Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Fees for NYSE OpenBook, 3506-3512 [2016-01052]
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Federal Register / Vol. 81, No. 13 / Thursday, January 21, 2016 / Notices
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) 35 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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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–
NYSEMKT–2016–04 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.
All submissions should refer to File
Number SR–NYSEMKT–2016–04. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Section, 100 F Street NE.,
Washington, DC 20549–1090 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing will also be available for
inspection and copying at the NYSE’s
principal office and on its Internet Web
site at www.nyse.com. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
35 15
U.S.C. 78s(b)(2)(B).
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submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEMKT–2016–04 and should be
submitted on or before February 11,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–01056 Filed 1–20–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76900; File No. SR–NYSE–
2016–02]
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
January 14, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on January
4, 2016, New York Stock Exchange LLC
(‘‘NYSE’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
1. Purpose
The Exchange proposes to amend the
fees for NYSE OpenBook,4 as set forth
on the NYSE Proprietary Market Data
Fee Schedule (‘‘Fee Schedule’’). The
Exchange proposes to make the
following fee changes effective January
4, 2016:
• Establish a multiple data feed fee;
• Discontinue fees relating to
managed non-display; and
• Modify the application of the access
fee.
The Exchange also proposes to modify
the application of the non-professional
fee cap, effective April 1, 2016.
Multiple Data Feed Fee
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Amending the
Fees for NYSE OpenBook
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
fees for NYSE OpenBook to: (1)
Establish a multiple data feed fee; (2)
discontinue fees relating to managed
non-display; (3) modify the application
of the access fee; and (4) modify the
application of the non-professional user
fee cap. 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.
36 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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The Exchange proposes to establish a
new monthly fee, the ‘‘Multiple Data
Feed Fee,’’ that would apply to data
recipients that take a data feed for a
market data product in more than two
locations. Data recipients taking NYSE
OpenBook in more than two locations
would be charged $200 per additional
location per month. No new reporting
would be required.5
4 See Securities Exchange Act Release Nos. 57861
(May 23, 2008), 73 FR 31905 (June 4, 2008) (SR–
NYSE–2008–42) (‘‘2008 NYSE OpenBook Notice’’),
59544 (Mar. 9, 2009), 74 FR 11162 (March 16, 2009)
(SR–NYSE–2008–131) (‘‘2009 NYSE OpenBook
Order’’) and 62038 (May 5, 2010), 75 FR 26825
(May 12, 2010) (SR–NYSE–2010–22). See also
Securities Exchange Act Release Nos. 69278 (April
2, 2013), 78 FR 20973 (April 8, 2013) (SR–NYSE–
2013–25) (‘‘2013 Non-Display Filing’’), 72923 (Aug.
26, 2014), 79 FR 52079 (Sept. 2, 2014) (SR–NYSE–
2014–43) (‘‘2014 Non-Display Filing’’) and 74027
(Jan. 9, 2015), 80 FR 2148 (Jan. 15, 2015) (SR–
NYSE–2014–76) (‘‘2015 NYSE OpenBook Notice’’).
5 Data vendors currently report a unique Vendor
Account Number for each location at which they
provide a data feed to a data recipient. The
Exchange considers each Vendor Account Number
a location. For example, if a data recipient has five
Vendor Account Numbers, representing five
locations, for the receipt of the NYSE OpenBook
product, that data recipient will pay the Multiple
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Managed Non-Display Fees
Non-Display Use of NYSE market data
means accessing, processing, or
consuming NYSE market data delivered
via direct and/or Redistributor 6 data
feeds for a purpose other than in
support of a data recipient’s display
usage or further internal or external
redistribution.7 Managed Non-Display
Services fees apply when a data
recipient’s non-display applications are
hosted by a Redistributor that has been
approved for Managed Non-Display
Services.8 A Redistributor approved for
Managed Non-Display Services manages
and controls the access to NYSE
OpenBook and does not allow for
further internal distribution or external
redistribution of NYSE OpenBook by
the data recipients. A Redistributor
approved for Managed Non-Display
Services is required to report to NYSE
on a monthly basis the data recipients
that are receiving NYSE market data
through the Redistributor’s managed
non-display service and the real-time
NYSE market data products that such
data recipients are receiving through
such service. Recipients of data through
Managed Non-Display Service have no
additional reporting requirements. Data
recipients that receive NYSE OpenBook
from an approved Redistributor of
Managed Non-Display Services are
charged an access fee of $2,500 per
month and a Managed Non-Display
Services Fee of $2,400 per month, for a
total fee of $4,900 per month.
