Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Fees for NYSE OpenBook, 2148-2154 [2015-00530]

Download as PDF 2148 Federal Register / Vol. 80, No. 10 / Thursday, January 15, 2015 / Notices the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Brent J. Fields, Secretary. IV. Solicitation of Comments [FR Doc. 2015–00528 Filed 1–14–15; 8:45 am] BILLING CODE 8011–01–P 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– BX–2015–002 on the subject line. Paper Comments rljohnson on DSK3VPTVN1PROD with NOTICES • 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–BX–2015–002. 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 such filing also will be available for inspection and copying at the principal offices of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–BX– 2015–002, and should be submitted on or before February 5, 2015. VerDate Sep<11>2014 14:13 Jan 14, 2015 Jkt 235001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74027; File No. SR–NYSE– 2014–76] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Fees for NYSE OpenBook January 9, 2015. 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 December 31, 2014, New York Stock Exchange LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the selfregulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the fees for NYSE OpenBook to: (1) Change the way the user fee is calculated and applied, operative on January 1, 2015; (2) establish eligibility requirements for redistribution on a managed nondisplay basis and an access fee for managed non-display data recipients, operative on January 1, 2015; and (3) increase the fee cap for redistributor internal support use, operative on March 1, 2015. 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 17 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00057 Fmt 4703 Sfmt 4703 statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend the fees for NYSE OpenBook,4 as set forth on the NYSE Proprietary Market Data Fee Schedule (‘‘Fee Schedule’’), as follows: • To change the way the user fees are calculated and applied by eliminating the unit-of-count policy, operative on January 1, 2015; • To establish eligibility requirements for redistribution of market data on a Managed Non-Display basis and establish an access fee for Managed Non-Display data recipients, operative on January 1, 2015; and • To increase the fee cap for redistributor internal support use, operative on March 1, 2015. Changes to the Method of Calculating and Applying User Fees For display use of the NYSE OpenBook data feed, the Fee Schedule sets forth a Professional User Fee of $60 per month or a Non-Professional User Fee of $15 per month.5 These user fees generally apply to each display device that has access to NYSE OpenBook. Vendors and subscribers that are eligible for the Unit-of-Count Policy may avail themselves of an alternative method for counting how many user fees should be charged for display use of the NYSE OpenBook data feed. The Unit-of-Count Policy was first introduced as an NYSE OpenBook pilot in 2009.6 Since April 2013, the Unit-ofCount Policy has applied only to user fees associated with display usage.7 4 See Securities Exchange Act Release Nos. 59544 (Mar. 9, 2009), 74 FR 11162 (Mar. 16, 2009) (SR– NYSE–2008–131) and 62038 (May 5, 2010), 75 FR 26825 (May 12, 2010) (SR–NYSE–2010–22) (‘‘Unitof-Count Policy filings’’). See also Securities Exchange Act Release Nos. 69278 (Apr. 2, 2013), 78 FR 20973 (April 8, 2013) (SR–2013–25) and 72923 (Aug. 26, 2014), 79 FR 52079 (Sept. 2, 2014) (SR– NYSE–2014–43) (‘‘Non-Display Fee filings’’). 5 A $25,000 per month cap on non-professional user fees applies to broker-dealers only. 6 See Unit-of-Count Policy filings supra note 4. 7 Existing customers approved for the Unit-ofCount Policy for display usage have continued to follow the Policy in anticipation of new display fees being implemented. E:\FR\FM\15JAN1.SGM 15JAN1 Federal Register / Vol. 80, No. 10 / Thursday, January 15, 2015 / Notices The effect of the Unit-of-Count Policy for these subscribers is that a single user fee applies to individual users that receive multiple display device services, i.e. multiple devices displaying NYSE OpenBook, referred to as ‘‘netting.’’ The Exchange proposes to retire the Unit-ofCount Policy effective January 1, 2015. As a result, as of January 1, 2015, subscribers that are currently eligible for ‘‘netting’’ under the Unit-of-Count Policy would pay the user fee for each display device that has access to NYSE OpenBook, even if a single user is receiving NYSE OpenBook over multiple devices, as well as all other applicable fees set forth on the Fee Schedule.8 rljohnson on DSK3VPTVN1PROD with NOTICES Proposed Changes to Managed NonDisplay Services and Fees Non-Display Use of NYSE market data means accessing, processing, or consuming NYSE market data delivered via direct and/or Redistributor 9 data feeds for a purpose other than in support of a data recipient’s display or further internal or external redistribution. A Redistributor approved for Managed Non-Display Services manages and controls the access to NYSE OpenBook and does not allow for further internal distribution or external redistribution of NYSE OpenBook by the data recipients. Managed NonDisplay Services Fees apply when a data recipient’s non-display applications are hosted by a Redistributor that has been approved for Managed Non-Display Services. A Redistributor approved for Managed Non-Display Services is required to report to the Exchange on a monthly basis the data recipients that are receiving NYSE OpenBook through the Redistributor’s Managed NonDisplay Service. A data recipient receiving NYSE OpenBook through a Redistributor’s Managed Non-Display Service does not have any reporting requirements. Currently, to be approved for Managed Non-Display Services, a Redistributor of the Managed NonDisplay Services must be approved under the Unit-of-Count policy.10 In connection with the retirement of the 8 The Unit-of-Count Policy is available for NYSE OpenBook, NYSE Trades and NYSE BBO as a method for counting users. The Exchange is proposing to retire the Unit-of-Count Policy with respect to all of these products and thereby harmonize the methods for counting users among all NYSE data products. See SR–NYSE–2014–75. 9 ‘‘Redistributor’’ means a vendor or any other person that provides an NYSE data product to a data recipient or to any system that a data recipient uses, irrespective of the means of transmission or access. 10 See Unit-of-Count Policy filings, supra note 4. VerDate Sep<11>2014 14:13 Jan 14, 2015 Jkt 235001 Unit-of-Count Policy, eligibility for Managed Non-Display Services of NYSE Open Book would no longer be based on eligibility under the Unit-of-Count Policy. The Exchange proposes instead to establish eligibility requirements specifically for the redistribution of market data for Managed Non-Display Services. The Exchange also proposes to add an access fee that would apply to a data recipient that receives NYSE Open Book from an approved Redistributor of Managed Non-Display Services. The proposed eligibility requirements for the provision of Managed NonDisplay Services would be similar to the eligibility requirements for the Unit-ofCount Policy in that they would require the Redistributor to manage and control the access to NYSE OpenBook for data recipients’ non-display applications and not allow for further internal distribution or external redistribution of the information by data recipients. In addition, to be eligible to provide Managed Non-Display Services, the Redistributor would be required to (a) host the data recipients’ non-display applications in equipment located in the Redistributor’s data center and/or hosted space/cage and (b) offer NYSE OpenBook in the Redistributor’s own messaging formats (rather than using raw NYSE message formats) by reformatting and/or altering NYSE OpenBook prior to retransmission without affecting the integrity of NYSE OpenBook and without rendering NYSE OpenBook inaccurate, unfair, uninformative, fictitious, misleading or discriminatory. The proposed eligibility requirements are similar to data distribution models currently in use and align the Exchange with other markets.11 The reporting requirements associated with the Managed Non-Display Service would not change. A Redistributor approved for Managed Non-Display Service would be required to report to the Exchange on a monthly basis the data recipients that are receiving NYSE OpenBook through the Redistributor’s Managed Non-Display Service. A data 11 See Securities Exchange Act Release Nos. 70748 (Oct. 23, 2013), 70748 (Oct. 23, 2013), 78 FR 64569 (Oct. 29, 2013) (SR–Phlx–2013–105) (notice of filing and immediate effectiveness of proposed rule change to establish non-display Managed Data Solution for NASDAQ OMX PHLX (‘‘Phlx’’)); 70269 (Aug. 27, 2013), 78 FR 54336 (Sept. 3, 2013) (SR– NASDAQ–2013–106) (notice of filing and immediate effectiveness of proposed rule change to establish non-display Managed Data Solution for the NASDAQ Stock Market (‘‘NASDAQ’’)); and 69182 (Mar. 19, 2013), 78 FR 18378 (Mar. 26, 2013) (SR–Phlx–2013–28) (notice of filing and immediate effectiveness of proposed rule change to establish non-display Managed Data Solution for Phlx equities market PSX). PO 00000 Frm 00058 Fmt 4703 Sfmt 4703 2149 recipient receiving NYSE OpenBook through a Redistributor’s Managed NonDisplay Service would continue not to have any reporting requirements. In addition, the Exchange proposes to adopt an Access Fee of $2,500/month applicable only to data recipients that receive NYSE OpenBook from an approved Redistributor of Managed Non-Display Services, operative January 1, 2015. Currently, data recipients are required to pay an Access Fee of $5,000/ month to receive NYSE OpenBook, which has not been charged to data recipients of Managed Non-Display Services of NYSE OpenBook. Because the purpose of an access fee is to charge data recipients for access to the Exchange’s proprietary market data, the Exchange believes it is appropriate to charge an access