Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Amending the Fees for NYSE ArcaBook, 8217-8221 [2014-02874]
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Federal Register / Vol. 79, No. 28 / Tuesday, February 11, 2014 / Notices
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proposed rule change does not (i)
significantly affect the protection of
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
for 30 days from the date on which it
was filed, or such shorter time as the
Commission may designate, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6)
thereunder.11
A proposed rule change filed under
Rule 19b–4(f)(6)12 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b–4(f)(6)(iii),13 the
Commission may designate a shorter
time if such action is consistent with the
protection of investors and the public
interest. The Exchange has asked the
Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Exchange stated that it
believes that waiver of the 30-day
operative delay is appropriate because
the Commission has already approved
the adoption of the new MPL Order
type. In addition, the Exchange stated
that it has not yet implemented the MPL
Order out of concern that the existing
rule text would limit the opportunities
for execution. By waiving the operative
delay, the Exchange would be able to
expeditiously make MPL Orders,
including MPL–ALO Orders, available
to member organizations in a manner
that is consistent with existing Rule 72,
thereby enhancing order execution
opportunities for all member
organizations. Thus, the Exchange
believes that the proposed rule change
would protect investors and the public
interest because it would enable all
interest that is eligible to interact at a
price point to be considered for a trade
with an MPL–ALO Order. For these
reasons, the Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest.
Therefore, the Commission designates
the proposed rule change to be operative
upon filing.14
Commission written notice of the Exchange’s intent
to file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission.
11 17 CFR 240.19b–4(f)(6)(iii).
12 17 CFR 240.19b–4(f)(6).
13 17 CFR 240.19b–4(f)(6)(iii).
14 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) 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) 15 of the Act to
determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSE–2014–07 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NYSE–2014–07. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–NYSE–
2014–07 and should be submitted on or
before March 4, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–02876 Filed 2–10–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71483; File No. SR–
NYSEArca–2014–12]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Amending the Fees for
NYSE ArcaBook
February 5, 2014.
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 January
27, 2014, 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 NYSE ArcaBook. The Exchange
proposes to implement the fee changes
effective February 1, 2014. 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.
16 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
15 15
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U.S.C. 78s(b)(2)(B).
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Federal Register / Vol. 79, No. 28 / Tuesday, February 11, 2014 / Notices
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 these statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend the
fees for NYSE ArcaBook. The Exchange
Access fee ................................................................................
Redistribution Fee ....................................................................
Subscriber Fees .......................................................................
The Exchange proposes to increase
the monthly access fee from $750 to
$2,000 and to offer Tape A and B
Securities (including ETFs) and Tape C
Securities (excluding ETFs) for a single
monthly fee of $40 for professional
subscribers and $10 for non-professional
subscribers for display use. The
Exchange would no longer offer separate
pricing for the Tape C Securities
(excluding ETFs) data. The Exchange
has determined not to separately offer
the Tape C option in order to have
greater ease of management. The
Exchange also notes that it has not
increased NYSE ArcaBook access fees or
the subscriber fees for display use since
they were originally proposed in 2006.4
The Exchange proposes to make a
technical change to remove the
operative date for the NYSE ArcaBook
redistribution fee, but does not
otherwise propose any changes to the
NYSE ArcaBook redistribution fee, nonprofessional fee cap, or non-display fees
at this time. The Exchange notes that the
access fee applies to all users of NYSE
ArcaBook, regardless of whether they
elect display, non-display, and/or
managed non-display use.
3 See
SR–NYSEArca–2014–07.
Securities Exchange Act Release No. 59039
(Dec. 2, 2008), 73 FR 74770 (Dec. 9, 2008) (SR–
NYSEArca–2006–21).
5 NetCoalition, 615 F.3d at 535.
6 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.
7 NetCoalition, 615 F.3d at 536.
8 The Exchange believes that cost-based pricing
would be impractical because it would create
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4 See
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proposes to implement the fee changes
effective February 1, 2014.