The Exchange proposes to
discontinue the fees related to Managed
Non-Display Services because of the
limited number of Redistributors that
have qualified for Managed Non-Display
Services and the administrative burdens
associated with the program in light of
the limited number of Redistributors
Data Feed fee with respect to three of the five
locations.
6 ‘‘Redistributor’’ means a vendor or any other
person that provides an NYSE data product to a
data recipient or to any system that a data recipient
uses, irrespective of the means of transmission or
access.
7 See e.g. 2015 NYSE OpenBook Notice, supra
note 4.
8 To be approved for Managed Non-Display
Services, a Redistributor must manage and control
the access to NYSE OpenBook for data recipients’
non-display applications and not allow for further
internal distribution or external redistribution of
the information by data recipients. In addition, the
Redistributor is required to (a) host the data
recipients’ non-display applications in equipment
located in the Redistributor’s data center and/or
hosted space/cage and (b) offer NYSE OpenBook in
the Redistributor’s own messaging formats (rather
than using raw NYSE message formats) by
reformatting and/or altering NYSE OpenBook prior
to retransmission without affecting the integrity of
NYSE OpenBook and without rendering NYSE
OpenBook inaccurate, unfair, uninformative,
fictitious, misleading or discriminatory.
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that have qualified for Managed NonDisplay Services. As proposed, all data
recipients currently using NYSE
OpenBook on a managed non-display
basis would be subject to the same
access fee of $5,000 per month, and the
same non-display services fees,9 as
other data recipients.10
Modification of the Application of the
Access Fee
The Exchange proposes to make two
changes to the application of the access
fee for NYSE OpenBook.
First, each NYSE OpenBook data feed
recipient currently pays a monthly
$5,000 access fee for NYSE OpenBook.
Recipients of NYSE OpenBook that also
receive NYSE BBO and NYSE Order
Imbalances do not currently pay an
access fee for NYSE BBO and NYSE
Order Imbalances.11 The Exchange
proposes to amend the NYSE OpenBook
access fee so that recipients of NYSE
OpenBook who also receive NYSE BBO
or NYSE Order Imbalances would be
required to pay a separate access fees for
NYSE BBO ($1,500 per month) and/or
NYSE Order Imbalances ($500 per
month) in addition to the access fee for
NYSE OpenBook. This change would
have no impact on customers who do
not receive NYSE OpenBook but who do
receive NYSE BBO or NYSE Order
Imbalances.
Second, NYSE OpenBook is currently
available in two forms: NYSE OpenBook
Aggregated (formerly known as NYSE
OpenBook Realtime) and NYSE
OpenBook Ultra. NYSE OpenBook
Aggregated distributes the Exchange’s
limit order data in real-time at intervals
of one second. NYSE OpenBook Ultra
makes available limit order data in realtime upon receipt of each displayed
limit order.12
When the Exchange introduced NYSE
OpenBook Ultra, the Exchange
represented that it would continue to
support and make available NYSE
OpenBook Aggregated as an optional
alternative without additional or
9 See
Fee Schedule.
order to harmonize its approach to fees for
its market data products, the Exchange is
simultaneously proposing to remove fees related to
Managed Non-Display Services for NYSE BBO,
NYSE Trades, and NYSE Order Imbalances. See
SR–NYSE–2016–03 and SR–NYSE–2016–04. The
fees applicable to the NYSE Integrated market data
product effective as of January 4, 2016 do not
include Managed Non-Display Services fees.
11 See 2009 NYSE OpenBook Order, supra note 4,
at 11163.
12 See 2008 NYSE OpenBook Notice, supra note
4. NYSE OpenBook Ultra also includes information
regarding the changes in limit order interest,
provides more precise timestamp resolution
(microseconds) and provides a format that is
optimized for speed and recoverability.