fee to all data recipients, including recipients of Managed Non-Display Services.12 In recognition that data recipients of Managed Non-Display Services receive NYSE OpenBook in a controlled format, the Exchange proposes to establish an Access Fee that would be applicable only to data recipients of Managed NonDisplay Services and that would be half the size of the current Access Fee. In connection with this change, the Exchange also proposes to amend the Fee Schedule to specify that the current Access Fee of $5,000/month is charged to data recipients other than those receiving data through Managed NonDisplay Services. The proposed Managed Non-Display Access fee would be in addition to the current Managed Non-Display Services Fee of $2,400/ month by each data recipient. Proposed Redistributor Internal Support User Fee Cap The Exchange proposes to increase the Redistributor Support Fee Cap to $3,000/month, the equivalent of fees payable for 50 Professional Users per month, effective as of March 1, 2015, and to add the Redistributor Support Fee Cap to the Fee Schedule. This increases the fee cap from $1,500/ month, as set by the Exchange in 2009.13 Specifically, the cap on user fees would apply to a Redistributor’s internal users who receive the NYSE OpenBook data feed and provide support to the Redistributor of the NYSE 12 In order to harmonize its approach to fees for its market data products, the Exchange is proposing to establish an access fee for Managed Non-Display Services for NYSE BBO, NYSE Trades, and NYSE Order Imbalance t that are also half of the existing access fee for each respective data feed. See SR– NYSE–2014–75 and SR–NYSE–2014–77. 13 See Securities Exchange Act Release No. 59898 (May 11, 2009), 74 FR 22989 (May 14, 2009) (SR– NYSE–2009–37). One customer is currently paying the cap for Redistributor internal use. E:\FR\FM\15JAN1.SGM 15JAN1 2150 Federal Register / Vol. 80, No. 10 / Thursday, January 15, 2015 / Notices OpenBook data feed in the areas of customer service, data quality, development, software product management, product development, programming, technical operations, technical support, and sales. These internal users would be required to be located on the Redistributor’s premises or to access NYSE OpenBook only on the Redistributor’s platform. Internal users using NYSE OpenBook in connection with trading, investment advice, newsroom activities, research, algorithmic programming for trading systems, free trials/sales promotions, personal use, or to perform any other functions not related to the provision of support functions to the Redistributor’s external customers would not be included in the Redistributor Support Fee Cap.14 Redistributors would have to request that their Professional User Fees related to such internal support functions be counted towards the Redistributor Support Fee Cap. To be eligible for the fee cap, a Redistributor would have to provide the Exchange with a list of all employees who would be reported as eligible internal users, and to include in the list the job functions of the employees and explanations of their use of NYSE OpenBook. The Exchange reserves the right under its contracts with Redistributors to monitor use closely and be provided with updated lists of employees, their job functions and their use of NYSE OpenBook, upon request. If an employee’s use of NYSE OpenBook does not meet the requirements of internal support function described above, it would not be eligible for the Redistributor Support Fee Cap and would be charged a separate Professional User Fee. The proposed Redistributor Support Fee Cap would be operative March 1, 2015. 2. Statutory Basis rljohnson on DSK3VPTVN1PROD with NOTICES The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,15 in general, and Sections 6(b)(4) and 6(b)(5) of the Act,16 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 14 See Nasdaq Global Data Policies, Oct. 10, 2014, https://www.nasdaqtrader.com/content/ AdministrationSupport/AgreementsData/data policies.pdf (last visited Dec. 15, 2014), ‘‘NonBillable: Internal Administrative Usage Policy,’’ which establishes similar standards for internal administrative usage on a non-billable basis. 15 15 U.S.C. 78f(b). 16 15 U.S.C. 78f(b)(4), (5). VerDate Sep<11>2014 14:13 Jan 14, 2015 Jkt 235001 discrimination among customers, issuers, and brokers. The Exchange believes that it is reasonable to retire the Unit-of-Count Policy. First, as evidenced by the low number of eligible subscribers, the Unitof-Count Policy is not currently considered useful to market data recipients as a method for counting users. In addition, as the Exchange noted in the 2013 Non-Display Filing, the Exchange determined at that time that its fee structure, which was based primarily on counting devices, both display and non-display, and included the Unit-of-Count Policy, was no longer appropriate in light of market and technology developments. In addition to implementing the non-display pricing to address the difficulties of counting nondisplay devices, and to reflect the value of non-display data to customers, the Exchange noted that it anticipated implementing a new display use fee structure later. Retiring the Unit-ofCount Policy, which now applies only to display use, would allow the Exchange to apply a consistent method for counting users among all customers using NYSE OpenBook, whether on a display or non-display basis. The Exchange believes that revising the eligibility requirements for Managed Non-Display Services so that the requirements are more closely aligned with the nature of the services being provided is reasonable. The proposed additional requirements for hosting in the Redistributor’s data center and for reformatting and/or altering the market data prior to retransmission are also consistent with similar requirements of other markets for the provision of managed data.17 The Exchange believes that the proposed Access Fee for Managed NonDisplay Services is reasonable, because the data is of value to recipients, and it is reasonable to charge them a lower access fee because they are receiving the data through a Redistributor in a controlled form rather than from the Exchange in raw form. The Exchange believes that the proposed fee directly and appropriately reflects the significant value of using non-display data in a wide range of computer-automated functions relating to both trading and non-trading activities and that the number and range of these functions continue to grow through innovation and technology developments. The NASDAQ and Phlx also both offer managed non-display data solutions and charge access fees for such services.18 17 See supra note 11. supra note 11. NASDAQ offers a Managed Data Solution that assesses a monthly Managed 18 See PO 00000 Frm 00059 Fmt 4703 Sfmt 4703 The fee is also equitable and not unfairly discriminatory because it would apply to all data recipients that choose to subscribe to Managed NonDisplay Services for NYSE OpenBook. The Exchange believes that it is reasonable to raise the Redistributor Support Fee Cap. The purpose of the Professional User Fee is to charge for each use of NYSE OpenBook data feed. The Exchange believes it is appropriate to charge user fees for employees who provide internal support functions at Redistributors because the business model of Redistributors is distributing data, and as a related function, providing support functions for such distribution of data. Accordingly, the internal support functions at a Redistributor contribute to the value that such Redistributors provide to their own customers, and are therefore an integral part of a Redistributor’s business model. While such internal use is a value to a Redistributor and its customers, the Exchange recognizes that internal support functions differ from other uses of NYSE OpenBook, which is why the Exchange provides for a Redistributor Support Fee Cap. The Exchange believes it is reasonable to increase the fee cap to reflect the value that such support functions serve within a Redistributor. While the NYSE anticipates that only the largest vendors would devote sufficient personnel to administrative functions to take advantage of the proposed increased fee cap, in the Exchange’s view, limiting the fee exposure of its largest vendors does not unreasonably discriminate against other vendors under Section 603(a)(2) of Regulation NMS. The fees are also equitable and not unfairly discriminatory because they will apply to all data recipients that choose to subscribe to the feeds. The Exchange notes that NYSE OpenBook is entirely optional. The Exchange is not required to make NYSE OpenBook available or to offer any specific pricing alternatives to any customers, nor is any firm required to purchase NYSE OpenBook. Firms that do purchase NYSE OpenBook do so for the primary goals of using it to increase revenues, reduce expenses, and in some Data Solution Administration fee of $1,500 and monthly Subscriber fees of $60 for nonprofessionals to $300 for professionals. See NASDAQ Rule 7026(b). Phlx charges a monthly Managed Data Solution Administration fee of $2,000 and a monthly Subscriber fee of $500. The monthly License fee is in addition to the monthly Distributor fee of $3,500 (for external usage), and the $500 monthly Subscriber fee is assessed for each Subscriber of a Managed Data Solution. See Securities Exchange Act Release No. 70748 (Oct. 23, 2013), 78 FR 64569 (Oct. 29, 2013) (SR–Phlx–2013– 105). E:\FR\FM\15JAN1.SGM 15JAN1 Federal Register / Vol. 80, No. 10 / Thursday, January 15, 2015 / Notices instances compete directly with the Exchange (including for order flow); those firms are able to determine for themselves whether NYSE OpenBook or any other similar products are attractively priced or not. Firms that do not wish to purchase NYSE OpenBook at the new prices have a variety of alternative market data products from which to choose,19 or if NYSE OpenBook does not provide sufficient value to firms as offered based on the uses those firms have or planned to make of it, such firms may simply choose to conduct their business operations in ways that do not use NYSE OpenBook. The Exchange notes that broker-dealers are not required to purchase proprietary market data to comply with their best execution obligations.20 Similarly, there is no requirement in Regulation NMS or any other rule that proprietary data be utilized for order routing decisions, and some broker-dealers and alternative trading systems (‘‘ATSs’’) have chosen not to do so.21 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.’ rljohnson on DSK3VPTVN1PROD with NOTICES 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 19 See NASDAQ Rule 7023 (Nasdaq Totalview) and BATS Rule 11.22(a) and (c) (BATS TCP Pitch and Multicast Pitch). 20 See In the Matter of the Application of Securities Industry And Financial Markets Association For Review of Actions Taken by SelfRegulatory Organizations, Release Nos. 34–72182; AP–3–15350; AP–3–15351 (May 16, 2014). 21 For example, Goldman Sachs Execution and Clearing, L.P. has disclosed that it does not use proprietary market data in connection with Sigma X, its ATS. See response to Question E3, available at https://www.goldmansachs.com/media-relations/ in-the-news/current/pdf-media/gsec-orderhandling-practices-ats-specific.pdf. By way of comparison, IEX has disclosed that it uses proprietary market data feeds from all registered stock exchanges and the LavaFlow ECN. See https://www.iextrading.com/about/. VerDate Sep<11>2014 14:13 Jan 14, 2015 Jkt 235001 practices that constitute the U.S. national market system for trading equity securities.’ ’’ 22 As explained below in the Exchange’s Statement on Burden on Competition, the Exchange believes that there is substantial evidence of competition in the marketplace for proprietary market data and that the Commission can rely upon such evidence in concluding that the fees established in this filing are the product of competition and therefore satisfy the relevant statutory standards. In addition, the existence of alternatives to these data products, such as consolidated data and proprietary data from other sources, as described below, further ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when vendors and subscribers can select such alternatives. As the NetCoalition decision noted, the Commission is not required to undertake a cost-of-service or ratemaking approach. 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 or offer any significant benefits.23 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 The Exchange does not believe that the proposed rule change will impose 22 NetCoalition, 615 F.3d at 535. Exchange believes that cost-based pricing would be impractical because it would create enormous administrative burdens for all parties and 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. 23 The PO 00000 Frm 00060 Fmt 4703 Sfmt 4703 2151 any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. An exchange’s ability to price its proprietary market data feed products is constrained by actual competition for the sale of proprietary market 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 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 for the proprietary products themselves. Numerous exchanges compete with one another for listings and order flow and sales of market data itself, providing ample opportunities for entrepreneurs who wish to compete in any or all of those areas, including producing and distributing their own market data. Proprietary data products are produced and distributed by each individual exchange, as well as other entities, in a vigorously competitive market. Indeed, the U.S. Department of Justice (‘‘DOJ’’) (the primary antitrust regulator) has expressly acknowledged the aggressive actual competition among exchanges, including for the sale of proprietary market data. In 2011, the DOJ stated that exchanges ‘‘compete head to head to offer real-time equity data products. These data products include the best bid and offer of every exchange and information on each equity trade, including the last sale.’’ 24 Moreover, competitive markets for listings, order flow, executions, and transaction reports provide pricing discipline for the inputs of proprietary data products and therefore constrain markets from overpricing proprietary market data. Broker-dealers send their order flow and transaction reports to multiple venues, rather than providing them all to a single venue, which in turn reinforces this competitive constraint. As a 2010 Commission Concept Release noted, the ‘‘current market structure can be described as dispersed and complex’’ with ‘‘trading volume . . . dispersed 24 Press Release, U.S. Department of Justice, Assistant Attorney General Christine Varney Holds Conference Call Regarding NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning Their Bid for NYSE Euronext (May 16, 2011), available at https://www.justice.gov/iso/opa/atr/ speeches/2011/at-speech-110516.html; see also Complaint in U.S. v. Deutsche Borse AG and NYSE Euronext, Case No. 11-cv-2280 (DC Dist.) ¶ 24 (‘‘NYSE and Direct Edge compete head-to-head . . . in the provision of real-time proprietary equity data products.’’). E:\FR\FM\15JAN1.SGM 15JAN1 2152 Federal Register / Vol. 80, No. 10 / Thursday, January 15, 2015 / Notices rljohnson on DSK3VPTVN1PROD with NOTICES among many highly automated trading centers that compete for order flow in the same stocks’’ and ‘‘trading centers offer[ing] a wide range of services that are designed to attract different types of market participants with varying trading needs.’’ 25 More recently, SEC Chair Mary Jo White has noted that competition for order flow in exchangelisted equities is ‘‘intense’’ and divided among many trading venues, including exchanges, more than 40 alternative trading systems, and more than 250 broker-dealers.26 If an exchange succeeds in its competition for quotations, order flow, and trade executions, then it earns trading revenues and increases the value of its proprietary market data products because they will contain greater quote and trade information. Conversely, if an exchange is less successful in attracting quotes, order flow, and trade executions, then its market data products may be less desirable to customers using them in support of order routing and trading decisions in light of the diminished content; data products offered by competing venues may become correspondingly more attractive. Thus, competition for quotations, order flow, and trade executions puts significant pressure on an exchange to maintain both execution and data fees at reasonable levels. In addition, in the case of products that are also redistributed through market data vendors, such as Bloomberg and Thompson Reuters, the 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 25 Concept Release on Equity Market Structure, Securities Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21, 2010) (File No. S7–02– 10). This Concept Release included data from the third quarter of 2009 showing that no market center traded more than 20% of the volume of listed stocks, further evidencing the dispersal of and competition for trading activity. Id. at 3598. Data available on ArcaVision show that from June 30, 2013 to June 30, 2014, no exchange traded more than 12% of the volume of listed stocks by either trade or dollar volume, further evidencing the continued dispersal of and fierce competition for trading activity. See https://www.arcavision.com/ Arcavision/arcalogin.jsp. 26 Mary Jo White, Enhancing Our Equity Market Structure, Sandler O’Neill & Partners, L.P. Global Exchange and Brokerage Conference (June 5, 2014) (available on the Commission Web site), citing Tuttle, Laura, 2014, ‘‘OTC Trading: Description of Non-ATS OTC Trading in National Market System Stocks,’’ at 7–8. VerDate Sep<11>2014 14:13 Jan 14, 2015 Jkt 235001 will not elect to make available NYSE OpenBook unless their customers request it, and customers will not elect to pay the proposed fees unless NYSE OpenBook can provide value by sufficiently increasing revenues or reducing costs in the customer’s business in a manner that will offset the fees. All of these factors 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, proprietary market data and trade executions are a paradigmatic example of joint products with joint costs. The decision of 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 availability and quality, and price and distribution of data products. Without a platform to post quotations, receive orders, and execute trades, exchange data products would not exist. 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 platform for posting quotes, accepting orders, and executing transactions 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 brokerdealer customers generally view the costs of transaction executions and market data as a unified cost of doing business with the exchange. A brokerdealer will only choose to direct orders to an exchange if the revenue from the transaction exceeds its cost, including the cost of any market data that the broker-dealer chooses to buy in support of its order routing and trading decisions. If the costs of the transaction are not offset by its value, then the broker-dealer may choose instead not to purchase the product and trade away from that exchange. There is substantial evidence of the strong correlation between order flow and market data purchases. For example, in November 2014 more than 80% of the transaction volume on each of NYSE and NYSE’s affiliates NYSE Arca, Inc. (‘‘NYSE Arca’’) and NYSE MKT LLC (‘‘NYSE MKT’’) was executed by market participants that purchased one or more PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 proprietary market data products (the 20 firms were not the same for each market). A supra-competitive increase in the fees for either executions or market data would create a risk of reducing an exchange’s revenues from both products. Other market participants have noted that proprietary market data and trade executions are joint products of a joint platform and have common costs.27 The Exchange agrees with and adopts those discussions and the arguments therein. The Exchange also notes that the economics literature confirms that there is no way to allocate common costs between joint products that would shed any light on competitive or efficient pricing.28 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 because it is impossible to obtain the data inputs to create market data products without a fast, technologically robust, and wellregulated execution system, and system 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. 