Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Professional User Fees for NYSE Arca Options Market Data, Operative on April 1, 2014, 21821-21825 [2014-08686]

Download as PDF Federal Register / Vol. 79, No. 74 / Thursday, April 17, 2014 / Notices 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, TrackECN, BATS, and Direct Edge. Two new options exchanges have been approved by the SEC in the last two years alone.20 In establishing the proposed fees, the Exchange considered the competitiveness of the market for proprietary options data and all of the implications of that competition. The Exchange believes that it has considered all relevant factors and has not considered irrelevant factors in order to establish fair, reasonable, and not unreasonably discriminatory fees and an equitable allocation of fees among all users. The existence of numerous alternatives to the Exchange’s products, including 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. TKELLEY on DSK3SPTVN1PROD with NOTICES 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) 21 of the Act and subparagraph (f)(2) of Rule 19b–4 22 thereunder, because it establishes a due, fee, or other charge imposed by the Exchange. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings supra note 18. U.S.C. 78s(b)(3)(A). 22 17 CFR 240.19b–4(f)(2). under Section 19(b)(2)(B) 23 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments VerDate Mar<15>2010 17:28 Apr 16, 2014 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Jill M. Peterson, Assistant Secretary. [FR Doc. 2014–08687 Filed 4–16–14; 8:45 am] 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 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71933; File No. SR–NYSEARCA–2014–34] • 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– NYSEMKT–2014–30 on the subject line. Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Professional User Fees for NYSE Arca Options Market Data, Operative on April 1, 2014 Paper Comments April 11, 2014. • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEMKT–2014–30. 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 Section, 100 F Street NE., Washington, DC 20549–1090. Copies of the filing will also be available for inspection and copying at the NYSE’s principal office and on its Internet Web site at www.nyse.com. 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– NYSEMKT–2014–30 and should be submitted on or before May 8, 2014. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on March 31, 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. 20 See I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Professional User fees for NYSE Arca Options market data, operative on April 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. 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, 1 15 21 15 23 15 U.S.C. 78s(b)(2)(B). 24 17 CFR 200.30–3(a)(12). Jkt 232001 21821 PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 U.S.C. 78s(b)(1). U.S.C. 78a. 3 17 CFR 240.19b–4. 2 15 E:\FR\FM\17APN1.SGM 17APN1 21822 Federal Register / Vol. 79, No. 74 / Thursday, April 17, 2014 / Notices in general, and Sections 6(b)(4) and 6(b)(5) of the Act,8 in particular, in that it provides an equitable allocation of reasonable fees among users and A. Self-Regulatory Organization’s recipients of the data and is not Statement of the Purpose of, and the designed to permit unfair Statutory Basis for, the Proposed Rule discrimination among customers, Change issuers, and brokers. 1. Purpose The Exchange believes that the proposed change is reasonable because The Exchange proposes to amend the it returns Professional User fees to the Professional User fees for NYSE Arca Options market data, operative on April level that was charged from October 2012 to May 2013. The current tiered 1, 2014. pricing structure has not encouraged On October 1, 2012, the Exchange sufficient customers to provide access to began offering the following real-time options market data products: ArcaBook the Exchange’s market data to a greater for Arca Options—Trades, ArcaBook for number of Professional Users as the Exchange anticipated. The proposed fee Arca Options—Top of Book, ArcaBook is equitable and not unfairly for Arca Options—Depth of Book, discriminatory because the same fee ArcaBook for Arca Options—Complex, will be charged to all Professional Users. ArcaBook for Arca Options—Series The Exchange also notes that Status, and ArcaBook for Arca Options—Order Imbalance (collectively, purchasing Arca Options Products is entirely optional. Firms are not required ‘‘Arca Options Products’’).4 Fees cover to purchase them and have a wide all six products.5 From that time until variety of alternative options market May 1, 2013, the Exchange charged data products from which to choose. Professional Users $50 per month for each User per Source for the receipt and Moreover, the Exchange is not required to make these proprietary data products use of the Arca Options Products. available or to offer any specific pricing Effective May 1, 2013, the Exchange alternatives to any customers. introduced the following tiered fee The decision of the United States structure for display usage by Professional Users based on the number Court of Appeals for the District of Columbia Circuit in NetCoalition v. of users: 6 SEC, 615 F.3d 525 (D.C. Cir. 2010), upheld reliance by the Securities and Fee per Professional users professional user Exchange Commission (‘‘Commission’’) upon the existence of competitive 1–50 .............................. $50 market mechanisms to set reasonable 51–100 .......................... 35 101+ .............................. 