietary data products. Additionally, order routers and market data vendors can facilitate single or multiple BD’ production of proprietary data products. The potential sources of proprietary products are virtually limitless. Market data vendors provide another form of price discipline for proprietary data products because they control the primary means of access to end Subscribers. Vendors impose price restraints based upon their business models. For example, vendors such as Bloomberg and Thomson Reuters that assess a surcharge on data they sell may refuse to offer proprietary products that end Subscribers will not purchase in sufficient numbers. Internet portals, such as Google, impose a discipline by providing only data that will enable them to attract ‘‘eyeballs’’ that contribute to their advertising revenue. Retail broker-dealers, such as Schwab and Fidelity, offer their customers proprietary data only if it promotes trading and generates sufficient commission revenue. Although the business models may differ, these VerDate Mar<15>2010 18:15 Oct 28, 2013 Jkt 232001 vendors’ pricing discipline is the same: they can simply refuse to purchase any proprietary data product that fails to provide sufficient value. PHLX and other producers of proprietary data products must understand and respond to these varying business models and pricing disciplines in order to market proprietary data products successfully. In addition to the competition and price discipline described above, the market for proprietary data products is also highly contestable because market entry is rapid, inexpensive, and profitable. The history of electronic trading is replete with examples of entrants that swiftly grew into some of the largest electronic trading platforms and proprietary data producers: Archipelago, Bloomberg Tradebook, Island, RediBook, Attain, TracECN, BATS Trading and Direct Edge. A proliferation of dark pools and other ATSs operate profitably with fragmentary shares of consolidated market volume. Regulation NMS, by deregulating the market for proprietary data, has increased the contestability of that market. While BDs have previously published their proprietary data individually, Regulation NMS encourages market data vendors and BDs to produce proprietary products cooperatively in a manner never before possible. Multiple market data vendors already have the capability to aggregate data and disseminate it on a profitable scale, including Bloomberg, and Thomson Reuters. Competition among platforms has driven PHLX continually to improve its platform data offerings and to cater to customers’ data needs. For example, PHLX has developed and maintained multiple delivery mechanisms (IP, multi-cast, and compression) that enable customers to receive data in the form and manner they prefer and at the lowest cost to them. PHLX has created new products like Depth Data, TOPO and TOPO Plus Orders, because offering data in multiple formatting allows PHLX to better fit customer needs. PHLX offers data via multiple extranet providers, thereby helping to reduce network and total cost for its data products. PHLX has developed an online administrative system to provide customers transparency into their datafeed requests and streamline data usage reporting. Despite these enhancements and a dramatic increase in message traffic, PHLX’s fees for market data have remained flat. In fact, as a percent of total Subscriber costs, PHLX data fees have fallen relative to other data usage costs—including bandwidth, PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 programming, and infrastructure—that have risen. The same holds true for execution services; despite numerous enhancements to PHLX’s trading platform, absolute and relative trading costs have declined. Platform competition has intensified as new entrants have emerged, constraining prices for both executions and for data. The vigor of competition for proprietary information is significant and the Exchange believes that this proposal itself clearly evidences such competition. PHLX is offering a new pricing model in order to keep pace with changes in the industry and evolving customer needs. It is entirely optional and is geared towards attracting new customers, as well as retaining existing customers. The Exchange has witnessed competitors creating new products and innovative pricing in this space over the course of the past year. PHLX continues to see firms challenge its pricing on the basis of the Exchange’s explicit fees being higher than the zero-priced fees from other competitors such as BATS. In all cases, firms make decisions on how much and what types of data to consume on the basis of the total cost of interacting with PHLX or other exchanges. Of course, the explicit data fees are but one factor in a total platform analysis. Some competitors have lower transactions fees and higher data fees, and others are vice versa. The market for this proprietary information is highly competitive and continually evolves as products develop and change. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.12 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine 12 15 E:\FR\FM\29OCN1.SGM U.S.C. 78s(b)(3)(a)(ii). 29OCN1 Federal Register / Vol. 78, No. 209 / Tuesday, October 29, 2013 / Notices whether the proposed rule should be approved or disapproved. IV. Solicitation of Comment 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.13 Kevin M. O’Neill, Deputy Secretary. SMALL BUSINESS ADMINISTRATION [FR Doc. 2013–25571 Filed 10–28–13; 8:45 am] AGENCY: BILLING CODE 8011–01–P [Disaster Declaration #13781 and #13782] • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– Phlx–2013–105 on the subject line. Colorado Disaster Number CO–00066 mstockstill on DSK4VPTVN1PROD with NOTICES • 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–Phlx–2013–105. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal offices of 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–Phlx– 2013–105, and should be submitted on or before November 19, 2013. VerDate Mar<15>2010 18:15 Oct 28, 2013 Jkt 232001 [Disaster Declaration #13768 and #13769] Colorado Disaster Number CO–00065 U.S. Small Business Administration. ACTION: Amendment 4. This is an amendment of the Presidential declaration of a major disaster for the State of Colorado (FEMA–4145–DR), dated 09/14/2013. Incident: Severe Storms, Flooding, Landslides, and Mudslides. Incident Period: 09/11/2013 through 09/30/2013. Effective Date: 10/21/2013. Physical Loan Application Deadline Date: 11/14/2013. EIDL Loan Application Deadline Date: 06/16/2014. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: The notice of the Presidential disaster declaration for the State of Colorado, dated 09/14/ 2013 is hereby amended to include the following areas as adversely affected by the disaster: Primary Counties: (Physical Damage and Economic Injury Loans): Fremont, Morgan. Contiguous Counties: (Economic Injury Loans Only): Colorado: Chaffee, Custer, Saguache. All other information in the original declaration remains unchanged. SUMMARY: SMALL BUSINESS ADMINISTRATION Electronic Comments Paper Comments 64573 U.S. Small Business Administration. ACTION: Amendment 3. AGENCY: This is an amendment of the Presidential declaration of a major disaster for Public Assistance Only for the State of Colorado (FEMA–4145–DR), dated 09/24/2013. Incident: Severe storms, flooding, landslides, and mudslides. Incident Period: 09/11/2013 through 09/30/2013. Effective Date: 10/21/2013. Physical Loan Application Deadline Date: 11/25/2013. Economic Injury (EIDL) Loan Application Deadline Date: 06/24/2014. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing And Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: The notice of the President’s major disaster declaration for Private Non-Profit organizations in the State of COLORADO, dated 09/24/2013, is hereby amended to include the following areas as adversely affected by the disaster. Primary Counties: Arapahoe; Crowley; Denver; Fremont; Gilpin; Lake; Lincoln; Sedgwick. All other information in the original declaration remains unchanged. SUMMARY: (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) James E. Rivera, Associate Administrator for Disaster Assistance. [FR Doc. 2013–25457 Filed 10–28–13; 8:45 am] PO 00000 CFR 200.30–3(a)(12). Frm 00107 Fmt 4703 James E. Rivera, Associate Administrator for Disaster Assistance. [FR Doc. 2013–25456 Filed 10–28–13; 8:45 am] BILLING CODE 8025–01–P SMALL BUSINESS ADMINISTRATION U.S. Small Business Development Center Advisory Board U.S. Small Business Administration (SBA). ACTION: Notice of open Federal Advisory Committee meetings. AGENCY: The SBA is issuing this notice to announce the location, date, time and agenda for the 1st quarter meetings of SUMMARY: BILLING CODE 8025–01–P 13 17 (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Sfmt 4703 E:\FR\FM\29OCN1.SGM 29OCN1