27 See Securities Exchange Act Release No. 72153 (May 12, 2014), 79 FR 28575, 28578 n.15 (May 16, 2014) (SR–NASDAQ–2014–045) (‘‘[A]ll 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 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). 28 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\15JAN1.SGM 15JAN1 Federal Register / Vol. 80, No. 10 / Thursday, January 15, 2015 / Notices rljohnson on DSK3VPTVN1PROD with NOTICES 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. As noted above, the level of competition and contestability in the market is evident in the numerous alternative venues that compete for order flow, including 12 equities selfregulatory organization (‘‘SRO’’) markets, as well as various forms of ATSs, including dark pools and electronic communication networks (‘‘ECNs’’), and internalizing brokerdealers. SRO markets compete to attract order flow and produce transaction reports via trade executions, and two FINRA-regulated Trade Reporting Facilities compete to attract transaction reports from the non-SRO venues.29 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 trading 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. For example, BATS and Direct Edge, which previously operated as ATSs and obtained exchange status in 2008 and 2010, respectively, have provided certain market data at no charge on their Web sites in order to attract more order flow, and use revenue rebates from resulting additional executions to maintain low execution charges for their users.30 Similarly, LavaFlow ECN provides market data to its subscribers at no charge.31 In this environment, 29 FINRA’s Alternative Display Facility also receives over-the-counter trade reports that it sends to CTA. 30 This is simply a securities market-specific example of the well-established principle that in certain circumstances more sales at lower margins can be more profitable than fewer sales at higher margins; this example is additional evidence that market data is an inherent part of a market’s joint platform. 31 See ‘‘LavaFlow—ADF Migration,’’ available at https://www.lavatrading.com/news/pdf/LavaFlow_ ADF_Migration.pdf. VerDate Sep<11>2014 14:13 Jan 14, 2015 Jkt 235001 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, ATSs, and internalizing broker-dealers that currently produce proprietary data or are currently capable of producing it provides further pricing discipline for proprietary data products. Each SRO, ATS, and broker-dealer is currently permitted to produce and sell proprietary data products, and many currently do or have announced plans to do so, including but not limited to the Exchange, NYSE MKT, NYSE Arca, NASDAQ OMX, BATS, and Direct Edge. The fact that proprietary data from ATSs, internalizing broker-dealers, and vendors can bypass SROs is significant in two respects. First, non-SROs can compete directly with SROs for the production and sale of proprietary data products. By way of example, BATS and NYSE Arca both published proprietary data on the Internet before registering as exchanges. Second, because a single order or transaction report can appear in an SRO proprietary product, a non-SRO proprietary product, or both, the amount of data available via proprietary products is greater in size than the actual number of orders and transaction reports that exist in the marketplace. With respect to NYSE OpenBook, competitors offer close substitute products.32 Because market data users can find suitable substitutes for most proprietary market data products, a market that overprices its market data products stands a high risk that users may substitute another source of market data information for its own. Those competitive pressures imposed by available alternatives are evident in the Exchange’s proposed pricing. In addition to the competition and price discipline described above, the market for proprietary data products is also highly contestable because market entry is rapid and inexpensive. The history of electronic trading is replete with examples of entrants that swiftly grew into some of the largest electronic trading platforms and proprietary data producers: Archipelago, Bloomberg Tradebook, Island, RediBook, Attain, TrackECN, BATS Trading and Direct Edge. As noted above, BATS launched as an ATS in 2006 and became an exchange in 2008, while Direct Edge began operations in 2007 and obtained exchange status in 2010. As noted 32 See PO 00000 supra note 19. Frm 00062 Fmt 4703 Sfmt 4703 2153 above, LavaFlow ECN provides market data to its subscribers at no charge.33 In setting the proposed fees, the Exchange considered the competitiveness of the market for proprietary data and all of the implications of that competition. The Exchange believes that it has considered all relevant factors and has not considered irrelevant factors in order to establish fair, reasonable, and not unreasonably discriminatory fees and an equitable allocation of fees among all users. The existence of numerous alternatives to the Exchange’s products, including 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 the attendant fees are not justified by the returns that any particular vendor or data recipient 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)34 of the Act and subparagraph (f)(2) of Rule 19b–4 35 thereunder, because it establishes a due, fee, or other charge imposed by the Exchange. At any time within 60 days of the filing of such proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 36 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 33 See supra note 31. U.S.C. 78s(b)(3)(A). 35 17 CFR 240.19b–4(f)(2). 36 15 U.S.C. 78s(b)(2)(B). 34 15 E:\FR\FM\15JAN1.SGM 15JAN1 2154 Federal Register / Vol. 80, No. 10 / Thursday, January 15, 2015 / Notices 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: Brent J. Fields, Secretary. [FR Doc. 2015–00530 Filed 1–14–15; 8:45 am] BILLING CODE 8011–01–P Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSE–2014–76 on the subject line. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–74025; File No. SR–EDGA– 2014–36] • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. rljohnson on DSK3VPTVN1PROD with NOTICES Paper Comments Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Related to Fees for Use of EDGA Exchange, Inc. January 9, 2015. All submissions should refer to File Number SR–NYSE–2014–76. 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 Web site viewing and printing 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–NYSE– 2014–76 and should be submitted on or before February 5, 2015. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.37 37 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 14:13 Jan 14, 2015 Jkt 235001 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 December 30, 2014, EDGA Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGA’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III 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 Substance of the Proposed Rule Change The Exchange filed a proposal to amend its fees and rebates applicable to Members 5 of the Exchange pursuant to EDGA Rule 15.1(a) and (c) (‘‘Fee Schedule’’) to amend: (i) The definitions of Average Daily Trading Volume (‘‘ADV’’) and Total Consolidated Volume (‘‘TCV’’) to exclude shares on each day from January 12, 2015 up to and including January 16, 2015; (ii) increase the annual Membership fee from $2,000 to $2,500; (iii) eliminate the Trading Rights Fee and Market 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 5 The term ‘‘Member’’ is defined as ‘‘any registered broker or dealer, or any person associated with a registered broker or dealer, that has been admitted to membership in the Exchange. A Member will have the status of a ‘‘member’’ of the Exchange as that term is defined in Section 3(a)(3) of the Act.’’ See Exchange Rule 1.5(n). 2 17 PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 Participant Identifier (‘‘MPID’’) Fee; and (iv) make a number of non-substantive amendments and clarifications. The text of the proposed rule change is available at the Exchange’s Web site at https://www.directedge.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 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. 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 its Fee Schedule to amend: (i) The definitions of ADV and TCV to exclude shares on each day from January 12, 2015 up to and including January 16, 2015; (ii) increase the annual Membership fee from $2,000 to $2,500; (iii) eliminate the Trading Rights Fee and MPID Fee; and (iv) make a number of non-substantive amendments and clarifications. ADV and TCV Definitions Earlier this year, the Exchange and its affiliate, EDGX Exchange, Inc. (‘‘EDGX’’) received approval to effect a merger (the ‘‘Merger’’) of the Exchange’s parent company, Direct Edge Holdings LLC, with BATS Global Markets, Inc., the parent of BATS (together with BATS, EDGA and EDGX, the ‘‘BGM Affiliated Exchanges’’).6 In the context of the Merger, the BGM Affiliated Exchanges are working to migrate EDGX and EDGA onto the BATS technology platform, and align certain system functionality, retaining only intended differences between the BGM Affiliated Exchanges. The migration is currently scheduled for the week of January 12, 2015. Currently, the Exchange determines the tiered pricing that it will provide to Members based on the Exchange’s tiered 6 See Securities Exchange Act Release No. 71449 (January 30, 2014), 79 FR 6961 (February 5, 2014) (SR–EDGX–2013–43; SR–EDGA–2013–34). E:\FR\FM\15JAN1.SGM 15JAN1

