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]
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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
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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 (https://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 (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 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).
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U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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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).
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8 15
U.S.C. 78f(b)(4), (5).
615 F.3d at 535.
9 NetCoalition,
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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 https://www.sec.gov/rules/concept/
s72899/buck1.htm.
13 15 U.S.C. 78f(b)(8).
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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 https://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.
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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
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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.’’).
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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.
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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 (https://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 (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 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
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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 https://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
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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]
-----------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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
https://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 https://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.
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\21\ 15 U.S.C. 78s(b)(3)(A).
\22\ 17 CFR 240.19b-4(f)(2).
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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.
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\23\ 15 U.S.C. 78s(b)(2)(B).
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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-2014-34 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 (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 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\
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\24\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2014-08686 Filed 4-16-14; 8:45 am]
BILLING CODE 8011-01-P