20 and equitably allocated fees for proprietary market data: Because the tiered pricing has not In fact, the legislative history indicates that encouraged customers to provide access the Congress intended that the market system ‘evolve through the interplay of competitive to the Exchange’s market data to a forces as unnecessary regulatory restrictions greater number of Professional Users as are removed’ and that the SEC wield its anticipated, the Exchange proposes to regulatory power ‘in those situations where return to the flat fee of $50 per month competition may not be sufficient,’ such as for each Professional User. The in the creation of a ‘consolidated Exchange does not propose to make any transactional reporting system.’ other changes to the fees for Arca Id. at 535 (quoting H.R. Rep. No. 94–229 Options Products. at 92 (1975), as reprinted in 1975 2. Statutory Basis U.S.C.C.A.N. 323). The court agreed with the Commission’s conclusion that The Exchange believes that the proposed rule change is consistent with ‘‘Congress intended that ‘competitive forces should dictate the services and the provisions of Section 6 of the Act,7 practices that constitute the U.S. 4 See Securities Exchange Act Release No. 67720 national market system for trading (Aug. 23, 2012), 77 FR 52769 (Aug. 30, 2012) (SR– equity securities.’ ’’ 9 The Exchange NYSEArca–2012–89). believes that this is also true with 5 See SR–NYSEArca–2013–41 (establishing a fee respect to options markets. schedule) and Securities Exchange Act Release No. As explained below in the Exchange’s 68005 (Oct. 9, 2012), 77 FR 63362 (Oct. 16, 2012) Statement on Burden on Competition, (SR–NYSEArca–2012–106) (establishing fees for Arca Options Products). Arca Options Products are the Exchange believes that there is not offered with separate fees for the individual substantial evidence of competition in underlying products. the marketplace for data and that the 6 See Securities Exchange Act Release No. 69554 TKELLEY on DSK3SPTVN1PROD with NOTICES set forth in sections A, B, and C below, of the most significant parts of such statements. (May 10, 2013), 78 FR 28917 (May 16, 2013) (SR– NYSEArca–2013–47). 7 15 U.S.C. 78f(b). VerDate Mar<15>2010 17:28 Apr 16, 2014 Jkt 232001 8 15 U.S.C. 78f(b)(4), (5). 615 F.3d at 535. 9 NetCoalition, PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 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.10 In addition, the existence of alternatives to these data products, such as options 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.11 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.12 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,13 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. 10 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. 11 NetCoalition, 615 F.3d at 536. 12 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 http://www.sec.gov/rules/concept/ s72899/buck1.htm. 13 15 U.S.C. 78f(b)(8). E:\FR\FM\17APN1.SGM 17APN1 Federal Register / Vol. 79, No. 74 / Thursday, April 17, 2014 / Notices TKELLEY on DSK3SPTVN1PROD with NOTICES An exchange’s ability to price its proprietary data products is constrained by actual competition for the sale of proprietary data products, the joint product nature of exchange platforms, and the existence of alternatives to the Exchange’s proprietary data. The Existence of Actual Competition. The market for proprietary options data products is currently competitive and inherently contestable because there is fierce competition for the inputs necessary for the creation of proprietary data and strict pricing discipline to the proprietary products themselves. Numerous exchanges compete with each other for options trades and sales of options 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 options market data. Proprietary options data products are produced and distributed by each individual exchange, as well as other entities, in a vigorously competitive market. Competitive markets for order flow, executions, and transaction reports provide pricing discipline for the inputs of proprietary options data products and therefore constrain markets from overpricing proprietary market data. The U.S. Department of Justice 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.’’ 14 Similarly, the options markets vigorously compete with respect to options data products.15 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. 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 14 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 http://www.justice.gov/iso/opa/atr/ speeches/2011/at-speech-110516.html. 15 See, e.g., Securities Exchange Act Release No. 67466 (July 19, 2012), 77 FR 43629 (July 25, 2012) (SR–Phlx–2012–93), which describes a variety of options market data products and their pricing. VerDate Mar<15>2010 17:28 Apr 16, 2014 Jkt 232001 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. Vendors will not elect to make available the Arca Options Products unless their customers request it, and data recipients with Professional Users will not elect to purchase them unless they 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 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 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. Further, data products are valuable to many end-users only insofar as they provide information that endusers expect will assist them in making trading decisions. In that respect, the Exchange believes that the Arca Options Products offer options market data information that is useful for professionals in making trading decisions. The costs of producing market data include not only the costs of the data distribution infrastructure, but also the costs of designing, maintaining, and operating the exchange’s transaction execution platform and the cost of regulating the exchange to ensure its fair operation and maintain investor