Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Establishing Fees for the NYSE Integrated Feed, 74158-74164 [2015-30077]
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Federal Register / Vol. 80, No. 228 / Friday, November 27, 2015 / Notices
Commission process and review
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 20549–1090. Copies of
the filing will also be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. Interested persons should
submit only information that they wish
to make available publicly. All
submissions should refer to file number
SR–NSX–2015–06 and should be
submitted on or before December 18,
2015.
For the Commission by the Division of
Trading and Markets, pursuant to the
delegated authority.21
Robert W. Errett,
Deputy Secretary.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76485; File No. SR–NYSE–
2015–57]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change Establishing
Fees for the NYSE Integrated Feed
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November 20, 2015.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on November
5, 2015, New York Stock Exchange LLC
(‘‘NYSE’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to establish
fees for the NYSE Integrated Feed. 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
[FR Doc. 2015–30086 Filed 11–25–15; 8:45 am]
21 17
have been prepared by the Exchange.
The Commission is publishing this
notice to solicit comments on the
proposed rule change from interested
persons.
The Exchange proposes to establish
the fees for the NYSE Integrated Feed in
the NYSE Proprietary Market Data Fee
Schedule (‘‘Fee Schedule’’).3 The
Exchange proposes to make the NYSE
Integrated Feed available without charge
starting on November 16, 2015. The
Exchange proposes to establish the
following fees for the NYSE Integrated
Feed operative on January 1, 2016:
1. Access Fee. For the receipt of
access to the NYSE Integrated Feed, the
Exchange proposes to charge $7,500 per
month.
2. User Fees. The Exchange proposes
to charge a Professional User Fee (Per
User) of $70 per month and a NonProfessional User Fee (Per User) of $16
per month. These user fees would apply
to each display device that has access to
the NYSE Integrated Feed.
3. Non-Display Use Fees. The
Exchange proposes to establish nondisplay fees for the NYSE Integrated
3 The proposed rule change establishing the
NYSE Integrated Feed was immediately effective on
January 23, 2015. See Securities Exchange Act
Release No. 74128 (Jan. 23, 2015), 80 FR 4951 (Jan.
29, 2015) (SR–NYSE–2015–03).
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Feed using the same non-display use fee
structure established for the Exchange’s
other market data products.4 Nondisplay use would mean accessing,
processing, or consuming the NYSE
Integrated Feed delivered via direct
and/or Redistributor 5 data feeds for a
purpose other than in support of a data
recipient’s display or further internal or
external redistribution (‘‘Non-Display
Use’’). Non-Display Use would include
any trading use, such as high frequency
or algorithmic trading, and would also
include any trading in any asset class,
automated order or quote generation
and/or order pegging, price referencing
for algorithmic trading or smart order
routing, operations control programs,
investment analysis, order verification,
surveillance programs, risk
management, compliance, and portfolio
management.
Under the proposal, for Non-Display
Use of NYSE Integrated Feed, there
would be three categories of, and fees
applicable to, data recipients. One, two
or three categories of Non-Display Use
may apply to a data recipient.
• Under the proposal, the Category 1
Fee would be $20,000 per month and
would apply when a data recipient’s
Non-Display Use of the NYSE Integrated
Feed is on its own behalf, not on behalf
of its clients.
• Under the proposal, Category 2 Fees
would be $20,000 per month and would
apply to a data recipient’s Non-Display
Use of the NYSE Integrated Feed on
behalf of its clients.
• Under the proposal, Category 3 Fees
would be $20,000 and would apply to
a data recipient’s Non-Display Use of
the NYSE Integrated Feed for the
purpose of internally matching buy and
sell orders within an organization,
including matching customer orders for
data recipient’s own behalf and/or on
behalf of its clients. This category would
apply to Non-Display Use in trading
platforms, such as, but not restricted to,
alternative trading systems (‘‘ATSs’’),
broker crossing networks, broker
crossing systems not filed as ATSs, dark
pools, multilateral trading facilities,
exchanges and systematic
internalization systems. Category 3 Fees
would be capped at $60,000 per month
for each data recipient for the NYSE
Integrated Feed.
4 See Securities Exchange Act Release Nos. 69278
(April 2, 2013), 78 FR 20973 (April 8, 2013) (SR–
NYSE–2013–25) and 72923 (Aug. 26, 2014), 79 FR
52079 (Sept. 2, 2014) (SR–NYSE–2014–43).
5 ‘‘Redistributor’’ means a vendor or any person
that provides a real-time 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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Non-Display Use fees for NYSE
Integrated Feed include, for customers
also paying access fees for NYSE BBO,
NYSE Trades, NYSE OpenBook and
NYSE Order Imbalances, the NonDisplay Use for such products when
declared within the same category of
use.
The description of the three nondisplay use categories is set forth in the
Fee Schedule in endnote 1 and that
endnote would be referenced in the
NYSE Integrated Feed fees on the Fee
Schedule. The text in the endnote
would remain unchanged.
Data recipients that receive the NYSE
Integrated Feed for Non-Display Use
would be required to complete and
submit a Non-Display Use Declaration
before they would be authorized to
receive the feed.6 A firm subject to
Category 3 Fees would be required to
identify each platform that uses the
NYSE Integrated Feed on a Non-Display
Use basis, such as ATSs and broker
crossing systems not registered as ATSs,
as part of the Non-Display Use
Declaration.
4. Non-Display Declaration Late Fee.
Data recipients that receive the NYSE
Integrated Feed for Non-Display Use
would be required to complete and
submit a Non-Display Use Declaration
before they would be authorized to
receive the feed. Beginning in 2017,
NYSE Integrated Feed data recipients
would be required to submit, by January
31st of each year, the Non-Display Use
Declaration that applies to all real-time
NYSE market data products that include
Non-Display Use fees.7 The Exchange
proposes to charge a Non-Display
Declaration Late Fee of $1,000 per
month to any data recipient that pays an
Access Fee for NYSE Integrated Feed
that has failed to complete and submit
a Non-Display Use Declaration.