Agencies

[Federal Register Volume 80, Number 10 (Thursday, January 15, 2015)]
[Notices]
[Pages 2148-2154]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-00530]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74027; File No. SR-NYSE-2014-76]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending the Fees for NYSE OpenBook

 January 9, 2015.
    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 December 31, 2014, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the fees for NYSE OpenBook to: (1) 
Change the way the user fee is calculated and applied, operative on 
January 1, 2015; (2) establish eligibility requirements for 
redistribution on a managed non-display basis and an access fee for 
managed non-display data recipients, operative on January 1, 2015; and 
(3) increase the fee cap for redistributor internal support use, 
operative on March 1, 2015. The text of the proposed rule change is 
available on the Exchange's Web site at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend the fees for NYSE OpenBook,\4\ as 
set forth on the NYSE Proprietary Market Data Fee Schedule (``Fee 
Schedule''), as follows:
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    \4\ See Securities Exchange Act Release Nos. 59544 (Mar. 9, 
2009), 74 FR 11162 (Mar. 16, 2009) (SR-NYSE-2008-131) and 62038 (May 
5, 2010), 75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22) (``Unit-of-
Count Policy filings''). See also Securities Exchange Act Release 
Nos. 69278 (Apr. 2, 2013), 78 FR 20973 (April 8, 2013) (SR-2013-25) 
and 72923 (Aug. 26, 2014), 79 FR 52079 (Sept. 2, 2014) (SR-NYSE-
2014-43) (``Non-Display Fee filings'').
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     To change the way the user fees are calculated and applied 
by eliminating the unit-of-count policy, operative on January 1, 2015;
     To establish eligibility requirements for redistribution 
of market data on a Managed Non-Display basis and establish an access 
fee for Managed Non-Display data recipients, operative on January 1, 
2015; and
     To increase the fee cap for redistributor internal support 
use, operative on March 1, 2015.
Changes to the Method of Calculating and Applying User Fees
    For display use of the NYSE OpenBook data feed, the Fee Schedule 
sets forth a Professional User Fee of $60 per month or a Non-
Professional User Fee of $15 per month.\5\ These user fees generally 
apply to each display device that has access to NYSE OpenBook.
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    \5\ A $25,000 per month cap on non-professional user fees 
applies to broker-dealers only.
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    Vendors and subscribers that are eligible for the Unit-of-Count 
Policy may avail themselves of an alternative method for counting how 
many user fees should be charged for display use of the NYSE OpenBook 
data feed. The Unit-of-Count Policy was first introduced as an NYSE 
OpenBook pilot in 2009.\6\ Since April 2013, the Unit-of-Count Policy 
has applied only to user fees associated with display usage.\7\
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    \6\ See Unit-of-Count Policy filings supra note 4.
    \7\ Existing customers approved for the Unit-of-Count Policy for 
display usage have continued to follow the Policy in anticipation of 
new display fees being implemented.

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[[Page 2149]]