confidence. The total return that a trading platform earns reflects the revenues it receives from both products and the joint costs it incurs. Moreover, an exchange’s 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.16 The Exchange also 16 See Securities Exchange Act Release No. 62887 (Sept. 10, 2010), 75 FR 57092, 57095 (Sept. 17, 2010) (SR–Phlx–2010–121); Securities Exchange PO 00000 Frm 00113 Fmt 4703 Sfmt 4703 21823 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.17 Analyzing the cost of market data product production and distribution in isolation from the cost of all of the inputs supporting the creation of market data and market data products will inevitably underestimate the cost of the data and data products. Thus, because it is impossible to obtain the data inputs to create market data products without a fast, technologically robust, and wellregulated execution system, system costs and regulatory costs affect the price of both obtaining the market data itself and creating and distributing market data products. It would be equally misleading, however, to attribute all of an exchange’s costs to the market data portion of an exchange’s joint products. Rather, all of an exchange’s costs are incurred for the unified purposes of attracting order flow, executing and/or routing orders, and generating and selling data about market activity. The total return that an exchange earns reflects the revenues it receives from the joint products and the total costs of the joint products. 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.’’). 17 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.’’). E:\FR\FM\17APN1.SGM 17APN1 TKELLEY on DSK3SPTVN1PROD with NOTICES 21824 Federal Register / Vol. 79, No. 74 / Thursday, April 17, 2014 / Notices The level of competition and contestability in the market is evident in the numerous alternative venues that compete for order flow, including 12 self-regulatory organization (‘‘SRO’’) options markets, two of which were approved in the last two years.18 The Exchange believes that these new entrants demonstrate that competition is robust. Each SRO market competes to produce transaction reports via trade executions. Competition among trading platforms can be expected to constrain the aggregate return that each platform earns from the sale of its joint products, but different platforms may choose from a range of possible, and equally reasonable, pricing strategies as the means of recovering total costs. For example, some platforms may choose to pay rebates to attract orders, charge relatively low prices for market data products (or provide market data products free of charge), and charge relatively high prices for accessing posted liquidity. Other platforms may choose a strategy of paying lower rebates (or no rebates) to attract orders, setting relatively high prices for market data products, and setting relatively low prices for accessing posted liquidity. In this environment, there is no economic basis for regulating maximum prices for one of the joint products in an industry in which suppliers face competitive constraints with regard to the joint offering. Existence of Alternatives. The large number of SROs that currently produce proprietary data or are currently capable of producing it provides further pricing discipline for proprietary data products. Each SRO is currently permitted to produce proprietary data products, and many currently do or have announced plans to do so, including but not limited to the Exchange; NYSE MKT LLC; Chicago Board Options Exchange, Incorporated; C2 Options Exchange, Incorporated; International Securities Exchange, LLC; NASDAQ; Phlx; BX; BATS Exchange, Inc. (‘‘BATS’’); and Miami International Securities Exchange LLC. Because market data users can thus find suitable substitutes for most proprietary market data products,19 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. In addition to the competition and price discipline described above, the 18 See Securities Exchange Act Release Nos. 70050 (July 26, 2013), 78 FR 46622 (August 1, 2013) (File No. 10–209) and 68341 (December 3, 2012), 77 FR 73065 ((December 7, 2012) (File No. 10–207). 19 See supra note 15. VerDate Mar<15>2010 17:28 Apr 16, 2014 Jkt 232001 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, TrackECN, BATS, and Direct Edge. Two new options exchanges have been approved by the SEC in the last two years alone.20 In establishing the proposed fees, the Exchange considered the competitiveness of the market for proprietary options data and all of the implications of that competition. The Exchange believes that it has considered all relevant factors and has not considered irrelevant factors in order to establish fair, reasonable, and not unreasonably discriminatory fees and an equitable allocation of fees among all users. The existence of numerous alternatives to the Exchange’s products, including 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) 21 of the Act and subparagraph (f)(2) of Rule 19b–4 22 thereunder, because it establishes a due, fee, or other charge imposed by the Exchange. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the 20 See supra note 18. U.S.C. 78s(b)(3)(A). 22 17 CFR 240.19b–4(f)(2). Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 23 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: 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– NYSEARCA–2014–34 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEARCA–2014–34. 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, 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 will also be available for inspection and copying at the NYSE’s principal office and on its Internet Web site at www.nyse.com. 