Specifically, with respect to the NonDisplay Use Declaration due by January
31st of each year beginning in 2017, the
Non-Display Declaration Late Fee would
apply to data recipients that fail to
complete and submit the Non-Display
Use Declaration by the January 31st due
date, and would apply beginning
February 1st and for each month
thereafter until the data recipient has
completed and submitted the annual
6 Data recipients are required to complete and
submit the Non-Display Declaration with respect to
each market data product on the Fee Schedule that
includes Non-Display Fees. See Securities Exchange
Act Release Nos. 74870 (May 5, 2015), 80 FR 26962
(May 11, 2015) (SR–NYSE–2015–20) (NYSE
OpenBook) and 74872 (May 5, 2015), 80 FR 26975
(May 11, 2015) (SR–NYSE–2015–21) (NYSE Order
Imbalances) and 74861 (May 4, 2015), 80 FR 26599
(May 8, 2015) (SR–NYSE–2015–22) (NYSE Trades
and NYSE BBO).
7 Id.
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Non-Display Use Declaration. The
Exchange also proposes to apply current
endnote 2 on the Fee Schedule to the
Non-Display Declaration Late Fee for
NYSE Integrated Feed, but proposes to
modify endnote 2 to the Fee Schedule
so that it is clear that the Non-Display
Declaration Late Fee applies to the
NYSE Integrated Feed beginning
February 1st of 2017 and each year
thereafter with respect to the NonDisplay Use Declaration due by January
31st each year.8
In addition, if a data recipient’s use of
the NYSE Integrated Feed data changes
at any time after the data recipient
submits a Non-Display Use Declaration,
the data recipient must inform the
Exchange of the change by completing
and submitting at the time of the change
an updated declaration reflecting the
change of use.
5. Redistribution Fee. For
redistribution of the NYSE Integrated
Feed, the Exchange proposes to
establish a fee of $4,000 per month.
The Exchange notes that the three
existing data feed products—NYSE
OpenBook, NYSE Trades, and NYSE
Order Imbalances—would continue to
be available to vendors and subscribers
separately, in each case at the same
prices at which they are currently
available.9
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,10
in general, and Sections 6(b)(4) and
6(b)(5) of the Act,11 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.
The Exchange believes it is equitable
and not unfairly discriminatory to make
the NYSE Integrated Feed available free
of charge through December 31, 2015
8 The second sentence of endnote 2 to the Fee
Schedule refers to a late fee for the Non-Display Use
Declarations due September 1, 2014 that have not
been submitted by July 1, 2015. This sentence is not
applicable to the NYSE Integrated Feed because
NYSE Integrated Feed was not available as of the
September 1, 2014 due date and because data
recipients of the NYSE Integrated Feed will have to
complete and submit a Non-Display Declaration
before they can receive the feed. The Exchange
proposes to modify the second sentence so that it
applies only to NYSE OpenBook, NYSE BBO, NYSE
Trades and NYSE Order Imbalances and not to the
NYSE Integrated Feed. The Exchange proposes to
modify the third sentence so that it is clear that it
applies to all market data products, including the
NYSE Integrated Feed, to which Non-Display Use
fees apply.
9 See Fee Schedule.
10 15 U.S.C. 78f(b).
11 15 U.S.C. 78f(b)(4), (5).
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because providing it at no charge would
provide an opportunity for vendors and
subscribers to determine whether the
NYSE Integrated Feed suits their needs
without incurring fees. Other exchanges
provide or have provided market data
products free for a certain period of
time.12
The fees for the NYSE Integrated Feed
are reasonable because they represent
not only the value of the data available
from three existing data feeds but also
the value of receiving the data on an
integrated basis. Receiving the data on
an integrated basis provides greater
efficiencies and reduced errors for
vendors and subscribers that currently
choose to integrate the data themselves
after receiving it from the Exchange.
Some vendors and subscribers may not
have the technology or resources to
integrate the separate data feeds in a
timely and/or efficient manner, and thus
the integration feature of the product
may be valuable to them.
Moreover, the fees are equitably
allocated and not unfairly
discriminatory because vendors and
subscribers may choose to continue to
receive some or all of the data through
the existing separate feeds at current
prices, or they can choose to pay for the
NYSE Integrated Feed in order to
received integrated data, or they can
choose a combination of the two
approaches, thereby allowing each
vendor or subscriber to choose the best
business solution for itself.
The Exchange believes the proposed
monthly Access Fee of $7,500 and
monthly Redistribution Fee of $4,000
for NYSE Integrated Feed are reasonable
because they are comparable to the total
of the same types of fees for NYSE
OpenBook, NYSE Trades, and NYSE
Order Imbalances. The monthly Access
Fee for NYSE OpenBook is $5,000, for
NYSE Trades is $1,500 and for NYSE
Order Imbalances is $500.13 The
monthly Redistribution Fee for NYSE
12 For example, NYSE Arca, Inc. (‘‘NYSE Arca’’),
an affiliate of the Exchange, offered ArcaBook for
Arca Options-Complex, and NYSE MKT LLC
(‘‘NYSE MKT’’), an affiliate of the Exchange, offered
ArcaBook for Amex Options-Complex, without
charge between May 1, 2014 and October 31, 2014.
See Securities Exchange Act Release Nos. 72074
(May 1, 2014), 79 FR 26277 (May 7, 2014)
(NYSEArca 2014–51) and 72075 (May 1, 2014), 79
FR 26290 (May 7, 2014) (NYSEMKT 2014–40). The
NASDAQ Stock Market, Inc. (‘‘NASDAQ’’) provides
a 30-day free trial related to NASDAQ TotalView.
See NASDAQ Rule 7023(e).
13 The Access Fee for Managed Non-Display
Services only for NYSE OpenBook is $2,500 per
month, for NYSE Trades is $750 per month and for
NYSE Order Imbalances is $250 per month.
Managed Non-Display Services will not be offered
for NYSE Integrated Feed.
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OpenBook is $3,000 and for NYSE
Trades is $1,000.14
The Exchange believes that it is
reasonable to charge redistribution fees
because vendors receive value from
redistributing the data in their business
products for their customers. The
redistribution fees also are equitable and
not unfairly discriminatory because they
will be charged on an equal basis to
those vendors that choose to redistribute
the data. Also, the proposed
redistribution fee for NYSE Integrated
Feed is reasonable because it is
comparable to the redistribution fees
that are currently charged by other
exchanges.15
The proposed monthly Professional
User Fee (Per User) of $70 and monthly
Non-Professional User Fee (Per User) of
$16 are reasonable because they are
comparable to the total of the per user
fees for NYSE OpenBook and NYSE
Trades. The monthly Professional User
Fee (Per User) for NYSE OpenBook is
$60 and for NYSE Trades, it is $4. The
monthly Non-Professional User Fee (Per
User) for NYSE OpenBook is $15 and for
NYSE Trades, it is $0.20.