NYSE ArcaBook is a real-time market
data product that is a compilation of all
limit orders resident in the NYSE Arca
limit order book.3 The Exchange charges
the following monthly display fees for
NYSE ArcaBook:
$750
$1,500
Tape A & B Securities (including ETFs)
Professional: $15
Non-professional: $5.
Tape C Securities (excluding ETFs)
Professional: $15
Non-professional: $5.
Non-professional Fee Cap: $20,000.
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 (DC
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.’ ’’ 5
enormous administrative burdens for all parties,
including the Commission, to cost-regulate a large
number of participants and standardize and analyze
extraordinary amounts of information, accounts,
and reports. In addition, and as described below, it
is impossible to regulate market data prices in
isolation from prices charged by markets for other
services that are joint products. Cost-based rate
regulation would also lead to litigation and may
distort incentives, including those to minimize
costs and to innovate, leading to further waste.
Under cost-based pricing, the Commission would
be burdened with determining a fair rate of return,
and the industry could experience frequent rate
increases based on escalating expense levels. Even
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As explained below in the Exchange’s
Statement on Burden on Competition,
the Exchange believes that there is
substantial evidence of competition in
the marketplace for proprietary market
data and that the Commission can rely
upon such evidence in concluding that
the fees proposed in this filing are the
product of competition and therefore
satisfy the relevant statutory standards.6
In addition, the existence of alternatives
to NYSE ArcaBook, including real-time
consolidated data, free delayed
consolidated data, and proprietary data
from other sources, as described below,
further ensures that the Exchange
cannot set unreasonable fees, or fees
that are unreasonably discriminatory,
when vendors and subscribers can elect
such alternatives.
As the NetCoalition decision noted,
the Commission is not required to
undertake a cost-of-service or
ratemaking approach.7 The Exchange
believes that, even if it were possible as
a matter of economic theory, cost-based
pricing for non-core market data would
be so complicated that it could not be
done practically.8
in industries historically subject to utility
regulation, cost-based ratemaking has been
discredited. As such, the Exchange believes that
cost-based ratemaking would be inappropriate for
proprietary market data and inconsistent with
Congress’s direction that the Commission use its
authority to foster the development of the national
market system, and that market forces will continue
to provide appropriate pricing discipline. See
Appendix C to NYSE’s comments to the
Commission’s 2000 Concept Release on the
Regulation of Market Information Fees and
Revenues, which can be found on the Commission’s
Web site at https://www.sec.gov/rules/concept/
s72899/buck1.htm.
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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,9
in general, and Sections 6(b)(4) and
6(b)(5) of the Act,10 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 11 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,12 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 the
proposed subscriber fees for display use
of NYSE ArcaBook are reasonable
because they are less than subscriber
fees that are currently being charged for
a comparable product by at least one
other exchange.13 The Exchange
believes that the proposed subscriber
fees are equitable and not unfairly
discriminatory because 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
make data more broadly available to
retail customers.14 The Exchange further
believes that continuing to offer NYSE
ArcaBook to non-professional users
with the same data available to
U.S.C. 78f(b).
U.S.C. 78f(b)(4), (5).
11 15 U.S.C. 78k–1.
12 See 17 CFR 242.603.
13 The NASDAQ Stock Market LLC (‘‘NASDAQ’’)
offers NASDAQ Level 2 with NASDAQ OpenView
for a monthly fee of $51 per professional subscriber
for NASDAQ, NYSE, and NYSE MKT issues ($45
for NASDAQ issues plus $6 for NYSE and NYSE
MKT issues) and $10 per non-professional
subscriber for NASDAQ, NYSE, and NYSE MKT
issues ($9 for NASDAQ issues plus $1 for NYSE
and NYSE MKT issues). See NASDAQ Rule 7023(b).