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 21 15 PO 00000 Frm 00114 Fmt 4703 Sfmt 4703 23 15 E:\FR\FM\17APN1.SGM U.S.C. 78s(b)(2)(B). 17APN1 Federal Register / Vol. 79, No. 74 / Thursday, April 17, 2014 / Notices should refer to File Number SR– NYSEARCA–2014–34 and should be submitted on or before May 8, 2014. principal office of the Exchange, and at the Commission’s Public Reference Room. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Jill M. Peterson, Assistant Secretary. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements. [FR Doc. 2014–08686 Filed 4–16–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–71936; File No. SR–BYX– 2014–006] Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use of BATS Y-Exchange, Inc. April 11, 2014. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 8, 2014, BATS Y-Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange has designated the proposed rule change as one establishing or changing a member due, fee, or other charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change TKELLEY on DSK3SPTVN1PROD with NOTICES The Exchange filed a proposal to amend the fee schedule applicable to Members 5 and non-members of the Exchange pursuant to BYX Rules 15.1(a) and (c). Changes to the fee schedule pursuant to this proposal are effective upon filing. The text of the proposed rule change is available at the Exchange’s Web site at http://www.batstrading.com, at the 24 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 5 A Member is defined as ‘‘any registered broker or dealer that has been admitted to membership in the Exchange.’’ See Exchange Rule 1.5(n). 1 15 VerDate Mar<15>2010 17:28 Apr 16, 2014 Jkt 232001 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to modify its fee schedule applicable to use of the Exchange in order to modify the way that, for purposes of tiered pricing, the Exchange calculates ADAV and average daily TCV (as such terms are defined below). Currently, the Exchange determines the liquidity adding fee that it charges Members pursuant to the Exchange’s tiered pricing structure by excluding from the calculation of ADAV 6 and average daily TCV 7 any day that an Exchange Outage occurs. An Exchange Outage is defined as any day that trading is not available on the Exchange for more than sixty (60) minutes during regular trading hours 8 but continues on other markets during such time.9 The Exchange proposes to modify the definition of Exchange Outage to include situations where the Exchange experiences a systems disruption that lasts for more than 60 6 As provided in the fee schedule, ‘‘ADAV’’ means average daily volume calculated as the number of shares added per day on a monthly basis; routed shares are not included in ADAV calculation. 7 As provided in the fee schedule, ‘‘TCV’’ means total consolidated volume calculated as the volume reported by all exchanges and trade reporting facilities to a consolidated transaction reporting plan for the month for which the fees apply. 8 The term ‘‘regular trading hours’’ means the ‘‘time between 9:30 a.m. and 4:00 p.m. Eastern Time.’’ See Exchange Rule 1.5(w). 9 The Exchange notes that it also excludes the last Friday of June from the calculation of ADAV and average daily TCV. The last day of June is the day that Russell Investments reconstitutes its family of indexes (‘‘Russell Reconstitution’’), resulting in particularly high trading volumes, much of which the Exchange believes derives from market participants who are not generally as active entering the market to rebalance their holdings in-line with the Russell Reconstitution. PO 00000 Frm 00115 Fmt 4703 Sfmt 4703 21825 minutes during regular trading hours, even if such disruption would not be categorized as a complete outage of the Exchange’s system, and to rename it as an ‘‘Exchange System Disruption.’’ 10 As an example, an Exchange System Disruption may occur where a certain group of securities (i.e., securities in a select symbol range such as A through C) traded on the Exchange is unavailable for trading due to an Exchange system issue. Similarly, the Exchange may be able to perform certain functions with respect to accepting and processing orders, but may have a failure to another significant process, such as routing to other market centers, that would lead Members that rely on such process to avoid utilizing the Exchange until the Exchange’s entire system was operational. The Exchange believes that this modification is reasonable because the intent of the current Exchange Outage exclusion has always been to avoid penalizing Members that might otherwise qualify for certain tiered pricing but that, because of a significant Exchange system problem, did not participate on the Exchange to the extent that they might have otherwise participated. The Exchange believes that certain systems disruptions could preclude some Members from submitting orders to the Exchange even if such issue is not actually a complete systems outage. The Exchange notes that it is not proposing to modify any of the existing fees or the percentage thresholds at which a Member may qualify for certain fee reductions pursuant to the tiered pricing structure. Rather, as mentioned above, the Exchange is proposing to modify its fee schedule to exclude trading activity occurring on any day that the Exchange experiences an Exchange System Disruption. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6 of the Act.11 Specifically, the Exchange believes that the proposed rule change is consistent with Section 6(b)(4) of the Act,12 in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and other 10 See SR–BATS–2014–010 (proposing to exclude Exchange System Disruptions from the definitions of ADAV, ADV and average TCV). 11 15 U.S.C. 78f. 12 15 U.S.C. 78f(b)(4). E:\FR\FM\17APN1.SGM 17APN1