The Exchange believes that having
separate Professional and NonProfessional User fees for the NYSE
Integrated Feed is reasonable because it
will make the product more affordable
and result in greater availability to
Professional and Non-Professional
Users. Setting a modest NonProfessional User fee is reasonable
because it provides an additional
method for Non-Professional Users to
access the NYSE Integrated Feed by
providing the same data that is available
to Professional Users. The Exchange
believes that the proposed fees are
equitable and not unfairly
discriminatory because they will be
charged uniformly to recipient firms
and Users. The fee structure of
differentiated Professional and NonProfessional fees applies to the user fees
applicable to NYSE OpenBook and
NYSE Trades and has long been used by
the Exchange in order to reduce the
price of data to Non-Professional Users
and make it more broadly available.16
14 There are no Redistribution or User fees
charged for NYSE Order Imbalances.
15 NYSE Arca charges a $3,000 per month
redistribution fee for the NYSE Arca Integrated
Feed. See Securities Exchange Act Release No.
66128 (Jan. 10, 2012), 77 FR 2331 (Jan. 17, 2012)
(SR–NYSEArca–2011–96). Distributors of
NASDAQ-listed security depth entitlements pay a
Monthly External Distributor Fee of $2,500. See
NASDAQ Rule 7019(b).
16 See e.g., Securities Exchange Act Release No.
59544 (March 9, 2009), 74 FR 11162 (March 16,
2009) (SR–NYSE–2008–131) (establishing the $15
Non-Professional User Fee (Per User) for NYSE
OpenBook). See e.g., Securities Exchange Act
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Offering the NYSE Integrated Feed to
Non-Professional Users with the same
data available to Professional Users
results in greater equity among data
recipients.
The Exchange believes the proposed
Non-Display Use fees are reasonable,
equitable and not unfairly
discriminatory because they reflect the
value of the data to the data recipients
in their profit-generating activities and
do not impose the burden of counting
non-display devices. After gaining
further experience with the non-display
fee structure, the Exchange believes that
the proposed Non-Display Use fees
reflect the significant value of the nondisplay data to data recipients, which
purchase such data on an entirely
voluntary basis. Non-display data can be
used by data recipients for a wide
variety of profit-generating purposes,
including proprietary and agency
trading and smart order routing, as well
as by data recipients that operate order
matching and execution platforms that
compete directly with the Exchange for
order flow. The data also can be used for
a variety of non-trading purposes that
indirectly support trading, such as risk
management and compliance. While
some of these non-trading uses do not
directly generate revenues, they can
nonetheless substantially reduce the
recipient’s costs by automating such
functions so that they can be carried out
in a more efficient and accurate manner
and reduce errors and labor costs,
thereby benefiting end users. The
Exchange believes that charging for nontrading uses is reasonable because data
recipients can derive substantial value
from such uses, for example, by
automating tasks so that they can be
performed more quickly and accurately
and less expensively than if they were
performed manually.
Data can be processed much faster by
a non-display device than it can be by
a human being processing information
that he or she views on a data terminal.
Non-display devices also can dispense
data to multiple computer applications
as compared with the restriction of data
to one display terminal. While nondisplay data has become increasingly
valuable to data recipients who can use
it to generate substantial profits, it has
become increasing difficult for them and
the Exchange to accurately count nondisplay devices. The number and type
of non-display devices, as well as their
complexity and interconnectedness,
have grown in recent years, creating
Release No. 20002, File No. S7–433 (July 22, 1983),
48 FR 34552 (July 29, 1983) (establishing
nonprofessional fees for CTA data); NASDAQ Rules
7023(b), 7047.
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administrative challenges for vendors,
data recipients, and the Exchange to
accurately count such devices and audit
such counts. Unlike a display device,
such as a Bloomberg terminal, it is not
possible to simply walk through a
trading floor or areas of a data
recipient’s premises to identify nondisplay devices. During an audit, an
auditor must review a firm’s entitlement
report to determine usage. While
display use is generally associated with
an individual end user and/or unique
user ID, a non-display use is more
difficult to account for because the
entitlement report may show a server
name or Internet protocol (‘‘IP’’) address
or it may not. The auditor must review
each IP or server and further inquire
about downstream use and quantity of
servers with access to data; this type of
counting is very labor-intensive and
prone to inaccuracies.
Market data technology and usage has
evolved to the point where it is no
longer practical, nor fair and equitable,
to simply count non-display devices.
The administrative costs and difficulties
of establishing reliable counts and
conducting an effective audit of nondisplay devices have become too
burdensome, impractical, and noneconomic for the Exchange, vendors,
and data recipients. Indeed, some data
recipients dislike the burden of having
to comply with count-based audit
processes, and the Exchange’s nondisplay pricing policies are a direct
response to such complaints as well as
a further competitive distinction
between the Exchange and other
markets. The Exchange believes that the
proposed fee structure for non-display
use is reasonable, equitable, and not
unfairly discriminatory in light of these
developments.
The Non-Display Use fees for the
NYSE Integrated Feed are reasonable
because they represent the extra value of
receiving the data for Non-Display Use
on an integrated basis. The Exchange
believes that the proposed fees directly
and appropriately reflect the significant
value of using NYSE Integrated Feed on
a non-display basis 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.17
17 See also Exchange Act Release No. 69157,
March 18, 2013, 78 FR 17946, 17949 (March 25,
2013) (SR–CTA/CQ–2013–01) (‘‘[D]ata feeds have
become more valuable, as recipients now use them
to perform a far larger array of non-display
functions. Some firms even base their business
models on the incorporation of data feeds into black
boxes and application programming interfaces that
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The Exchange believes that it is
reasonable to require annual
submissions of the Non-Display Use
Declaration so that the Exchange will
have current and accurate information
about the use of the NYSE Integrated
Feed and can correctly assess fees for
the uses of the NYSE Integrated Feed.
The annual submission requirement is
equitable and not unfairly
discriminatory because it will apply to
all users.
The Exchange believes that it is
reasonable to impose a late fee in
connection with the submission of the
Non-Display Use Declaration. In order
to correctly assess fees for the nondisplay use of NYSE Integrated Feed,
the Exchange needs to have current and
accurate information about the use of
NYSE Integrated Feed. The failure of
data recipients to submit the NonDisplay Use Declaration on time leads to
potentially incorrect billing and
administrative burdens, including
tracking and obtaining late Non-Display
Use Declarations and correcting and
following up on payments owed in
connection with late Non-Display Use
Declarations. The purpose of the late fee
is to incent data recipients to submit the
Non-Display Use Declaration promptly
to avoid the administrative burdens
associated with the late submission of
Non-Display Use Declarations. The NonDisplay Declaration Late Fee is
equitable and not unfairly
discriminatory because it will apply to
all data recipients that choose to
subscribe to the NYSE Integrated Feed.