14 See, e.g., Securities Exchange Act Release No.
20002, File No. S7–433 (July 22, 1983) (establishing
non-professional fees for CTA data); NASDAQ
Rules 7023(b), 7047.
professional users results in greater
equity among data recipients.
The proposed access fee for NYSE
ArcaBook also is reasonable because it
is less than or equal to access fees that
are currently charged by other
exchanges for comparable products.15
The Exchange believes that the
proposed access fee for NYSE ArcaBook
is equitable and not unfairly
discriminatory because it will be
charged uniformly to vendors and
subscribers that elect to offer NYSE
ArcaBook, whether for display, nondisplay, and/or managed non-display
use.
The Exchange has not raised the
subscriber fees for display use of NYSE
ArcaBook or access fees for NYSE
ArcaBook since the fees were originally
proposed more than seven years ago, in
2006.16 During this time period, the
Exchange has enhanced NYSE
ArcaBook through delivery upgrades,
and the bandwidth to support NYSE
ArcaBook has increased fivefold. The
Exchange believes that the new fees are
fair and reasonable in light of its
ongoing effort to improve the delivery
technology for market data.
The Exchange also notes that the use
of NYSE ArcaBook is entirely optional.
Firms have a wide variety of alternative
market data products from which to
choose.17 Moreover, the Exchange is not
required to make these proprietary data
products available or to offer any
specific pricing alternatives to any
customers. 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,18 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
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15 The Exchange’s affiliate, NYSE, charges a
monthly access fee of $5,000 for its NYSE
OpenBook product. See Securities Exchange Act
Release No. 69278 (Apr. 2, 2013), 78 FR 20973 (Apr.
8, 2013) (SR–NYSE–2013–25). In addition,
NASDAQ charges a monthly access fee for
NASDAQ Level 2 of $3,000 for NASDAQ, NYSE,
and NYSE MKT issues ($2,000 direct access fee for
NASDAQ issues plus $1,000 direct access fee for
NYSE and NYSE MKT issues). See NASDAQ Rule
7019(b).
16 See Securities Exchange Act Release No. 54597
(Oct. 12, 2006), 71 FR 62029 (Oct. 20, 2006) (SR–
NYSEArca–2006–21).
17 See supra notes 13 and15.
18 15 U.S.C. 78f(b)(8).
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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
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 2011, 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.’’ 19
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.’’ 20
19 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.
20 Concept Release on Equity Market Structure,
Securities Exchange Act Release No. 61358 (Jan. 14,
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In addition, in the case of products
that are distributed through market data
vendors, the market data vendors
themselves provide additional price
discipline for proprietary data products
because they control the primary means
of access to certain end users. These
vendors impose price discipline based
upon their business models. For
example, vendors that assess a
surcharge on data they sell are able to
refuse to offer proprietary products that
their end users do not or will not
purchase in sufficient numbers. Internet
portals, such as Google, impose price
discipline by providing only data that
they believe will enable them to attract
‘‘eyeballs’’ that contribute to their
advertising revenue. Similarly, vendors
will not elect to make available NYSE
ArcaBook unless their subscribers
request it, and subscribers will not elect
to purchase it unless it can be used for
profit-generating purposes. All of these
operate as constraints on pricing
proprietary data products.
Joint Product Nature of Exchange
Platform. Transaction execution and
proprietary data products are
complementary in that market data is
both an input and a byproduct of the
execution service. In fact, market data
and trade executions are a paradigmatic
example of joint products with joint
costs. The decision whether and on
which platform to post an order will
depend on the attributes of the
platforms where the order can be
posted, including the execution fees,
data quality, and price and distribution
of their data products. The more trade
executions a platform does, the more
valuable its market data products
become.
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,
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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and non-core market data are joint
products of a joint platform and have
common costs.21 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.22
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,
21 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 Securities Exchange Act
Release Nos. 71217 (Dec. 31, 2013), 79 FR 875, 877
(Jan. 7, 2014) (SR–NASDAQ–2013–162) and 70945
(Nov. 26, 2013), 78 FR 72740, 72741 (Dec. 3, 2013)
(SR–NASDAQ–2013–142) (‘‘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.’’).