Agencies

[Federal Register Volume 78, Number 209 (Tuesday, October 29, 2013)]
[Notices]
[Pages 64569-64573]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-25571]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70748; File No. SR-Phlx-2013-105]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Establish 
for PHLX Orders Managed Data Solution Fees for Non-Display Usage

October 23, 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 October 16, 2013, NASDAQ OMX PHLX LLC (``PHLX'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    PHLX proposes to establish for PHLX orders (``PHLX Orders'') 
Managed Data Solution fees for non-display usage (``Non-Display 
Usage''), and to establish that Managed Data Solutions containing Top 
of PHLX Options (also known as ``TOPO'') are for non-display usage.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on November 1, 
2013.
    The text of the proposed rule change is available at http://nasdaqomxphlx.cchwallstreet.com/nasdaqomxphlx/phlx/, at Phlx's 
principal office, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    PHLX is proposing to create a new data distribution model (a 
Managed Data Solution for Non-Display Usage) to further the 
distribution of the PHLX Orders datafeed. PHLX is also proposing to 
establish that Managed Data Solutions containing Top of PHLX Options 
are for non-display usage. The proposed Managed Data Solution for non-
display usage is similar to data distribution models currently in use 
and aligns PHLX with other markets in the NASDAQ OMX Group.\3\
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    \3\ See Securities Exchange Act Release Nos. 70269 (August 27, 
2013), 78 FR 54336 (September 3, 2013) (SR-NASDAQ-2013-106) (notice 
of filing and immediate effectiveness of proposed rule change to 
establish non-display Managed Data Solution for equities on NASDAQ); 
and 69182 (March 19, 2013), 78 FR 18378 (March 26, 2013) (SR-Phlx-
2013-28) (notice of filing and immediate effectiveness of proposed 
rule change to establish non-display Managed Data Solution for Phlx 
equities market PSX). See also Securities Exchange Act Release No. 
69041 (March 5, 2013), 78 FR 15791 (March 12, 2013) (SR-BX-2013-018) 
(notice of filing and immediate effectiveness of proposed rule 
change to establish Managed Data Solution for BX).
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    The Managed Data Solution proposal offers a delivery method to 
firms seeking simplified market data administration. The Managed Data 
Solution for Non-Display Usage may be offered by Distributors 
externally distributing data to clients and/or client organizations 
that are using the PHLX Orders information internally for Non-Display 
Usage. This new pricing and administrative option is in response to 
industry demand, as well as due to changes in the technology used to 
distribute market data. As such, rather than substantive changes the 
proposal reflects current data distribution practices in the industry. 
Distributors offering Managed Data Solutions for Non-Display Usage 
continue to be fee liable for the applicable distributor fees for the 
receipt and distribution of PHLX Orders data.
    This Managed Data Solution for Non-Display Usage is a delivery 
option that will assess a new, innovative fee schedule to Distributors 
of PHLX Orders that provide data feed solutions such as an Application 
Programming Interface (API) or similar automated delivery solutions to 
Recipients for Non-Display Usage with only limited entitlement controls 
(e.g., usernames and/or passwords) (``Managed Data Recipients''). 
However, the Distributor must first agree to reformat, redisplay and/or 
alter the PHLX Orders data prior to retransmission, but not to affect 
the integrity of the PHLX Orders data and not to render it inaccurate, 
unfair, uninformative, fictitious, misleading, or discriminatory. A 
Managed Data Solution for Non-Display Usage is any retransmission data 
product containing PHLX Orders offered by a Distributor where the 
Distributor manages and monitors, but does not control, the 
information. However, the Distributor does maintain contracts with the 
Managed Data Recipients and is liable for any unauthorized use by the 
Managed Data Recipients under a Managed Data Solution. The Recipient of 
a Managed Data Solution may use the information for internal Non-
Display purposes only and may not distribute the information outside of 
their organization.

[[Page 64570]]