In addition, the proposed fees are
reasonable when compared to fees for
comparable products, including the
NYSE Arca Integrated Feed,18 offered by
NYSE Arca and Nasdaq TotalViewItch,19 offered by NASDAQ.
Specifically, the fees for NYSE Arca
Integrated Feed, which like NYSE
Integrated Feed, includes depth of book,
trades, and order imbalances data for
the NYSE Arca market, and a security
status message, consist of an Access Fee
apply trading algorithms to the data, but that do not
require widespread data access by the firm’s
employees. As a result, these firms pay little for
data usage beyond access fees, yet their data access
and usage is critical to their businesses.’’).
18 See NYSE Arca Integrated Feed, https://
www.nyxdata.com/page/1084 (last visited June 8,
2015) (data feed that provides a unified view of
events, in sequence as they appear on the NYSE
Arca matching engine, including depth of book,
trades, order imbalance data, and security status
messages).
19 See NASDAQ TotalView-ITCH, https://
www.nasdaqtrader.com/Trader.aspx?id=Totalview2
(last visited June 8, 2015) (displays the full order
book depth for NASDAQ market participants and
also disseminates the Net Order Imbalance
Indicator (NOII) for the NASDAQ Opening and
Closing Crosses and NASDAQ IPO/Halt Cross).
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of $3,000 per month, a Professional User
Fee (Per User) of $40 per month a NonProfessional User Fee (Per User) of $20
per month, Non-Display Fees of $7,000
per month for each of Categories 1, 2
and 3, and a Redistribution Fee of
$3,000 per month. The fees are also
equitable and not unfairly
discriminatory because they will apply
to all data recipients that choose to
subscribe to the NYSE Integrated Feed.
The Exchange also notes that the
NYSE Integrated Feed is entirely
optional. The Exchange is not required
to make the NYSE Integrated Feed
available or to offer any specific pricing
alternatives to any customers, nor is any
firm required to purchase the NYSE
Integrated Feed. Firms that purchase the
NYSE Integrated Feed would do so for
the primary goals of using it to increase
revenues, reduce expenses, and in some
instances compete directly with the
Exchange (including for order flow);
those firms are able to determine for
themselves whether the NYSE
Integrated Feed or any other similar
products are attractively priced or not.
Firms that do not wish to purchase
the NYSE Integrated Feed at the new
prices have a variety of alternative
market data products from which to
choose,20 or if the NYSE Integrated Feed
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 the NYSE
Integrated Feed. The Exchange notes
that broker-dealers are not required to
purchase proprietary market data to
comply with their best execution
obligations.21 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 ATSs have
chosen not to do so.22
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
20 See
supra notes 19–20.
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).
22 For example, Goldman Sachs Execution and
Clearing, L.P. disclosed in 2014 that it was not
using proprietary market data in connection with
Sigma X, its ATS. See response to Question E3,
available at https://www.goldmansachs.com/mediarelations/in-the-news/current/pdf-media/gsecorder-handling-practices-ats-specific.pdf. By way of
comparison, IEX has disclosed that it uses
proprietary market data feeds from all registered
stock exchanges. See https://www.iextrading.com/
about/.
21 See
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74161
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.’ ’’ 23
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.24
23 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
24 The
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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.
mstockstill on DSK4VPTVN1PROD with NOTICES
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.’’ 25
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.
25 Press Release, U.S. Department of Justice,
Assistant Attorney General Christine Varney Holds
Conference Call Regarding NASDAQ OMX Group
Inc. and IntercontinentalExchange Inc. Abandoning
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19:01 Nov 25, 2015
Jkt 238001
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
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.’’ 26 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.27
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
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 (D.C. Dist.) ¶ 24
(‘‘NYSE and Direct Edge compete head-to-head . . .
in the provision of real-time proprietary equity data
products.’’).
26 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.
27 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.
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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
Integrated Feed unless their customers
request it, and customers will not elect
to pay the proposed fees unless NYSE
Integrated Feed 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
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mstockstill on DSK4VPTVN1PROD with NOTICES
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 September
2015, more than 80% of the transaction
volume on each of NYSE and NYSE’s
affiliates NYSE Arca and 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 supracompetitive 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.28 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.29
28 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).
29 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
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19:01 Nov 25, 2015
Jkt 238001
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.
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 11 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.
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 Global Markets
(‘‘BATS’’) and Direct Edge, which
Commission, Professor Henry C. Adams, that we
shall ever reach a mode of apportionment that will
lead to trustworthy results.’’).
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
74163
previously operated as ATSs and
obtained exchange status in 2008 and
2010, respectively, provided certain
market data at no charge on their Web
sites in order to attract more order flow,
and used revenue rebates from resulting
additional executions to maintain low
execution charges for their users.30 In
this environment, there is no economic
basis for regulating maximum prices for
one of the joint products in an industry
in which suppliers face competitive
constraints with regard to the joint
offering.
Existence of Alternatives
The large number of SROs, 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 Integrated Feed,
competitors offer close substitute
products.31 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
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 supra notes 19–20.
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Federal Register / Vol. 80, No. 228 / Friday, November 27, 2015 / Notices
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.
In setting the proposed fees for the
NYSE Integrated Feed, 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, and continued
availability of the Exchange’s separate
data feeds at a lower price, 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.
mstockstill on DSK4VPTVN1PROD with NOTICES
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) 32 of the Act and
subparagraph (f)(2) of Rule 19b–4 33
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
32 15
33 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
VerDate Sep<11>2014
19:01 Nov 25, 2015
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) 34 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Robert W. Errett,
Deputy Secretary.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
[FR Doc. 2015–30077 Filed 11–25–15; 8:45 am]
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–2015–57 on the subject line.
Notice of Applications for
Deregistration Under Section 8(f) of the
Investment Company Act of 1940
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–2015–57. 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
a.m. and 3 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
34 15
Jkt 238001
should refer to File Number SR–NYSE–
2015–57, and should be submitted on or
before December 18,2015.