22 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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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 14
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, or 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
E:\FR\FM\11FEN1.SGM
11FEN1
Federal Register / Vol. 79, No. 28 / Tuesday, February 11, 2014 / Notices
tkelley on DSK3SPTVN1PROD with NOTICES
products,23 a market that overprices its
market data products stands a high risk
that users may substitute another source
of market data information for its own.
Those competitive pressures imposed
by available alternatives are evident in
the Exchange’s proposed pricing. As
noted above, the proposed subscriber
and access fees for NYSE ArcaBook are
generally lower than or the same as the
subscriber and access fees charged by
other exchanges such as NYSE and
NASDAQ for comparable products.24
In addition to the competition and
price discipline described above, the
market for proprietary data products is
also highly contestable because market
entry is rapid and inexpensive. The
history of electronic trading is replete
with examples of entrants that swiftly
grew into some of the largest electronic
trading platforms and proprietary data
producers: Archipelago, Bloomberg
Tradebook, Island, RediBook, Attain,
TrackECN, BATS, and Direct Edge.
Today, BATS and Direct Edge provide
certain market data at no charge on their
Web sites in order to attract more order
flow, and use revenue rebates from
resulting additional executions to
maintain low execution charges for their
users.25
Further, data products are valuable to
certain end users only insofar as they
provide information that end users
expect will assist them or their
customers. The Exchange believes that
only vendors and subscribers that
expect to derive a reasonable benefit
from the ArcaBook will choose to pay
the attendant monthly fees.
In establishing the proposed fees, the
Exchange considered the
competitiveness of the market for
proprietary data and all of the
implications of that competition. The
Exchange believes that it has considered
all relevant factors and has not
considered irrelevant factors in order to
establish fair, reasonable, and not
unreasonably discriminatory fees and an
equitable allocation of fees among all
users. The existence of alternatives to
the Exchange’s products, including
proprietary data from other sources,
ensures that the Exchange cannot set
unreasonable fees, or fees that are
unreasonably discriminatory, when
vendors and subscribers can elect these
alternatives or choose not to purchase a
23 See
supra notes 13–15.
24 Id.
25 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.
VerDate Mar<15>2010
17:58 Feb 10, 2014
Jkt 232001
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) 26 of the Act and
subparagraph (f)(2) of Rule 19b–4 27
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
8221
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–2014–12 and should be
submitted on or before March 4, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–02874 Filed 2–10–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
[Release No. 34–71491; File No. SR–Phlx–
2014–06]
• 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–2014–12 on the subject line.
Self-Regulatory Organizations;
NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Pricing for SPY Options
Paper Comments
February 5, 2014.
• 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–2014–12. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
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 January
29, 2014, NASDAQ OMX PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
28 17
26 15
U.S.C. 78s(b)(3)(A).
27 17 CFR 240.19b–4(f)(2).
PO 00000
Frm 00071
Fmt 4703
Sfmt 4703
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\11FEN1.SGM
11FEN1
]]>Agencies
[Federal Register Volume 79, Number 28 (Tuesday, February 11, 2014)]
[Notices]
[Pages 8217-8221]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02874]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71483; File No. SR-NYSEArca-2014-12]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change Amending the Fees
for NYSE ArcaBook
February 5, 2014.
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 January 27, 2014, 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\ 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 NYSE ArcaBook. The
Exchange proposes to implement the fee changes effective February 1,
2014. 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.
[[Page 8218]]
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 these statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the fees for NYSE ArcaBook. The
Exchange proposes to implement the fee changes effective February 1,
2014.
NYSE ArcaBook is a real-time market data product that is a
compilation of all limit orders resident in the NYSE Arca limit order
book.\3\ The Exchange charges the following monthly display fees for
NYSE ArcaBook:
---------------------------------------------------------------------------
\3\ See SR-NYSEArca-2014-07.