    Currently, the Exchange does not distinguish between Managed Data 
Solution Recipients and a recipient of an uncontrolled data product. 
Some Distributors believe that the Managed Data Solution for Non-
Display Usage is a viable alternative to an uncontrolled data product. 
Some Distributors have even delayed deploying new PHLX Orders 
offerings, pending the initiation of Managed Data Solutions for Non-
Display Usage. Thus, offering a Managed Data Solution fee schedule 
would not only result in PHLX offering lower fees for existing Managed 
Data Recipients utilizing a Managed Data Solution, but will allow new 
Distributors to deliver Managed Data Solutions to new clients, thereby 
increasing transparency of the market.
    PHLX proposes to establish two fees for Distributors that adopt the 
Managed Data Solution for Non-Display Usage to Distributors, a monthly 
Managed Data Solution Administration fee of $2,000 and a monthly 
Subscriber fee of $500.\4\ The proposed monthly License fee would be in 
addition to the monthly Distributor fee of $3,500 (for external usage) 
currently set forth in Section IX of the PHLX Pricing Schedule, and the 
$500 monthly Subscriber fee would be assessed for each Subscriber of a 
Managed Data Solution. PHLX proposes to establish that Managed Data 
Solution for Top of PHLX is for non-display usage only,\5\ as is done 
on other markets. The Exchange believes that the proposal is in line 
with current market practice.
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    \4\ Without a Managed Data Solution as proposed herein, the 
current fee for internal distribution that is not a Managed Data 
Solution but rather an uncontrolled PHLX Orders data product with a 
distributor fee of $3,000 per month would apply (along with a $40 
professional subscriber fee). Per the proposal for the Managed Data 
Solution, on the other hand, the managed data recipient fee for non-
display internal use of PHLX Orders managed data would be $500 per 
subscriber, thereby providing a reduced cost option where the data 
is for non-distribution only.
    \5\ The Exchange believes that most firms currently use TOPO in 
non-display format.
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2. Statutory Basis
    PHLX believes that the proposed rule change is consistent with the 
provisions of Section 6 of the Act,\6\ in general, and with Section 
6(b)(4) of the Act,\7\ in particular, in that it provides an equitable 
allocation of reasonable fees among Subscribers and Recipients of PHLX 
data. In adopting Regulation NMS, the Commission granted self-
regulatory organizations (``SROs'') and broker-dealers (``BDs'') 
increased authority and flexibility to offer new and unique market data 
to the public. It was believed that this authority would expand the 
amount of data available to consumers, and also spur innovation and 
competition for the provision of market data.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(4).
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    The Commission concluded that Regulation NMS--by lessening the 
regulation of the market in proprietary data--would itself further the 
Act's goals of facilitating efficiency and competition:

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data. The Commission also believes that 
efficiency is promoted when broker-dealers may choose to receive 
(and pay for) additional market data based on their own internal 
analysis of the need for such data.\8\
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    \8\ Securities Exchange Act Release No. 51808 (June 9, 2005), 70 
FR 37496 (June 29, 2005).

By removing ``unnecessary regulatory restrictions'' on the ability of 