PO 00000
U.S.C. 78s(b)(2)(B).
Frm 00094
Fmt 4703
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–31907]
November 20, 2015.
The following is a notice of
applications for deregistration under
section 8(f) of the Investment Company
Act of 1940 for the month of November
2015. A copy of each application may be
obtained via the Commission’s Web site
by searching for the file number, or for
an applicant using the Company name
box, at https://www.sec.gov/search/
search.htm or by calling (202) 551–
8090. An order granting each
application will be issued unless the
SEC orders a hearing. Interested persons
may request a hearing on any
application by writing to the SEC’s
Secretary at the address below and
serving the relevant applicant with a
copy of the request, personally or by
mail. Hearing requests should be
received by the SEC by 5:30 p.m. on
December 15, 2015, and should be
accompanied by proof of service on
applicants, in the form of an affidavit or,
for lawyers, a certificate of service.
Pursuant to Rule 0–5 under the Act,
hearing requests should state the nature
of the writer’s interest, any facts bearing
upon the desirability of a hearing on the
matter, the reason for the request, and
the issues contested. Persons who wish
to be notified of a hearing may request
notification by writing to the
Commission’s Secretary.
The Commission: Secretary,
U.S. Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Chief Counsel’s Office at (202) 551–
6821; SEC, Division of Investment
Management, Chief Counsel’s Office,
100 F Street NE., Washington, DC
20549–8010.
35 17
Sfmt 4703
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27NON1
]]>Agencies
[Federal Register Volume 80, Number 228 (Friday, November 27, 2015)]
[Notices]
[Pages 74158-74164]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30077]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76485; File No. SR-NYSE-2015-57]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Establishing Fees for the NYSE Integrated Feed
November 20, 2015.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 5, 2015, New York Stock Exchange LLC (``NYSE'' or the
``Exchange'') 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
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to establish fees for the NYSE Integrated
Feed. 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 establish the fees for the NYSE Integrated
Feed in the NYSE Proprietary Market Data Fee Schedule (``Fee
Schedule'').\3\ The Exchange proposes to make the NYSE Integrated Feed
available without charge starting on November 16, 2015. The Exchange
proposes to establish the following fees for the NYSE Integrated Feed
operative on January 1, 2016:
---------------------------------------------------------------------------
\3\ The proposed rule change establishing the NYSE Integrated
Feed was immediately effective on January 23, 2015. See Securities
Exchange Act Release No. 74128 (Jan. 23, 2015), 80 FR 4951 (Jan. 29,
2015) (SR-NYSE-2015-03).
---------------------------------------------------------------------------
1. Access Fee. For the receipt of access to the NYSE Integrated
Feed, the Exchange proposes to charge $7,500 per month.
2. User Fees. The Exchange proposes to charge a Professional User
Fee (Per User) of $70 per month and a Non-Professional User Fee (Per
User) of $16 per month. These user fees would apply to each display
device that has access to the NYSE Integrated Feed.
3. Non-Display Use Fees. The Exchange proposes to establish non-
display fees for the NYSE Integrated Feed using the same non-display
use fee structure established for the Exchange's other market data
products.\4\ Non-display use would mean accessing, processing, or
consuming the NYSE Integrated Feed delivered via direct and/or
Redistributor \5\ data feeds for a purpose other than in support of a
data recipient's display or further internal or external redistribution
(``Non-Display Use''). Non-Display Use would include any trading use,
such as high frequency or algorithmic trading, and would also include
any trading in any asset class, automated order or quote generation
and/or order pegging, price referencing for algorithmic trading or
smart order routing, operations control programs, investment analysis,
order verification, surveillance programs, risk management, compliance,
and portfolio management.
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\4\ See Securities Exchange Act Release Nos. 69278 (April 2,
2013), 78 FR 20973 (April 8, 2013) (SR-NYSE-2013-25) and 72923 (Aug.
26, 2014), 79 FR 52079 (Sept. 2, 2014) (SR-NYSE-2014-43).
\5\ ``Redistributor'' means a vendor or any person that provides
a real-time 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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Under the proposal, for Non-Display Use of NYSE Integrated Feed,
there would be three categories of, and fees applicable to, data
recipients. One, two or three categories of Non-Display Use may apply
to a data recipient.
Under the proposal, the Category 1 Fee would be $20,000
per month and would apply when a data recipient's Non-Display Use of
the NYSE Integrated Feed is on its own behalf, not on behalf of its
clients.
Under the proposal, Category 2 Fees would be $20,000 per
month and would apply to a data recipient's Non-Display Use of the NYSE
Integrated Feed on behalf of its clients.
Under the proposal, Category 3 Fees would be $20,000 and
would apply to a data recipient's Non-Display Use of the NYSE
Integrated Feed for the purpose of internally matching buy and sell
orders within an organization, including matching customer orders for
data recipient's own behalf and/or on behalf of its clients. This
category would apply to Non-Display Use in trading platforms, such as,
but not restricted to, alternative trading systems (``ATSs''), broker
crossing networks, broker crossing systems not filed as ATSs, dark
pools, multilateral trading facilities, exchanges and systematic
internalization systems. Category 3 Fees would be capped at $60,000 per
month for each data recipient for the NYSE Integrated Feed.
[[Page 74159]]
Non-Display Use fees for NYSE Integrated Feed include, for
customers also paying access fees for NYSE BBO, NYSE Trades, NYSE
OpenBook and NYSE Order Imbalances, the Non-Display Use for such
products when declared within the same category of use.
The description of the three non-display use categories is set
forth in the Fee Schedule in endnote 1 and that endnote would be
referenced in the NYSE Integrated Feed fees on the Fee Schedule. The
text in the endnote would remain unchanged.
Data recipients that receive the NYSE Integrated Feed for Non-
Display Use would be required to complete and submit a Non-Display Use
Declaration before they would be authorized to receive the feed.\6\ A
firm subject to Category 3 Fees would be required to identify each
platform that uses the NYSE Integrated Feed on a Non-Display Use basis,
such as ATSs and broker crossing systems not registered as ATSs, as
part of the Non-Display Use Declaration.
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\6\ Data recipients are required to complete and submit the Non-
Display Declaration with respect to each market data product on the
Fee Schedule that includes Non-Display Fees. See Securities Exchange
Act Release Nos. 74870 (May 5, 2015), 80 FR 26962 (May 11, 2015)
(SR-NYSE-2015-20) (NYSE OpenBook) and 74872 (May 5, 2015), 80 FR
26975 (May 11, 2015) (SR-NYSE-2015-21) (NYSE Order Imbalances) and
74861 (May 4, 2015), 80 FR 26599 (May 8, 2015) (SR-NYSE-2015-22)
(NYSE Trades and NYSE BBO).