------------------------------------------------------------------------
------------------------------------------------------------------------
Access fee............................. $750
Redistribution Fee..................... $1,500
Subscriber Fees........................ Tape A & B Securities
(including ETFs)
Professional: $15
Non-professional: $5.
Tape C Securities (excluding
ETFs)
Professional: $15
Non-professional: $5.
Non-professional Fee Cap:
$20,000.
------------------------------------------------------------------------
The Exchange proposes to increase the monthly access fee from $750
to $2,000 and to offer Tape A and B Securities (including ETFs) and
Tape C Securities (excluding ETFs) for a single monthly fee of $40 for
professional subscribers and $10 for non-professional subscribers for
display use. The Exchange would no longer offer separate pricing for
the Tape C Securities (excluding ETFs) data. The Exchange has
determined not to separately offer the Tape C option in order to have
greater ease of management. The Exchange also notes that it has not
increased NYSE ArcaBook access fees or the subscriber fees for display
use since they were originally proposed in 2006.\4\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 59039 (Dec. 2,
2008), 73 FR 74770 (Dec. 9, 2008) (SR-NYSEArca-2006-21).
---------------------------------------------------------------------------
The Exchange proposes to make a technical change to remove the
operative date for the NYSE ArcaBook redistribution fee, but does not
otherwise propose any changes to the NYSE ArcaBook redistribution fee,
non-professional fee cap, or non-display fees at this time. The
Exchange notes that the access fee applies to all users of NYSE
ArcaBook, regardless of whether they elect display, non-display, and/or
managed non-display use.
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 (DC 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.' '' \5\
---------------------------------------------------------------------------
\5\ 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 proprietary market data and that
the Commission can rely upon such evidence in concluding that the fees
proposed in this filing are the product of competition and therefore
satisfy the relevant statutory standards.\6\ In addition, the existence
of alternatives to NYSE ArcaBook, including real-time consolidated
data, free delayed consolidated data, and proprietary data from other
sources, as described below, further ensures that the Exchange cannot
set unreasonable fees, or fees that are unreasonably discriminatory,
when vendors and subscribers can elect such alternatives.
---------------------------------------------------------------------------
\6\ 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.\7\ The Exchange
believes that, even if it were possible as a matter of economic theory,
cost-based pricing for non-core market data would be so complicated
that it could not be done practically.\8\
---------------------------------------------------------------------------
\7\ NetCoalition, 615 F.3d at 536.
\8\ The Exchange believes that cost-based pricing would be
impractical because it would create enormous administrative burdens
for all parties, including the Commission, to cost-regulate a large
number of participants and standardize and analyze extraordinary
amounts of information, accounts, and reports. In addition, and as
described below, it is impossible to regulate market data prices in
isolation from prices charged by markets for other services that are
joint products. Cost-based rate regulation would also lead to
litigation and may distort incentives, including those to minimize
costs and to innovate, leading to further waste. Under cost-based
pricing, the Commission would be burdened with determining a fair
rate of return, and the industry could experience frequent rate
increases based on escalating expense levels. Even in industries
historically subject to utility regulation, cost-based ratemaking
has been discredited. As such, the Exchange believes that cost-based
ratemaking would be inappropriate for proprietary market data and
inconsistent with Congress's direction that the Commission use its
authority to foster the development of the national market system,
and that market forces will continue to provide appropriate pricing
discipline. See Appendix C to NYSE's comments to the Commission's
2000 Concept Release on the Regulation of Market Information Fees
and Revenues, which can be found on the Commission's Web site at
https://www.sec.gov/rules/concept/s72899/buck1.htm.
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[[Page 8219]]
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\9\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\10\ 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 \11\ 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,\12\ 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.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78f(b).
\10\ 15 U.S.C. 78f(b)(4), (5).
\11\ 15 U.S.C. 78k-1.
\12\ See 17 CFR 242.603.