    The effect of the Unit-of-Count Policy for these subscribers is 
that a single user fee applies to individual users that receive 
multiple display device services, i.e. multiple devices displaying NYSE 
OpenBook, referred to as ``netting.'' The Exchange proposes to retire 
the Unit-of-Count Policy effective January 1, 2015. As a result, as of 
January 1, 2015, subscribers that are currently eligible for 
``netting'' under the Unit-of-Count Policy would pay the user fee for 
each display device that has access to NYSE OpenBook, even if a single 
user is receiving NYSE OpenBook over multiple devices, as well as all 
other applicable fees set forth on the Fee Schedule.\8\
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    \8\ The Unit-of-Count Policy is available for NYSE OpenBook, 
NYSE Trades and NYSE BBO as a method for counting users. The 
Exchange is proposing to retire the Unit-of-Count Policy with 
respect to all of these products and thereby harmonize the methods 
for counting users among all NYSE data products. See SR-NYSE-2014-
75.
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Proposed Changes to Managed Non-Display Services and Fees
    Non-Display Use of NYSE market data means accessing, processing, or 
consuming NYSE market data delivered via direct and/or Redistributor 
\9\ data feeds for a purpose other than in support of a data 
recipient's display or further internal or external redistribution. A 
Redistributor approved for Managed Non-Display Services manages and 
controls the access to NYSE OpenBook and does not allow for further 
internal distribution or external redistribution of NYSE OpenBook by 
the data recipients. Managed Non-Display Services Fees apply when a 
data recipient's non-display applications are hosted by a Redistributor 
that has been approved for Managed Non-Display Services.
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    \9\ ``Redistributor'' means a vendor or any other person that 
provides an NYSE data product to a data recipient or to any system 
that a data recipient uses, irrespective of the means of 
transmission or access.
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    A Redistributor approved for Managed Non-Display Services is 
required to report to the Exchange on a monthly basis the data 
recipients that are receiving NYSE OpenBook through the Redistributor's 
Managed Non-Display Service. A data recipient receiving NYSE OpenBook 
through a Redistributor's Managed Non-Display Service does not have any 
reporting requirements.
    Currently, to be approved for Managed Non-Display Services, a 
Redistributor of the Managed Non-Display Services must be approved 
under the Unit-of-Count policy.\10\ In connection with the retirement 
of the Unit-of-Count Policy, eligibility for Managed Non-Display 
Services of NYSE Open Book would no longer be based on eligibility 
under the Unit-of-Count Policy. The Exchange proposes instead to 
establish eligibility requirements specifically for the redistribution 
of market data for Managed Non-Display Services. The Exchange also 
proposes to add an access fee that would apply to a data recipient that 
receives NYSE Open Book from an approved Redistributor of Managed Non-
Display Services.
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    \10\ See Unit-of-Count Policy filings, supra note 4.
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    The proposed eligibility requirements for the provision of Managed 
Non-Display Services would be similar to the eligibility requirements 
for the Unit-of-Count Policy in that they would require the 
Redistributor to manage and control the access to NYSE OpenBook for 
data recipients' non-display applications and not allow for further 
internal distribution or external redistribution of the information by 
data recipients. In addition, to be eligible to provide Managed Non-
Display Services, the Redistributor would be required to (a) host the 
data recipients' non-display applications in equipment located in the 
Redistributor's data center and/or hosted space/cage and (b) offer NYSE 
OpenBook in the Redistributor's own messaging formats (rather than 
using raw NYSE message formats) by reformatting and/or altering NYSE 
OpenBook prior to retransmission without affecting the integrity of 
NYSE OpenBook and without rendering NYSE OpenBook inaccurate, unfair, 
uninformative, fictitious, misleading or discriminatory. The proposed 
eligibility requirements are similar to data distribution models 
currently in use and align the Exchange with other markets.\11\
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    \11\ See Securities Exchange Act Release Nos. 70748 (Oct. 23, 
2013), 70748 (Oct. 23, 2013), 78 FR 64569 (Oct. 29, 2013) (SR-Phlx-
2013-105) (notice of filing and immediate effectiveness of proposed 
rule change to establish non-display Managed Data Solution for 
NASDAQ OMX PHLX (``Phlx'')); 70269 (Aug. 27, 2013), 78 FR 54336 
(Sept. 3, 2013) (SR-NASDAQ-2013-106) (notice of filing and immediate 
effectiveness of proposed rule change to establish non-display 
Managed Data Solution for the NASDAQ Stock Market (``NASDAQ'')); and 
69182 (Mar. 19, 2013), 78 FR 18378 (Mar. 26, 2013) (SR-Phlx-2013-28) 
(notice of filing and immediate effectiveness of proposed rule 
change to establish non-display Managed Data Solution for Phlx 
equities market PSX).
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    The reporting requirements associated with the Managed Non-Display 
Service would not change. A Redistributor approved for Managed Non-
Display Service would be required to report to the Exchange on a 
monthly basis the data recipients that are receiving NYSE OpenBook 
through the Redistributor's Managed Non-Display Service. A data 
recipient receiving NYSE OpenBook through a Redistributor's Managed 
Non-Display Service would continue not to have any reporting 
requirements.
    In addition, the Exchange proposes to adopt an Access Fee of 
$2,500/month applicable only to data recipients that receive NYSE 
OpenBook from an approved Redistributor of Managed Non-Display 
Services, operative January 1, 2015. Currently, data recipients are 
required to pay an Access Fee of $5,000/month to receive NYSE OpenBook, 
which has not been charged to data recipients of Managed Non-Display 
Services of NYSE OpenBook. Because the purpose of an access fee is to 
charge data recipients for access to the Exchange's proprietary market 
data, the Exchange believes it is appropriate to charge an access fee 
to all data recipients, including recipients of Managed Non-Display 
Services.\12\ In recognition that data recipients of Managed Non-
Display Services receive NYSE OpenBook in a controlled format, the 
Exchange proposes to establish an Access Fee that would be applicable 
only to data recipients of Managed Non-Display Services and that would 
be half the size of the current Access Fee. In connection with this 
change, the Exchange also proposes to amend the Fee Schedule to specify 
that the current Access Fee of $5,000/month is charged to data 
recipients other than those receiving data through Managed Non-Display 
Services. The proposed Managed Non-Display Access fee would be in 
addition to the current Managed Non-Display Services Fee of $2,400/
month by each data recipient.
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    \12\ In order to harmonize its approach to fees for its market 
data products, the Exchange is proposing to establish an access fee 
for Managed Non-Display Services for NYSE BBO, NYSE Trades, and NYSE 
Order Imbalance t that are also half of the existing access fee for 
each respective data feed. See SR-NYSE-2014-75 and SR-NYSE-2014-77.
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Proposed Redistributor Internal Support User Fee Cap
    The Exchange proposes to increase the Redistributor Support Fee Cap 
to $3,000/month, the equivalent of fees payable for 50 Professional 
Users per month, effective as of March 1, 2015, and to add the 
Redistributor Support Fee Cap to the Fee Schedule. This increases the 
fee cap from $1,500/month, as set by the Exchange in 2009.\13\
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    \13\ See Securities Exchange Act Release No. 59898 (May 11, 
2009), 74 FR 22989 (May 14, 2009) (SR-NYSE-2009-37). One customer is 
currently paying the cap for Redistributor internal use.
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    Specifically, the cap on user fees would apply to a Redistributor's 
internal users who receive the NYSE OpenBook data feed and provide 
support to the Redistributor of the NYSE

[[Page 2150]]

OpenBook data feed in the areas of customer service, data quality, 
development, software product management, product development, 
programming, technical operations, technical support, and sales. These 
internal users would be required to be located on the Redistributor's 
premises or to access NYSE OpenBook only on the Redistributor's 
platform. Internal users using NYSE OpenBook in connection with 
trading, investment advice, newsroom activities, research, algorithmic 
programming for trading systems, free trials/sales promotions, personal 
use, or to perform any other functions not related to the provision of 
support functions to the Redistributor's external customers would not 
be included in the Redistributor Support Fee Cap.\14\
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    \14\ See Nasdaq Global Data Policies, Oct. 10, 2014, https://www.nasdaqtrader.com/content/AdministrationSupport/AgreementsData/datapolicies.pdf (last visited Dec. 15, 2014), ``Non-Billable: 
Internal Administrative Usage Policy,'' which establishes similar 
standards for internal administrative usage on a non-billable basis.
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    Redistributors would have to request that their Professional User 
Fees related to such internal support functions be counted towards the 
Redistributor Support Fee Cap. To be eligible for the fee cap, a 
Redistributor would have to provide the Exchange with a list of all 
employees who would be reported as eligible internal users, and to 
include in the list the job functions of the employees and explanations 
of their use of NYSE OpenBook. The Exchange reserves the right under 
its contracts with Redistributors to monitor use closely and be 
provided with updated lists of employees, their job functions and their 
use of NYSE OpenBook, upon request. If an employee's use of NYSE 
OpenBook does not meet the requirements of internal support function 
described above, it would not be eligible for the Redistributor Support 
Fee Cap and would be charged a separate Professional User Fee.
    The proposed Redistributor Support Fee Cap would be operative March 
1, 2015.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\15\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\16\ 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.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable to retire the Unit-of-
Count Policy. First, as evidenced by the low number of eligible 
subscribers, the Unit-of-Count Policy is not currently considered 
useful to market data recipients as a method for counting users. In 
addition, as the Exchange noted in the 2013 Non-Display Filing, the 
Exchange determined at that time that its fee structure, which was 
based primarily on counting devices, both display and non-display, and 
included the Unit-of-Count Policy, was no longer appropriate in light 
of market and technology developments. In addition to implementing the 
non-display pricing to address the difficulties of counting non-display 
devices, and to reflect the value of non-display data to customers, the 
Exchange noted that it anticipated implementing a new display use fee 
structure later. Retiring the Unit-of-Count Policy, which now applies 
only to display use, would allow the Exchange to apply a consistent 
method for counting users among all customers using NYSE OpenBook, 
whether on a display or non-display basis.
    The Exchange believes that revising the eligibility requirements 
for Managed Non-Display Services so that the requirements are more 
closely aligned with the nature of the services being provided is 
reasonable. The proposed additional requirements for hosting in the 
Redistributor's data center and for reformatting and/or altering the 
market data prior to retransmission are also consistent with similar 
requirements of other markets for the provision of managed data.\17\
---------------------------------------------------------------------------

    \17\ See supra note 11.
---------------------------------------------------------------------------

    The Exchange believes that the proposed Access Fee for Managed Non-
Display Services is reasonable, because the data is of value to 
recipients, and it is reasonable to charge them a lower access fee 
because they are receiving the data through a Redistributor in a 
controlled form rather than from the Exchange in raw form. The Exchange 
believes that the proposed fee directly and appropriately reflects the 
significant value of using non-display data in a wide range of 
computer-automated functions relating to both trading and non-trading 
activities and that the number and range of these functions continue to 
grow through innovation and technology developments. The NASDAQ and 
Phlx also both offer managed non-display data solutions and charge 
access fees for such services.\18\ The fee is also equitable and not 
unfairly discriminatory because it would apply to all data recipients 
that choose to subscribe to Managed Non-Display Services for NYSE 
OpenBook.
---------------------------------------------------------------------------