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4. Non-Display Declaration Late Fee. Data recipients that receive
the NYSE Integrated Feed for Non-Display Use would be required to
complete and submit a Non-Display Use Declaration before they would be
authorized to receive the feed. Beginning in 2017, NYSE Integrated Feed
data recipients would be required to submit, by January 31st of each
year, the Non-Display Use Declaration that applies to all real-time
NYSE market data products that include Non-Display Use fees.\7\ The
Exchange proposes to charge a Non-Display Declaration Late Fee of
$1,000 per month to any data recipient that pays an Access Fee for NYSE
Integrated Feed that has failed to complete and submit a Non-Display
Use Declaration. Specifically, with respect to the Non-Display Use
Declaration due by January 31st of each year beginning in 2017, the
Non-Display Declaration Late Fee would apply to data recipients that
fail to complete and submit the Non-Display Use Declaration by the
January 31st due date, and would apply beginning February 1st and for
each month thereafter until the data recipient has completed and
submitted the annual Non-Display Use Declaration. The Exchange also
proposes to apply current endnote 2 on the Fee Schedule to the Non-
Display Declaration Late Fee for NYSE Integrated Feed, but proposes to
modify endnote 2 to the Fee Schedule so that it is clear that the Non-
Display Declaration Late Fee applies to the NYSE Integrated Feed
beginning February 1st of 2017 and each year thereafter with respect to
the Non-Display Use Declaration due by January 31st each year.\8\
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\7\ Id.
\8\ The second sentence of endnote 2 to the Fee Schedule refers
to a late fee for the Non-Display Use Declarations due September 1,
2014 that have not been submitted by July 1, 2015. This sentence is
not applicable to the NYSE Integrated Feed because NYSE Integrated
Feed was not available as of the September 1, 2014 due date and
because data recipients of the NYSE Integrated Feed will have to
complete and submit a Non-Display Declaration before they can
receive the feed. The Exchange proposes to modify the second
sentence so that it applies only to NYSE OpenBook, NYSE BBO, NYSE
Trades and NYSE Order Imbalances and not to the NYSE Integrated
Feed. The Exchange proposes to modify the third sentence so that it
is clear that it applies to all market data products, including the
NYSE Integrated Feed, to which Non-Display Use fees apply.
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In addition, if a data recipient's use of the NYSE Integrated Feed
data changes at any time after the data recipient submits a Non-Display
Use Declaration, the data recipient must inform the Exchange of the
change by completing and submitting at the time of the change an
updated declaration reflecting the change of use.
5. Redistribution Fee. For redistribution of the NYSE Integrated
Feed, the Exchange proposes to establish a fee of $4,000 per month.
The Exchange notes that the three existing data feed products--NYSE
OpenBook, NYSE Trades, and NYSE Order Imbalances--would continue to be
available to vendors and subscribers separately, in each case at the
same prices at which they are currently available.\9\
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\9\ See Fee Schedule.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\10\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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.
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\10\ 15 U.S.C. 78f(b).
\11\ 15 U.S.C. 78f(b)(4), (5).
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The Exchange believes it is equitable and not unfairly
discriminatory to make the NYSE Integrated Feed available free of
charge through December 31, 2015 because providing it at no charge
would provide an opportunity for vendors and subscribers to determine
whether the NYSE Integrated Feed suits their needs without incurring
fees. Other exchanges provide or have provided market data products
free for a certain period of time.\12\
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\12\ For example, NYSE Arca, Inc. (``NYSE Arca''), an affiliate
of the Exchange, offered ArcaBook for Arca Options-Complex, and NYSE
MKT LLC (``NYSE MKT''), an affiliate of the Exchange, offered
ArcaBook for Amex Options-Complex, without charge between May 1,
2014 and October 31, 2014. See Securities Exchange Act Release Nos.
72074 (May 1, 2014), 79 FR 26277 (May 7, 2014) (NYSEArca 2014-51)
and 72075 (May 1, 2014), 79 FR 26290 (May 7, 2014) (NYSEMKT 2014-
40). The NASDAQ Stock Market, Inc. (``NASDAQ'') provides a 30-day
free trial related to NASDAQ TotalView. See NASDAQ Rule 7023(e).
---------------------------------------------------------------------------
The fees for the NYSE Integrated Feed are reasonable because they
represent not only the value of the data available from three existing
data feeds but also the value of receiving the data on an integrated
basis. Receiving the data on an integrated basis provides greater
efficiencies and reduced errors for vendors and subscribers that
currently choose to integrate the data themselves after receiving it
from the Exchange. Some vendors and subscribers may not have the
technology or resources to integrate the separate data feeds in a
timely and/or efficient manner, and thus the integration feature of the
product may be valuable to them.
Moreover, the fees are equitably allocated and not unfairly
discriminatory because vendors and subscribers may choose to continue
to receive some or all of the data through the existing separate feeds
at current prices, or they can choose to pay for the NYSE Integrated
Feed in order to received integrated data, or they can choose a
combination of the two approaches, thereby allowing each vendor or
subscriber to choose the best business solution for itself.
The Exchange believes the proposed monthly Access Fee of $7,500 and
monthly Redistribution Fee of $4,000 for NYSE Integrated Feed are
reasonable because they are comparable to the total of the same types
of fees for NYSE OpenBook, NYSE Trades, and NYSE Order Imbalances. The
monthly Access Fee for NYSE OpenBook is $5,000, for NYSE Trades is
$1,500 and for NYSE Order Imbalances is $500.\13\ The monthly
Redistribution Fee for NYSE
[[Page 74160]]
OpenBook is $3,000 and for NYSE Trades is $1,000.\14\
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\13\ The Access Fee for Managed Non-Display Services only for
NYSE OpenBook is $2,500 per month, for NYSE Trades is $750 per month
and for NYSE Order Imbalances is $250 per month. Managed Non-Display
Services will not be offered for NYSE Integrated Feed.
\14\ There are no Redistribution or User fees charged for NYSE
Order Imbalances.