exchanges to sell their own data, Regulation NMS advanced the goals of 
the Act and the principles reflected in its legislative history. If the 
free market should determine whether proprietary data is sold to BDs at 
all, it follows that the price at which such data is sold should be set 
by the market as well.
    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoaliton v. SEC, 615 F.3d 525 (D.C. Cir. 
2010) (``NetCoalition I''), upheld the Commission's reliance upon 
competitive markets to set reasonable and equitably allocated fees for 
market data. ``In fact, the legislative history indicates that the 
Congress intended that the market system `evolve through the interplay 
of competitive forces as unnecessary regulatory restrictions are 
removed' and that the SEC wield its regulatory power `in those 
situations where competition may not be sufficient,' such as in the 
creation of a `consolidated transactional reporting system.' 
NetCoaltion I, at 535 (quoting H.R. Rep. No. 94-229, at 92 (1975), as 
reprinted in 1975 U.S.C.C.A.N. 321, 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.' '' \9\
---------------------------------------------------------------------------

    \9\ NetCoalition I, at 535.
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    The court in NetCoalition I, while upholding the Commission's 
conclusion that competitive forces may be relied upon to establish the 
fairness of prices, nevertheless concluded that the record in that case 
did not adequately support the Commission's conclusions as to the 
competitive nature of the market for NYSE Arca's data product at issue 
in that case. As explained below in PHLX's Statement on Burden on 
Competition, however, PHLX believes that there is substantial evidence 
of competition in the marketplace for data that was not in the record 
in the NetCoalition I case, and that the Commission is entitled to rely 
upon such evidence in concluding that the fees established in this 
filing are the product of competition, and therefore in accordance with 
the relevant statutory standards.\10\ Moreover, PHLX further notes that 
the product at issue in this filing--PHLX Orders Managed Data Solution 
fees--is quite different from the NYSE Arca depth-of-book data product 
at issue in NetCoalition I. Accordingly, any findings of the court with 
respect to that product may not be relevant to the product at issue in 
this filing.
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    \10\ It should also be noted that Section 916 of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank 
Act'') has amended paragraph (A) of Section 19(b)(3) of the Act, 15 
U.S.C. 78s(b)(3), to make it clear that all exchange fees, including 
fees for market data, may be filed by exchanges on an immediately 
effective basis.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    PHLX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. PHLX's ability to 
price its PHLX Orders Managed Data Solution fees is constrained by (1) 
competition between exchanges and other trading platforms that compete 
with each other in a variety of dimensions; (2) the existence of 
inexpensive real-time consolidated data and market-specific data and 
free delayed consolidated data; and (3) the inherent contestability of 
the market for this data.
    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, trades, and market data itself, 
providing virtually limitless opportunities for entrepreneurs who wish 
to produce and distribute their own market data. This proprietary data 
is produced by each individual exchange, as well as other entities, in 
a vigorously competitive market.