    \18\ See supra note 11. NASDAQ offers a Managed Data Solution 
that assesses a monthly Managed Data Solution Administration fee of 
$1,500 and monthly Subscriber fees of $60 for non-professionals to 
$300 for professionals. See NASDAQ Rule 7026(b). Phlx charges a 
monthly Managed Data Solution Administration fee of $2,000 and a 
monthly Subscriber fee of $500. The monthly License fee is in 
addition to the monthly Distributor fee of $3,500 (for external 
usage), and the $500 monthly Subscriber fee is assessed for each 
Subscriber of a Managed Data Solution. See Securities Exchange Act 
Release No. 70748 (Oct. 23, 2013), 78 FR 64569 (Oct. 29, 2013) (SR-
Phlx-2013-105).
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable to raise the 
Redistributor Support Fee Cap. The purpose of the Professional User Fee 
is to charge for each use of NYSE OpenBook data feed. The Exchange 
believes it is appropriate to charge user fees for employees who 
provide internal support functions at Redistributors because the 
business model of Redistributors is distributing data, and as a related 
function, providing support functions for such distribution of data. 
Accordingly, the internal support functions at a Redistributor 
contribute to the value that such Redistributors provide to their own 
customers, and are therefore an integral part of a Redistributor's 
business model. While such internal use is a value to a Redistributor 
and its customers, the Exchange recognizes that internal support 
functions differ from other uses of NYSE OpenBook, which is why the 
Exchange provides for a Redistributor Support Fee Cap. The Exchange 
believes it is reasonable to increase the fee cap to reflect the value 
that such support functions serve within a Redistributor. While the 
NYSE anticipates that only the largest vendors would devote sufficient 
personnel to administrative functions to take advantage of the proposed 
increased fee cap, in the Exchange's view, limiting the fee exposure of 
its largest vendors does not unreasonably discriminate against other 
vendors under Section 603(a)(2) of Regulation NMS.
    The fees are also equitable and not unfairly discriminatory because 
they will apply to all data recipients that choose to subscribe to the 
feeds.
    The Exchange notes that NYSE OpenBook is entirely optional. The 
Exchange is not required to make NYSE OpenBook available or to offer 
any specific pricing alternatives to any customers, nor is any firm 
required to purchase NYSE OpenBook. Firms that do purchase NYSE 
OpenBook do so for the primary goals of using it to increase revenues, 
reduce expenses, and in some

[[Page 2151]]

instances compete directly with the Exchange (including for order 
flow); those firms are able to determine for themselves whether NYSE 
OpenBook or any other similar products are attractively priced or not.
    Firms that do not wish to purchase NYSE OpenBook at the new prices 
have a variety of alternative market data products from which to 
choose,\19\ or if NYSE OpenBook does not provide sufficient value to 
firms as offered based on the uses those firms have or planned to make 
of it, such firms may simply choose to conduct their business 
operations in ways that do not use NYSE OpenBook. The Exchange notes 
that broker-dealers are not required to purchase proprietary market 
data to comply with their best execution obligations.\20\ Similarly, 
there is no requirement in Regulation NMS or any other rule that 
proprietary data be utilized for order routing decisions, and some 
broker-dealers and alternative trading systems (``ATSs'') have chosen 
not to do so.\21\
---------------------------------------------------------------------------

    \19\ See NASDAQ Rule 7023 (Nasdaq Totalview) and BATS Rule 
11.22(a) and (c) (BATS TCP Pitch and Multicast Pitch).
    \20\ See In the Matter of the Application of Securities Industry 
And Financial Markets Association For Review of Actions Taken by 
Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-15350; 
AP-3-15351 (May 16, 2014).
    \21\ For example, Goldman Sachs Execution and Clearing, L.P. has 
disclosed that it does not use proprietary market data in connection 
with Sigma X, its ATS. See response to Question E3, available at 
https://www.goldmansachs.com/media-relations/in-the-news/current/pdf-media/gsec-order-handling-practices-ats-specific.pdf. By way of 
comparison, IEX has disclosed that it uses proprietary market data 
feeds from all registered stock exchanges and the LavaFlow ECN. See 
https://www.iextrading.com/about/.
---------------------------------------------------------------------------

    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.' '' \22\

    \22\ NetCoalition, 615 F.3d at 535.
---------------------------------------------------------------------------

    As explained below in the Exchange's Statement on Burden on 
Competition, the Exchange believes that there is substantial evidence 
of competition in the marketplace for proprietary market data and that 
the Commission can rely upon such evidence in concluding that the fees 
established in this filing are the product of competition and therefore 
satisfy the relevant statutory standards. In addition, the existence of 
alternatives to these data products, such as consolidated data and 
proprietary data from other sources, as described below, further 
ensures that the Exchange cannot set unreasonable fees, or fees that 
are unreasonably discriminatory, when vendors and subscribers can 
select such alternatives.
    As the NetCoalition decision noted, the Commission is not required 
to undertake a cost-of-service or ratemaking approach. 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 or offer any significant 
benefits.\23\
---------------------------------------------------------------------------

    \23\ The Exchange believes that cost-based pricing would be 
impractical because it would create enormous administrative burdens 
for all parties and 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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. An exchange's ability to 
price its proprietary market data feed products is constrained by 
actual competition for the sale of proprietary market 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 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 for the proprietary products themselves. Numerous 
exchanges compete with one another for listings and order flow and 
sales of market data itself, providing ample opportunities for 
entrepreneurs who wish to compete in any or all of those areas, 
including producing and distributing their own market data. Proprietary 
data products are produced and distributed by each individual exchange, 
as well as other entities, in a vigorously competitive market. Indeed, 
the U.S. Department of Justice (``DOJ'') (the primary antitrust 
regulator) has expressly acknowledged the aggressive actual competition 
among exchanges, including for the sale of proprietary market data. In 
2011, the DOJ stated that exchanges ``compete head to head to offer 
real-time equity data products. These data products include the best 
bid and offer of every exchange and information on each equity trade, 
including the last sale.'' \24\
---------------------------------------------------------------------------

    \24\ Press Release, U.S. Department of Justice, Assistant 
Attorney General Christine Varney Holds Conference Call Regarding 
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning 
Their Bid for NYSE Euronext (May 16, 2011), available at https://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html; see 
also Complaint in U.S. v. Deutsche Borse AG and NYSE Euronext, Case 
No. 11-cv-2280 (DC Dist.) ] 24 (``NYSE and Direct Edge compete head-
to-head . . . in the provision of real-time proprietary equity data 
products.'').
---------------------------------------------------------------------------

    Moreover, competitive markets for listings, order flow, executions, 
and transaction reports provide pricing discipline for the inputs of 
proprietary data products and therefore constrain markets from 
overpricing proprietary market data. Broker-dealers send their order 
flow and transaction reports to multiple venues, rather than providing 
them all to a single venue, which in turn reinforces this competitive 
constraint. As a 2010 Commission Concept Release noted, the ``current 
market structure can be described as dispersed and complex'' with 
``trading volume . . . dispersed

[[Page 2152]]

among many highly automated trading centers that compete for order flow 
in the same stocks'' and ``trading centers offer[ing] a wide range of 
services that are designed to attract different types of market 
participants with varying trading needs.'' \25\ More recently, SEC 
Chair Mary Jo White has noted that competition for order flow in 
exchange-listed equities is ``intense'' and divided among many trading 
venues, including exchanges, more than 40 alternative trading systems, 
and more than 250 broker-dealers.\26\
---------------------------------------------------------------------------

    \25\ Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21, 
2010) (File No. S7-02-10). This Concept Release included data from 
the third quarter of 2009 showing that no market center traded more 
than 20% of the volume of listed stocks, further evidencing the 
dispersal of and competition for trading activity. Id. at 3598. Data 
available on ArcaVision show that from June 30, 2013 to June 30, 
2014, no exchange traded more than 12% of the volume of listed 
stocks by either trade or dollar volume, further evidencing the 
continued dispersal of and fierce competition for trading activity. 
See https://www.arcavision.com/Arcavision/arcalogin.jsp.
    \26\ Mary Jo White, Enhancing Our Equity Market Structure, 
Sandler O'Neill & Partners, L.P. Global Exchange and Brokerage 
Conference (June 5, 2014) (available on the Commission Web site), 
citing Tuttle, Laura, 2014, ``OTC Trading: Description of Non-ATS 
OTC Trading in National Market System Stocks,'' at 7-8.
---------------------------------------------------------------------------