---------------------------------------------------------------------------
The Exchange believes that it is reasonable to charge
redistribution fees because vendors receive value from redistributing
the data in their business products for their customers. The
redistribution fees also are equitable and not unfairly discriminatory
because they will be charged on an equal basis to those vendors that
choose to redistribute the data. Also, the proposed redistribution fee
for NYSE Integrated Feed is reasonable because it is comparable to the
redistribution fees that are currently charged by other exchanges.\15\
---------------------------------------------------------------------------
\15\ NYSE Arca charges a $3,000 per month redistribution fee for
the NYSE Arca Integrated Feed. See Securities Exchange Act Release
No. 66128 (Jan. 10, 2012), 77 FR 2331 (Jan. 17, 2012) (SR-NYSEArca-
2011-96). Distributors of NASDAQ-listed security depth entitlements
pay a Monthly External Distributor Fee of $2,500. See NASDAQ Rule
7019(b).
---------------------------------------------------------------------------
The proposed monthly Professional User Fee (Per User) of $70 and
monthly Non-Professional User Fee (Per User) of $16 are reasonable
because they are comparable to the total of the per user fees for NYSE
OpenBook and NYSE Trades. The monthly Professional User Fee (Per User)
for NYSE OpenBook is $60 and for NYSE Trades, it is $4. The monthly
Non-Professional User Fee (Per User) for NYSE OpenBook is $15 and for
NYSE Trades, it is $0.20.
The Exchange believes that having separate Professional and Non-
Professional User fees for the NYSE Integrated Feed is reasonable
because it will make the product more affordable and result in greater
availability to Professional and Non-Professional Users. Setting a
modest Non-Professional User fee is reasonable because it provides an
additional method for Non-Professional Users to access the NYSE
Integrated Feed by providing the same data that is available to
Professional Users. The Exchange believes that the proposed fees are
equitable and not unfairly discriminatory because they will be charged
uniformly to recipient firms and Users. The fee structure of
differentiated Professional and Non-Professional fees applies to the
user fees applicable to NYSE OpenBook and NYSE Trades and has long been
used by the Exchange in order to reduce the price of data to Non-
Professional Users and make it more broadly available.\16\ Offering the
NYSE Integrated Feed to Non-Professional Users with the same data
available to Professional Users results in greater equity among data
recipients.
---------------------------------------------------------------------------
\16\ See e.g., Securities Exchange Act Release No. 59544 (March
9, 2009), 74 FR 11162 (March 16, 2009) (SR-NYSE-2008-131)
(establishing the $15 Non-Professional User Fee (Per User) for NYSE
OpenBook). See e.g., Securities Exchange Act Release No. 20002, File
No. S7-433 (July 22, 1983), 48 FR 34552 (July 29, 1983)
(establishing nonprofessional fees for CTA data); NASDAQ Rules
7023(b), 7047.
---------------------------------------------------------------------------
The Exchange believes the proposed Non-Display Use fees are
reasonable, equitable and not unfairly discriminatory because they
reflect the value of the data to the data recipients in their profit-
generating activities and do not impose the burden of counting non-
display devices. After gaining further experience with the non-display
fee structure, the Exchange believes that the proposed Non-Display Use
fees reflect the significant value of the non-display data to data
recipients, which purchase such data on an entirely voluntary basis.
Non-display data can be used by data recipients for a wide variety of
profit-generating purposes, including proprietary and agency trading
and smart order routing, as well as by data recipients that operate
order matching and execution platforms that compete directly with the
Exchange for order flow. The data also can be used for a variety of
non-trading purposes that indirectly support trading, such as risk
management and compliance. While some of these non-trading uses do not
directly generate revenues, they can nonetheless substantially reduce
the recipient's costs by automating such functions so that they can be
carried out in a more efficient and accurate manner and reduce errors
and labor costs, thereby benefiting end users. The Exchange believes
that charging for non-trading uses is reasonable because data
recipients can derive substantial value from such uses, for example, by
automating tasks so that they can be performed more quickly and
accurately and less expensively than if they were performed manually.
Data can be processed much faster by a non-display device than it
can be by a human being processing information that he or she views on
a data terminal. Non-display devices also can dispense data to multiple
computer applications as compared with the restriction of data to one
display terminal. While non-display data has become increasingly
valuable to data recipients who can use it to generate substantial
profits, it has become increasing difficult for them and the Exchange
to accurately count non-display devices. The number and type of non-
display devices, as well as their complexity and interconnectedness,
have grown in recent years, creating administrative challenges for
vendors, data recipients, and the Exchange to accurately count such
devices and audit such counts. Unlike a display device, such as a
Bloomberg terminal, it is not possible to simply walk through a trading
floor or areas of a data recipient's premises to identify non-display
devices. During an audit, an auditor must review a firm's entitlement
report to determine usage. While display use is generally associated
with an individual end user and/or unique user ID, a non-display use is
more difficult to account for because the entitlement report may show a
server name or Internet protocol (``IP'') address or it may not. The
auditor must review each IP or server and further inquire about
downstream use and quantity of servers with access to data; this type
of counting is very labor-intensive and prone to inaccuracies.
Market data technology and usage has evolved to the point where it
is no longer practical, nor fair and equitable, to simply count non-
display devices. The administrative costs and difficulties of
establishing reliable counts and conducting an effective audit of non-
display devices have become too burdensome, impractical, and non-
economic for the Exchange, vendors, and data recipients. Indeed, some
data recipients dislike the burden of having to comply with count-based
audit processes, and the Exchange's non-display pricing policies are a
direct response to such complaints as well as a further competitive
distinction between the Exchange and other markets. The Exchange
believes that the proposed fee structure for non-display use is
reasonable, equitable, and not unfairly discriminatory in light of
these developments.
The Non-Display Use fees for the NYSE Integrated Feed are
reasonable because they represent the extra value of receiving the data
for Non-Display Use on an integrated basis. The Exchange believes that
the proposed fees directly and appropriately reflect the significant
value of using NYSE Integrated Feed on a non-display basis 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.\17\
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\17\ See also Exchange Act Release No. 69157, March 18, 2013, 78
FR 17946, 17949 (March 25, 2013) (SR-CTA/CQ-2013-01) (``[D]ata feeds
have become more valuable, as recipients now use them to perform a
far larger array of non-display functions. Some firms even base
their business models on the incorporation of data feeds into black
boxes and application programming interfaces that apply trading
algorithms to the data, but that do not require widespread data
access by the firm's employees. As a result, these firms pay little
for data usage beyond access fees, yet their data access and usage
is critical to their businesses.'').