Agencies

[Federal Register Volume 79, Number 74 (Thursday, April 17, 2014)]
[Notices]
[Pages 21821-21825]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-08686]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71933; File No. SR-NYSEARCA-2014-34]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the 
Professional User Fees for NYSE Arca Options Market Data, Operative on 
April 1, 2014

April 11, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on March 31, 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Professional User fees for NYSE 
Arca Options market data, operative on April 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.

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,

[[Page 21822]]

set forth in sections A, B, and C below, of the most significant parts 
of such statements.

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

1. Purpose
    The Exchange proposes to amend the Professional User fees for NYSE 
Arca Options market data, operative on April 1, 2014.
    On October 1, 2012, the Exchange began offering the following real-
time options market data products: ArcaBook for Arca Options--Trades, 
ArcaBook for Arca Options--Top of Book, ArcaBook for Arca Options--
Depth of Book, ArcaBook for Arca Options--Complex, ArcaBook for Arca 
Options--Series Status, and ArcaBook for Arca Options--Order Imbalance 
(collectively, ``Arca Options Products'').\4\ Fees cover all six 
products.\5\ From that time until May 1, 2013, the Exchange charged 
Professional Users $50 per month for each User per Source for the 
receipt and use of the Arca Options Products. Effective May 1, 2013, 
the Exchange introduced the following tiered fee structure for display 
usage by Professional Users based on the number of users: \6\
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    \4\ See Securities Exchange Act Release No. 67720 (Aug. 23, 
2012), 77 FR 52769 (Aug. 30, 2012) (SR-NYSEArca-2012-89).
    \5\ See SR-NYSEArca-2013-41 (establishing a fee schedule) and 
Securities Exchange Act Release No. 68005 (Oct. 9, 2012), 77 FR 
63362 (Oct. 16, 2012) (SR-NYSEArca-2012-106) (establishing fees for 
Arca Options Products). Arca Options Products are not offered with 
separate fees for the individual underlying products.
    \6\ See Securities Exchange Act Release No. 69554 (May 10, 
2013), 78 FR 28917 (May 16, 2013) (SR-NYSEArca-2013-47).