---------------------------------------------------------------------------
The Exchange believes that the proposed subscriber fees for display
use of NYSE ArcaBook are reasonable because they are less than
subscriber fees that are currently being charged for a comparable
product by at least one other exchange.\13\ The Exchange believes that
the proposed subscriber fees are equitable and not unfairly
discriminatory because 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 make data more broadly available to retail
customers.\14\ The Exchange further believes that continuing to offer
NYSE ArcaBook to non-professional users with the same data available to
professional users results in greater equity among data recipients.
---------------------------------------------------------------------------
\13\ The NASDAQ Stock Market LLC (``NASDAQ'') offers NASDAQ
Level 2 with NASDAQ OpenView for a monthly fee of $51 per
professional subscriber for NASDAQ, NYSE, and NYSE MKT issues ($45
for NASDAQ issues plus $6 for NYSE and NYSE MKT issues) and $10 per
non-professional subscriber for NASDAQ, NYSE, and NYSE MKT issues
($9 for NASDAQ issues plus $1 for NYSE and NYSE MKT issues). See
NASDAQ Rule 7023(b).
\14\ See, e.g., Securities Exchange Act Release No. 20002, File
No. S7-433 (July 22, 1983) (establishing non-professional fees for
CTA data); NASDAQ Rules 7023(b), 7047.
---------------------------------------------------------------------------
The proposed access fee for NYSE ArcaBook also is reasonable
because it is less than or equal to access fees that are currently
charged by other exchanges for comparable products.\15\ The Exchange
believes that the proposed access fee for NYSE ArcaBook is equitable
and not unfairly discriminatory because it will be charged uniformly to
vendors and subscribers that elect to offer NYSE ArcaBook, whether for
display, non-display, and/or managed non-display use.
---------------------------------------------------------------------------
\15\ The Exchange's affiliate, NYSE, charges a monthly access
fee of $5,000 for its NYSE OpenBook product. See Securities Exchange
Act Release No. 69278 (Apr. 2, 2013), 78 FR 20973 (Apr. 8, 2013)
(SR-NYSE-2013-25). In addition, NASDAQ charges a monthly access fee
for NASDAQ Level 2 of $3,000 for NASDAQ, NYSE, and NYSE MKT issues
($2,000 direct access fee for NASDAQ issues plus $1,000 direct
access fee for NYSE and NYSE MKT issues). See NASDAQ Rule 7019(b).
---------------------------------------------------------------------------
The Exchange has not raised the subscriber fees for display use of
NYSE ArcaBook or access fees for NYSE ArcaBook since the fees were
originally proposed more than seven years ago, in 2006.\16\ During this
time period, the Exchange has enhanced NYSE ArcaBook through delivery
upgrades, and the bandwidth to support NYSE ArcaBook has increased
fivefold. The Exchange believes that the new fees are fair and
reasonable in light of its ongoing effort to improve the delivery
technology for market data.
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 54597 (Oct. 12,
2006), 71 FR 62029 (Oct. 20, 2006) (SR-NYSEArca-2006-21).
---------------------------------------------------------------------------
The Exchange also notes that the use of NYSE ArcaBook is entirely
optional. Firms have a wide variety of alternative market data products
from which to choose.\17\ Moreover, the Exchange is not required to
make these proprietary data products available or to offer any specific
pricing alternatives to any customers. For these reasons, the Exchange
believes that the proposed fees are reasonable, equitable, and not
unfairly discriminatory.
---------------------------------------------------------------------------
\17\ See supra notes 13 and15.
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\18\ 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.
---------------------------------------------------------------------------
\18\ 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 2011,
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.'' \19\
---------------------------------------------------------------------------
\19\ 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.'' \20\
---------------------------------------------------------------------------
\20\ 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.