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[[Page 74161]]
The Exchange believes that it is reasonable to require annual
submissions of the Non-Display Use Declaration so that the Exchange
will have current and accurate information about the use of the NYSE
Integrated Feed and can correctly assess fees for the uses of the NYSE
Integrated Feed. The annual submission requirement is equitable and not
unfairly discriminatory because it will apply to all users.
The Exchange believes that it is reasonable to impose a late fee in
connection with the submission of the Non-Display Use Declaration. In
order to correctly assess fees for the non-display use of NYSE
Integrated Feed, the Exchange needs to have current and accurate
information about the use of NYSE Integrated Feed. The failure of data
recipients to submit the Non-Display Use Declaration on time leads to
potentially incorrect billing and administrative burdens, including
tracking and obtaining late Non-Display Use Declarations and correcting
and following up on payments owed in connection with late Non-Display
Use Declarations. The purpose of the late fee is to incent data
recipients to submit the Non-Display Use Declaration promptly to avoid
the administrative burdens associated with the late submission of Non-
Display Use Declarations. The Non-Display Declaration Late Fee is
equitable and not unfairly discriminatory because it will apply to all
data recipients that choose to subscribe to the NYSE Integrated Feed.
In addition, the proposed fees are reasonable when compared to fees
for comparable products, including the NYSE Arca Integrated Feed,\18\
offered by NYSE Arca and Nasdaq TotalView-Itch,\19\ offered by NASDAQ.
Specifically, the fees for NYSE Arca Integrated Feed, which like NYSE
Integrated Feed, includes depth of book, trades, and order imbalances
data for the NYSE Arca market, and a security status message, consist
of an Access Fee of $3,000 per month, a Professional User Fee (Per
User) of $40 per month a Non-Professional User Fee (Per User) of $20
per month, Non-Display Fees of $7,000 per month for each of Categories
1, 2 and 3, and a Redistribution Fee of $3,000 per month. The fees are
also equitable and not unfairly discriminatory because they will apply
to all data recipients that choose to subscribe to the NYSE Integrated
Feed.
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\18\ See NYSE Arca Integrated Feed, https://www.nyxdata.com/page/1084 (last visited June 8, 2015) (data feed that provides a unified
view of events, in sequence as they appear on the NYSE Arca matching
engine, including depth of book, trades, order imbalance data, and
security status messages).
\19\ See NASDAQ TotalView-ITCH, https://www.nasdaqtrader.com/Trader.aspx?id=Totalview2 (last visited June 8, 2015) (displays the
full order book depth for NASDAQ market participants and also
disseminates the Net Order Imbalance Indicator (NOII) for the NASDAQ
Opening and Closing Crosses and NASDAQ IPO/Halt Cross).
---------------------------------------------------------------------------
The Exchange also notes that the NYSE Integrated Feed is entirely
optional. The Exchange is not required to make the NYSE Integrated Feed
available or to offer any specific pricing alternatives to any
customers, nor is any firm required to purchase the NYSE Integrated
Feed. Firms that purchase the NYSE Integrated Feed would do so for the
primary goals of using it to increase revenues, reduce expenses, and in
some instances compete directly with the Exchange (including for order
flow); those firms are able to determine for themselves whether the
NYSE Integrated Feed or any other similar products are attractively
priced or not.
Firms that do not wish to purchase the NYSE Integrated Feed at the
new prices have a variety of alternative market data products from
which to choose,\20\ or if the NYSE Integrated Feed 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 the NYSE Integrated Feed.
The Exchange notes that broker-dealers are not required to purchase
proprietary market data to comply with their best execution
obligations.\21\ 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 ATSs have chosen not to do
so.\22\
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\20\ See supra notes 19-20.
\21\ 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).
\22\ For example, Goldman Sachs Execution and Clearing, L.P.
disclosed in 2014 that it was not using 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.
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.' '' \23\
---------------------------------------------------------------------------
\23\ 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.\24\
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\24\ 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.
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[[Page 74162]]
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.'' \25\
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\25\ 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 (D.C. Dist.) ] 24 (``NYSE and Direct Edge compete
head-to-head . . . in the provision of real-time proprietary equity
data products.'').
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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 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.'' \26\ 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.\27\
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\26\ 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.
\27\ 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.
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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 Integrated Feed
unless their customers request it, and customers will not elect to pay
the proposed fees unless NYSE Integrated Feed 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
[[Page 74163]]
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 September 2015, more than 80% of
the transaction volume on each of NYSE and NYSE's affiliates NYSE Arca
and 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.\28\ 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.\29\
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\28\ 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).
\29\ See generally Mark Hirschey, Fundamentals of Managerial
Economics, at 600 (2009) (``It is important to note, however, that
although it is possible to determine the separate marginal costs of
goods produced in variable proportions, it is impossible to
determine their individual average costs. This is because common
costs are expenses necessary for manufacture of a joint product.
Common costs of production--raw material and equipment costs,
management expenses, and other overhead--cannot be allocated to each
individual by-product on any economically sound basis.. . . Any
allocation of common costs is wrong and arbitrary.''). This is not
new economic theory. See, e.g., F. W. Taussig, ``A Contribution to
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4)
438, 465 (July 1891) (``Yet, surely, the division is purely
arbitrary. These items of cost, in fact, are jointly incurred for
both sorts of traffic; and I cannot share the hope entertained by
the statistician of the Commission, Professor Henry C. Adams, that
we shall ever reach a mode of apportionment that will lead to
trustworthy results.'').
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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. 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 11 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.
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 Global Markets (``BATS'') and Direct Edge,
which previously operated as ATSs and obtained exchange status in 2008
and 2010, respectively, provided certain market data at no charge on
their Web sites in order to attract more order flow, and used revenue
rebates from resulting additional executions to maintain low execution
charges for their users.\30\ 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.
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\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.
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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 Integrated Feed,
competitors offer close substitute products.\31\ 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.
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\31\ See supra notes 19-20.
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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
[[Page 74164]]
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.
In setting the proposed fees for the NYSE Integrated Feed, 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, and
continued availability of the Exchange's separate data feeds at a lower
price, 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) \32\ of the Act and subparagraph (f)(2) of Rule
19b-4 \33\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \34\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\34\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSE-2015-57 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-2015-57. 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
a.m. and 3 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-NYSE-2015-57, and should be
submitted on or before December 18, 2015.
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\35\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-30077 Filed 11-25-15; 8:45 am]
BILLING CODE 8011-01-P