------------------------------------------------------------------------
                                                            Fee per
                 Professional users                    professional user
------------------------------------------------------------------------
1-50................................................                 $50
51-100..............................................                  35
101+................................................                  20
------------------------------------------------------------------------

    Because the tiered pricing has not encouraged customers to provide 
access to the Exchange's market data to a greater number of 
Professional Users as anticipated, the Exchange proposes to return to 
the flat fee of $50 per month for each Professional User. The Exchange 
does not propose to make any other changes to the fees for Arca Options 
Products.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\7\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\8\ in particular, in that it 
provides an equitable allocation of reasonable fees among users and 
recipients of the data and is not designed to permit unfair 
discrimination among customers, issuers, and brokers.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed change is reasonable 
because it returns Professional User fees to the level that was charged 
from October 2012 to May 2013. The current tiered pricing structure has 
not encouraged sufficient customers to provide access to the Exchange's 
market data to a greater number of Professional Users as the Exchange 
anticipated. The proposed fee is equitable and not unfairly 
discriminatory because the same fee will be charged to all Professional 
Users.
    The Exchange also notes that purchasing Arca Options Products is 
entirely optional. Firms are not required to purchase them and have a 
wide variety of alternative options market data products from which to 
choose. Moreover, the Exchange is not required to make these 
proprietary data products available or to offer any specific pricing 
alternatives to any customers.
    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 
2010), upheld reliance by the Securities and Exchange Commission 
(``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.' '' \9\ The Exchange 
believes that this is also true with respect to options markets.
---------------------------------------------------------------------------

    \9\ NetCoalition, 615 F.3d at 535.
---------------------------------------------------------------------------

    As explained below in the Exchange's Statement on Burden on 
Competition, the Exchange believes that there is substantial evidence 
of competition in the marketplace for data and that the Commission can 
rely upon such evidence in concluding that the fees proposed in this 
filing are the product of competition and therefore satisfy the 
relevant statutory standards.\10\ In addition, the existence of 
alternatives to these data products, such as options 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.
---------------------------------------------------------------------------

    \10\ 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.\11\ 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.\12\
---------------------------------------------------------------------------

    \11\ NetCoalition, 615 F.3d at 536.
    \12\ 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 
http://www.sec.gov/rules/concept/s72899/buck1.htm.
---------------------------------------------------------------------------

    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,\13\ 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.

[[Page 21823]]

An exchange's ability to price its proprietary data products is 
constrained by actual competition for the sale of proprietary data 
products, the joint product nature of exchange platforms, and the 
existence of alternatives to the Exchange's proprietary data.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Existence of Actual Competition. The market for proprietary 
options data products is currently competitive and inherently 
contestable because there is fierce competition for the inputs 
necessary for the creation of proprietary data and strict pricing 
discipline to the proprietary products themselves. Numerous exchanges 
compete with each other for options trades and sales of options 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 options market data. 
Proprietary options data products are produced and distributed by each 
individual exchange, as well as other entities, in a vigorously 
competitive market.
    Competitive markets for order flow, executions, and transaction 
reports provide pricing discipline for the inputs of proprietary 
options data products and therefore constrain markets from overpricing 
proprietary market data. The U.S. Department of Justice 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.'' \14\ Similarly, the options markets 
vigorously compete with respect to options data products.\15\ 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.
---------------------------------------------------------------------------

    \14\ 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 http://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html.
    \15\ See, e.g., Securities Exchange Act Release No. 67466 (July 
19, 2012), 77 FR 43629 (July 25, 2012) (SR-Phlx-2012-93), which 
describes a variety of options market data products and their 
pricing.
---------------------------------------------------------------------------