---------------------------------------------------------------------------
[[Page 8220]]
In addition, in the case of products that are distributed through
market data vendors, the market data vendors themselves provide
additional price discipline for proprietary data products because they
control the primary means of access to certain end users. These vendors
impose price discipline based upon their business models. For example,
vendors that assess a surcharge on data they sell are able to refuse to
offer proprietary products that their end users do not or will not
purchase in sufficient numbers. Internet portals, such as Google,
impose price discipline by providing only data that they believe will
enable them to attract ``eyeballs'' that contribute to their
advertising revenue. Similarly, vendors will not elect to make
available NYSE ArcaBook unless their subscribers request it, and
subscribers will not elect to purchase it unless it can be used for
profit-generating purposes. All of these operate as constraints on
pricing proprietary data products.
Joint Product Nature of Exchange Platform. Transaction execution
and proprietary data products are complementary in that market data is
both an input and a byproduct of the execution service. In fact, market
data and trade executions are a paradigmatic example of joint products
with joint costs. The decision whether and on which platform to post an
order will depend on the attributes of the platforms where the order
can be posted, including the execution fees, data quality, and price
and distribution of their data products. The more trade executions a
platform does, the more valuable its market data products become.
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.\21\
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.\22\
---------------------------------------------------------------------------
\21\ 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 Securities Exchange
Act Release Nos. 71217 (Dec. 31, 2013), 79 FR 875, 877 (Jan. 7,
2014) (SR-NASDAQ-2013-162) and 70945 (Nov. 26, 2013), 78 FR 72740,
72741 (Dec. 3, 2013) (SR-NASDAQ-2013-142) (``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.'').
\22\ 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.'').
---------------------------------------------------------------------------
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 14 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, or 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
[[Page 8221]]
products,\23\ a market that overprices its market data products stands
a high risk that users may substitute another source of market data
information for its own.
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\23\ See supra notes 13-15.
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Those competitive pressures imposed by available alternatives are
evident in the Exchange's proposed pricing. As noted above, the
proposed subscriber and access fees for NYSE ArcaBook are generally
lower than or the same as the subscriber and access fees charged by
other exchanges such as NYSE and NASDAQ for comparable products.\24\
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\24\ Id.
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In addition to the competition and price discipline described
above, the market for proprietary data products is also highly
contestable because market entry is rapid and inexpensive. The history
of electronic trading is replete with examples of entrants that swiftly
grew into some of the largest electronic trading platforms and
proprietary data producers: Archipelago, Bloomberg Tradebook, Island,
RediBook, Attain, TrackECN, BATS, and Direct Edge. Today, BATS and
Direct Edge provide certain market data at no charge on their Web sites
in order to attract more order flow, and use revenue rebates from
resulting additional executions to maintain low execution charges for
their users.\25\
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\25\ 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 certain end users only
insofar as they provide information that end users expect will assist
them or their customers. The Exchange believes that only vendors and
subscribers that expect to derive a reasonable benefit from the
ArcaBook will choose to pay the attendant monthly fees.
In establishing the proposed fees, the Exchange considered the
competitiveness of the market for proprietary data and all of the
implications of that competition. The Exchange believes that it has
considered all relevant factors and has not considered irrelevant
factors in order to establish fair, reasonable, and not unreasonably
discriminatory fees and an equitable allocation of fees among all
users. The existence of alternatives to the Exchange's products,
including proprietary data from other sources, ensures that the
Exchange cannot set unreasonable fees, or fees that are unreasonably
discriminatory, when vendors and subscribers can elect these
alternatives or choose not to purchase a specific proprietary data
product if its cost to purchase is not justified by the returns any
particular vendor or subscriber would achieve through the purchase.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \26\ of the Act and subparagraph (f)(2) of Rule
19b-4 \27\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\26\ 15 U.S.C. 78s(b)(3)(A).
\27\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2014-12 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-2014-12. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the 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-2014-12 and should
be submitted on or before March 4, 2014.
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\28\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-02874 Filed 2-10-14; 8:45 am]
BILLING CODE 8011-01-P