[[Page 64571]]

    Transaction execution and proprietary data products are 
complementary in that market data is both an input and a byproduct of 
the execution service. In fact, market data and trade execution are a 
paradigmatic example of joint products with joint costs. The decision 
whether and on which platform to post an order will depend on the 
attributes of the platform where the order can be posted, including the 
execution fees, data quality and price and distribution of its data 
products. Without trade executions, exchange data products cannot 
exist. Moreover, data products are valuable to many end users only 
insofar as they provide information that end users expect will assist 
them or their customers in making trading decisions.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. The total return that a 
trading platform earns reflects the revenues it receives from both 
products and the joint costs it incurs. Moreover, the operation of the 
exchange is characterized by high fixed costs and low marginal costs. 
This cost structure is common in content and content distribution 
industries such as software, where developing new software typically 
requires a large initial investment (and continuing large investments 
to upgrade the software), but once the software is developed, the 
incremental cost of providing that software to an additional user is 
typically small, or even zero (e.g., if the software can be downloaded 
over the internet after being purchased).\11\ In PHLX's case, it is 
costly to build and maintain a trading platform, but the incremental 
cost of trading each additional share on an existing platform, or 
distributing an additional instance of data, is very low. Market 
information and executions are each produced jointly (in the sense that 
the activities of trading and placing orders are the source of the 
information that is distributed) and are each subject to significant 
scale economies. In such cases, marginal cost pricing is not feasible 
because if all sales were priced at the margin, PHLX would be unable to 
defray its platform costs of providing the joint products.
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    \11\ See William J. Baumol and Daniel G. Swanson, ``The New 
Economy and Ubiquitous Competitive Price Discrimination: Identifying 
Defensible Criteria of Market Power,'' Antitrust Law Journal, Vol. 
70, No. 3 (2003).
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    An exchange's BD customers view the costs of transaction executions 
and of data as a unified cost of doing business with the exchange. A BD 
will direct orders to a particular exchange only if the expected 
revenues from executing trades on the exchange exceed net transaction 
execution costs and the cost of data that the BD chooses to buy to 
support its trading decisions (or those of its customers). The choice 
of data products is, in turn, a product of the value of the products in 
making profitable trading decisions. If the cost of the product exceeds 
its expected value, the BD will choose not to buy it. Moreover, as a BD 
chooses to direct fewer orders to a particular exchange, the value of 
the product to that BD decreases, for two reasons. First, the product 
will contain less information, because executions of the BD's trading 
activity will not be reflected in it. Second, and perhaps more 
important, the product will be less valuable to that BD because it does 
not provide information about the venue to which it is directing its 
orders. Data from the competing venue to which the BD is directing 
orders will become correspondingly more valuable.
    Similarly, in the case of products such as this that are 
distributed through market data vendors, the vendors provide price 
discipline for proprietary data products because they control the 
primary means of access to end users. Vendors impose price restraints 
based upon their business models. For example, vendors such as 
Bloomberg and Reuters that assess a surcharge on data they sell may 
refuse to offer proprietary products that end users will not purchase 
in sufficient numbers. Internet portals, such as Google, impose a 
discipline by providing only data that will enable them to attract 
``eyeballs'' that contribute to their advertising revenue. Retail BDs, 
such as Schwab and Fidelity, offer their customers proprietary data 
only if it promotes trading and generates sufficient commission 
revenue. Although the business models may differ, these vendors' 
pricing discipline is the same: They can simply refuse to purchase any 
proprietary data product that fails to provide sufficient value. PHLX 
and other producers of proprietary data products must understand and 
respond to these varying business models and pricing disciplines in 
order to market proprietary data products successfully. Moreover, PHLX 
believes that products such as this can enhance order flow to PHLX, 
thereby encouraging wider participation in the market by investors with 
access to the Internet or television. Conversely, the value of such 
products to distributors and investors decreases if order flow falls, 
because the products contain less content.
    Analyzing the cost of market data distribution in isolation from 
the cost of all of the inputs supporting the creation of market data 
will inevitably underestimate the cost of the data. Thus, because it is 
impossible to create data without a fast, technologically robust, and 
well-regulated execution system, system costs and regulatory costs 
affect the price of market data. It would be equally misleading, 
however, to attribute all of the exchange's costs to the market data 
portion of an exchange's joint product. Rather, all of the exchange's 
costs are incurred for the unified purposes of attracting order flow, 
executing and/or routing orders, and generating and selling data about 
market activity. The total return that an exchange earns reflects the 
revenues it receives from the joint products and the total costs of the 
joint products.
    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products, but different platforms may choose from a range of possible, 
and equally reasonable, pricing strategies as the means of recovering 
total costs. For example, some platforms may choose to pay rebates to 
attract orders, charge relatively low prices for market information (or 
provide information free of charge) and charge relatively high prices 
for accessing posted liquidity. Other platforms may choose a strategy 
of paying lower liquidity rebates to attract orders, setting relatively 
low prices for accessing posted liquidity and setting relatively high 
prices for market information. Still others may provide most data free 
of charge and rely exclusively on transaction fees to recover their 
costs. Finally, some platforms may incentivize use by providing 
opportunities for equity ownership, which may allow them to charge 
lower direct fees for executions and data.
    In this environment, there is no economic basis for regulating 
maximum prices for one of the joint products in an industry in which 
suppliers face competitive constraints with regard to the joint 
offering. Such regulation is unnecessary because an ``excessive'' price 
for one of the joint products will ultimately have to be reflected in 
lower prices for other products sold by the firm, or otherwise the firm 
will experience a loss in the volume of its sales that will be adverse 
to its overall profitability. In other words, an increase