    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. Vendors will not elect to make 
available the Arca Options Products unless their customers request it, 
and data recipients with Professional Users will not elect to purchase 
them unless they 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 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 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. 
Further, data products are valuable to many end-users only insofar as 
they provide information that end-users expect will assist them in 
making trading decisions. In that respect, the Exchange believes that 
the Arca Options Products offer options market data information that is 
useful for professionals in making trading decisions.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. The total return that a 
trading platform earns reflects the revenues it receives from both 
products and the joint costs it incurs. Moreover, an exchange's 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.\16\ 
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.\17\
---------------------------------------------------------------------------

    \16\ 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.'').
    \17\ 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.

[[Page 21824]]

    The level of competition and contestability in the market is 
evident in the numerous alternative venues that compete for order flow, 
including 12 self-regulatory organization (``SRO'') options markets, 
two of which were approved in the last two years.\18\ The Exchange 
believes that these new entrants demonstrate that competition is 
robust.
---------------------------------------------------------------------------

    \18\ See Securities Exchange Act Release Nos. 70050 (July 26, 
2013), 78 FR 46622 (August 1, 2013) (File No. 10-209) and 68341 
(December 3, 2012), 77 FR 73065 ((December 7, 2012) (File No. 10-
207).
---------------------------------------------------------------------------

    Each SRO market competes to produce transaction reports via trade 
executions. Competition among trading platforms can be expected to 
constrain the aggregate return that each platform earns from the sale 
of its joint products, but different platforms may choose from a range 
of possible, and equally reasonable, pricing strategies as the means of 
recovering total costs. For example, some platforms may choose to pay 
rebates to attract orders, charge relatively low prices for market data 
products (or provide market data products free of charge), and charge 
relatively high prices for accessing posted liquidity. Other platforms 
may choose a strategy of paying lower rebates (or no rebates) to 
attract orders, setting relatively high prices for market data 
products, and setting relatively low prices for accessing posted 
liquidity. In this environment, there is no economic basis for 
regulating maximum prices for one of the joint products in an industry 
in which suppliers face competitive constraints with regard to the 
joint offering.
    Existence of Alternatives. The large number of SROs that currently 
produce proprietary data or are currently capable of producing it 
provides further pricing discipline for proprietary data products. Each 
SRO is currently permitted to produce proprietary data products, and 
many currently do or have announced plans to do so, including but not 
limited to the Exchange; NYSE MKT LLC; Chicago Board Options Exchange, 
Incorporated; C2 Options Exchange, Incorporated; International 
Securities Exchange, LLC; NASDAQ; Phlx; BX; BATS Exchange, Inc. 
(``BATS''); and Miami International Securities Exchange LLC. Because 
market data users can thus find suitable substitutes for most 
proprietary market data products,\19\ 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.
---------------------------------------------------------------------------

    \19\ See supra note 15.
---------------------------------------------------------------------------

    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, TrackECN, BATS, and Direct Edge. Two new 
options exchanges have been approved by the SEC in the last two years 
alone.\20\
---------------------------------------------------------------------------

    \20\ See supra note 18.
---------------------------------------------------------------------------

    In establishing the proposed fees, the Exchange considered the 
competitiveness of the market for proprietary options data and all of 
the implications of that competition. The Exchange believes that it has 
considered all relevant factors and has not considered irrelevant 
factors in order to establish fair, reasonable, and not unreasonably 
discriminatory fees and an equitable allocation of fees among all 
users. The existence of numerous alternatives to the Exchange's 
products, including 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) \21\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \22\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \23\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEARCA-2014-34 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEARCA-2014-34. 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, 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 will also be available 
for inspection and copying at the NYSE's principal office and on its 
Internet Web site at www.nyse.com. 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

[[Page 21825]]

should refer to File Number SR-NYSEARCA-2014-34 and should be submitted 
on or before May 8, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-08686 Filed 4-16-14; 8:45 am]
BILLING CODE 8011-01-P