    If an exchange succeeds in its competition for quotations, order 
flow, and trade executions, then it earns trading revenues and 
increases the value of its proprietary market data products because 
they will contain greater quote and trade information. Conversely, if 
an exchange is less successful in attracting quotes, order flow, and 
trade executions, then its market data products may be less desirable 
to customers using them in support of order routing and trading 
decisions in light of the diminished content; data products offered by 
competing venues may become correspondingly more attractive. Thus, 
competition for quotations, order flow, and trade executions puts 
significant pressure on an exchange to maintain both execution and data 
fees at reasonable levels.
    In addition, in the case of products that are also redistributed 
through market data vendors, such as Bloomberg and Thompson Reuters, 
the 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 NYSE OpenBook unless 
their customers request it, and customers will not elect to pay the 
proposed fees unless NYSE OpenBook can provide value by sufficiently 
increasing revenues or reducing costs in the customer's business in a 
manner that will offset the fees. All of these factors 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, proprietary market data and trade 
executions are a paradigmatic example of joint products with joint 
costs. The decision of 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 availability and quality, 
and price and distribution of data products. Without a platform to post 
quotations, receive orders, and execute trades, exchange data products 
would not exist.
    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 platform for posting quotes, 
accepting orders, and executing transactions 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 generally view the 
costs of transaction executions and market data as a unified cost of 
doing business with the exchange. A broker-dealer will only choose to 
direct orders to an exchange if the revenue from the transaction 
exceeds its cost, including the cost of any market data that the 
broker-dealer chooses to buy in support of its order routing and 
trading decisions. If the costs of the transaction are not offset by 
its value, then the broker-dealer may choose instead not to purchase 
the product and trade away from that exchange. There is substantial 
evidence of the strong correlation between order flow and market data 
purchases. For example, in November 2014 more than 80% of the 
transaction volume on each of NYSE and NYSE's affiliates NYSE Arca, 
Inc. (``NYSE Arca'') and NYSE MKT LLC (``NYSE MKT'') was executed by 
market participants that purchased one or more proprietary market data 
products (the 20 firms were not the same for each market). A supra-
competitive increase in the fees for either executions or market data 
would create a risk of reducing an exchange's revenues from both 
products.
    Other market participants have noted that proprietary market data 
and trade executions are joint products of a joint platform and have 
common costs.\27\ The Exchange agrees with and adopts those discussions 
and the arguments therein. The Exchange also notes that the economics 
literature confirms that there is no way to allocate common costs 
between joint products that would shed any light on competitive or 
efficient pricing.\28\
---------------------------------------------------------------------------

    \27\ See Securities Exchange Act Release No. 72153 (May 12, 
2014), 79 FR 28575, 28578 n.15 (May 16, 2014) (SR-NASDAQ-2014-045) 
(``[A]ll 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 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).
    \28\ 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 because it is 
impossible to obtain the data inputs to create market data products 
without a fast, technologically robust, and well-regulated execution 
system, and system 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.

[[Page 2153]]

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.
    As noted above, the level of competition and contestability in the 
market is evident in the numerous alternative venues that compete for 
order flow, including 12 equities self-regulatory organization 
(``SRO'') markets, as well as various forms of ATSs, including dark 
pools and electronic communication networks (``ECNs''), and 
internalizing broker-dealers. SRO markets compete to attract order flow 
and produce transaction reports via trade executions, and two FINRA-
regulated Trade Reporting Facilities compete to attract transaction 
reports from the non-SRO venues.\29\
---------------------------------------------------------------------------

    \29\ FINRA's Alternative Display Facility also receives over-
the-counter trade reports that it sends to CTA.
---------------------------------------------------------------------------

    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 trading 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. For example, BATS and Direct Edge, which previously operated 
as ATSs and obtained exchange status in 2008 and 2010, respectively, 
have provided certain market data at no charge on their Web sites in 
order to attract more order flow, and use revenue rebates from 
resulting additional executions to maintain low execution charges for 
their users.\30\ Similarly, LavaFlow ECN provides market data to its 
subscribers at no charge.\31\ 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.
---------------------------------------------------------------------------

    \30\ This is simply a securities market-specific example of the 
well-established principle that in certain circumstances more sales 
at lower margins can be more profitable than fewer sales at higher 
margins; this example is additional evidence that market data is an 
inherent part of a market's joint platform.
    \31\ See ``LavaFlow--ADF Migration,'' available at https://www.lavatrading.com/news/pdf/LavaFlow_ADF_Migration.pdf.
---------------------------------------------------------------------------

Existence of Alternatives
    The large number of SROs, ATSs, and internalizing broker-dealers 
that currently produce proprietary data or are currently capable of 
producing it provides further pricing discipline for proprietary data 
products. Each SRO, ATS, and broker-dealer is currently permitted to 
produce and sell proprietary data products, and many currently do or 
have announced plans to do so, including but not limited to the 
Exchange, NYSE MKT, NYSE Arca, NASDAQ OMX, BATS, and Direct Edge.
    The fact that proprietary data from ATSs, internalizing broker-
dealers, and vendors can bypass SROs is significant in two respects. 
First, non-SROs can compete directly with SROs for the production and 
sale of proprietary data products. By way of example, BATS and NYSE 
Arca both published proprietary data on the Internet before registering 
as exchanges. Second, because a single order or transaction report can 
appear in an SRO proprietary product, a non-SRO proprietary product, or 
both, the amount of data available via proprietary products is greater 
in size than the actual number of orders and transaction reports that 
exist in the marketplace. With respect to NYSE OpenBook, competitors 
offer close substitute products.\32\ Because market data users can find 
suitable substitutes for most proprietary market data products, a 
market that overprices its market data products stands a high risk that 
users may substitute another source of market data information for its 
own.
---------------------------------------------------------------------------

    \32\ See supra note 19.
---------------------------------------------------------------------------

    Those competitive pressures imposed by available alternatives are 
evident in the Exchange's proposed pricing.
    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid and inexpensive. The history 
of electronic trading is replete with examples of entrants that swiftly 
grew into some of the largest electronic trading platforms and 
proprietary data producers: Archipelago, Bloomberg Tradebook, Island, 
RediBook, Attain, TrackECN, BATS Trading and Direct Edge. As noted 
above, BATS launched as an ATS in 2006 and became an exchange in 2008, 
while Direct Edge began operations in 2007 and obtained exchange status 
in 2010. As noted above, LavaFlow ECN provides market data to its 
subscribers at no charge.\33\
---------------------------------------------------------------------------

    \33\ See supra note 31.
---------------------------------------------------------------------------

    In setting the proposed fees, the Exchange considered the 
competitiveness of the market for proprietary data and all of the 
implications of that competition. The Exchange believes that it has 
considered all relevant factors and has not considered irrelevant 
factors in order to establish fair, reasonable, and not unreasonably 
discriminatory fees and an equitable allocation of fees among all 
users. The existence of numerous alternatives to the Exchange's 
products, including 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 the attendant fees are not justified by the returns 
that any particular vendor or data recipient 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)\34\ of the Act and subparagraph (f)(2) of Rule 19b-
4 \35\ thereunder, because it establishes a due, fee, or other charge 
imposed by the Exchange.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(3)(A).
    \35\ 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) \36\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and

[[Page 2154]]

arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2014-76 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2014-76. 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 Web site viewing and printing 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-NYSE-2014-76 and should be submitted on 
or before February 5, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------


Brent J. Fields,
Secretary.
[FR Doc. 2015-00530 Filed 1-14-15; 8:45 am]
BILLING CODE 8011-01-P
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