[[Page 64572]]

in the price of data will ultimately have to be accompanied by a 
decrease in the cost of executions, or the volume of both data and 
executions will fall.
    The level of competition and contestability in the market is 
evident in the numerous alternative venues that compete for order flow, 
including thirteen SRO markets, as well as internalizing BDs and 
various forms of alternative trading systems (``ATSs''), including dark 
pools and electronic communication networks (ECNs''). Each SRO market 
competes to produce transaction reports via trade executions, and two 
FINRA-regulated TRFs compete to attract internalized transaction 
reports. It is common for BDs to further and exploit this competition 
by sending their order flow and transaction reports to multiple 
markets, rather than providing them all to a single market. Competitive 
markets for order flow, executions, and transaction reports provide 
pricing discipline for the inputs of proprietary data products.
    The large number of SROs, TRFs, BDs, and ATSs that currently 
produce proprietary data or are currently capable of producing it 
provides further pricing discipline for proprietary data products. Each 
SRO, TRF, ATS, and BD is currently permitted to produce proprietary 
data products, and many currently do or have announced plans to do so, 
including NASDAQ, NYSE, NYSE MKT, NYSE Arca, BATS, and Direct Edge.
    Any ATS or BD can combine with any other ATS, BD, or multiple ATSs 
or BDs to produce joint proprietary data products. Additionally, order 
routers and market data vendors can facilitate single or multiple BD' 
production of proprietary data products. The potential sources of 
proprietary products are virtually limitless.
    Market data vendors provide another form of price discipline for 
proprietary data products because they control the primary means of 
access to end Subscribers. Vendors impose price restraints based upon 
their business models. For example, vendors such as Bloomberg and 
Thomson Reuters that assess a surcharge on data they sell may refuse to 
offer proprietary products that end Subscribers will not purchase in 
sufficient numbers. Internet portals, such as Google, impose a 
discipline by providing only data that will enable them to attract 
``eyeballs'' that contribute to their advertising revenue. Retail 
broker-dealers, such as Schwab and Fidelity, offer their customers 
proprietary data only if it promotes trading and generates sufficient 
commission revenue. Although the business models may differ, these 
vendors' pricing discipline is the same: they can simply refuse to 
purchase any proprietary data product that fails to provide sufficient 
value. PHLX and other producers of proprietary data products must 
understand and respond to these varying business models and pricing 
disciplines in order to market proprietary data products successfully.
    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid, inexpensive, and profitable. 
The history of electronic trading is replete with examples of entrants 
that swiftly grew into some of the largest electronic trading platforms 
and proprietary data producers: Archipelago, Bloomberg Tradebook, 
Island, RediBook, Attain, TracECN, BATS Trading and Direct Edge. A 
proliferation of dark pools and other ATSs operate profitably with 
fragmentary shares of consolidated market volume.
    Regulation NMS, by deregulating the market for proprietary data, 
has increased the contestability of that market. While BDs have 
previously published their proprietary data individually, Regulation 
NMS encourages market data vendors and BDs to produce proprietary 
products cooperatively in a manner never before possible. Multiple 
market data vendors already have the capability to aggregate data and 
disseminate it on a profitable scale, including Bloomberg, and Thomson 
Reuters.
    Competition among platforms has driven PHLX continually to improve 
its platform data offerings and to cater to customers' data needs. For 
example, PHLX has developed and maintained multiple delivery mechanisms 
(IP, multi-cast, and compression) that enable customers to receive data 
in the form and manner they prefer and at the lowest cost to them. PHLX 
has created new products like Depth Data, TOPO and TOPO Plus Orders, 
because offering data in multiple formatting allows PHLX to better fit 
customer needs. PHLX offers data via multiple extranet providers, 
thereby helping to reduce network and total cost for its data products. 
PHLX has developed an online administrative system to provide customers 
transparency into their datafeed requests and streamline data usage 
reporting.
    Despite these enhancements and a dramatic increase in message 
traffic, PHLX's fees for market data have remained flat. In fact, as a 
percent of total Subscriber costs, PHLX data fees have fallen relative 
to other data usage costs--including bandwidth, programming, and 
infrastructure--that have risen. The same holds true for execution 
services; despite numerous enhancements to PHLX's trading platform, 
absolute and relative trading costs have declined. Platform competition 
has intensified as new entrants have emerged, constraining prices for 
both executions and for data.
    The vigor of competition for proprietary information is significant 
and the Exchange believes that this proposal itself clearly evidences 
such competition. PHLX is offering a new pricing model in order to keep 
pace with changes in the industry and evolving customer needs. It is 
entirely optional and is geared towards attracting new customers, as 
well as retaining existing customers.
    The Exchange has witnessed competitors creating new products and 
innovative pricing in this space over the course of the past year. PHLX 
continues to see firms challenge its pricing on the basis of the 
Exchange's explicit fees being higher than the zero-priced fees from 
other competitors such as BATS. In all cases, firms make decisions on 
how much and what types of data to consume on the basis of the total 
cost of interacting with PHLX or other exchanges. Of course, the 
explicit data fees are but one factor in a total platform analysis. 
Some competitors have lower transactions fees and higher data fees, and 
others are vice versa. The market for this proprietary information is 
highly competitive and continually evolves as products develop and 
change.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\12\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine

[[Page 64573]]

whether the proposed rule should be approved or disapproved.
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    \12\ 15 U.S.C. 78s(b)(3)(a)(ii).
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IV. Solicitation of Comment

    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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2013-105 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-Phlx-2013-105. 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 (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room on official business 
days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such 
filing also will be available for inspection and copying at the 
principal offices of 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-Phlx-2013-105, and should be submitted on or before 
November 19, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
Kevin M. O'Neill,
Deputy Secretary.
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    \13\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-25571 Filed 10-28-13; 8:45 am]
BILLING CODE 8011-01-P