10 In
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different fees or terms.13 At that time,
the Exchange stated that it anticipated
reassessing its pricing for NYSE
OpenBook, and that it might restructure
or modify the charges applicable to the
NYSE OpenBook Aggregated and NYSE
OpenBook Ultra packages. Currently,
recipients of NYSE OpenBook
Aggregated and NYSE OpenBook Ultra
pay an access of $5,000 per month
whether they receive one or both
products. The Exchange proposes to
charge separate access fees for each of
NYSE OpenBook Ultra and NYSE
OpenBook Aggregated. As proposed, the
Exchange would charge an access fee of
$5,000 per month for NYSE OpenBook
Aggregated and an access fee of $5,000
per month for NYSE OpenBook Ultra.14
Non-Professional User Fee Cap
For display use of the NYSE
OpenBook data feed, the Fee Schedule
sets forth a Professional User Fee of $60
per user per month and a NonProfessional User Fee of $15 per user
per month. These user fees generally
apply to each display device that has
access to NYSE OpenBook.
For customers that are broker-dealers,
these fees are subject to a $25,000 per
month cap on non-professional user fees
(the ‘‘Non-Professional User Fee
Cap’’).15 In 2009, the Exchange adopted
guidelines under which the brokerdealer would be eligible for the NonProfessional User Fee Cap
notwithstanding the inclusion,
temporarily or unintentionally, of a
limited number of account-holding
professional users (the ‘‘Professional
User Exception’’), subject to a complex
set of conditions relating to the
percentage of professional users, the
relationship of those professional users
to the broker-dealer, and the method of
13 See 2008 NYSE OpenBook Notice, supra note
4, at 31906.
14 All other fees applicable to NYSE OpenBook
will continue to apply as they do currently, whether
a data recipient receives one or both of NYSE
OpenBook Aggregated and NYSE OpenBook Ultra.
15 See 2009 NYSE OpenBook Order, supra note 4.
The 2009 NYSE OpenBook Order described the
$25,000 fee cap as being subject to increase or
decrease by the percentage increase or decrease in
the annual cost-of-living adjustment (‘‘COLA’’) that
the U.S. Social Security Administration applies to
Supplemental Security Income for the calendar year
preceding that subsequent calendar year. Although
COLAs have represented increases in each year
since this fee was adopted in 2009 (https://
www.ssa.gov/oact/cola/colaseries.html, last visited
on November 30, 2015), the Exchange has waived
its right to implement the increases it would have
been entitled to implement and has not increased
the fee cap commensurate with the intervening
COLAs and hereby proposes to set the fee cap at
a constant $25,000 per month that would not be
subject to COLA adjustments.
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display and use of the data.16 The
Exchange proposed the Professional
User Exception to the Non-Professional
User Fee Cap to permit broker-dealers
that primarily serve non-institutional
brokerage account holders to offer an
online client experience without undue
administrative burdens while at the
same time guarding against potential
abuses by monitoring the use of the
exception closely and reserving the right
to deny application of the exception if
a broker-dealer is determined to be
misusing it, such as by opening up retail
brokerage accounts to disseminate data
to institutional clients.
The Exchange proposes to eliminate
the Professional User Exception for
NYSE OpenBook effective April 1, 2016.
The Exchange notes the Professional
User Exception was an accommodation,
the benefits of which were, when
implemented, outweighed by the
complexity of the terms of the exception
and the burdens on customers and on
the Exchange that have to track
compliance with the exception. In
addition, the Exchange notes that the
Professional User Exception has been
used by a small number of customers
since it was adopted.
Accordingly, as proposed, the NonProfessional User Fee Cap would no
longer include any professional users
that receive NYSE OpenBook data feed
and the Professional User fee of $60 per
16 See 2009 NYSE OpenBook Order, supra note 3
at 11164. The Professional User Exception provided
that a broker-dealer could include professional
Subscribers in the calculation of the monthly
maximum amount for the Non-Professional User
Fee Cap if: (i) Nonprofessional Subscribers
comprise no less than 95 percent of the pool of
Subscribers that are included in the calculation; (ii)
each professional Subscriber included in the
calculation maintains an active brokerage account
directly with the broker-dealer (that is, with the
broker-dealer rather than with a correspondent firm
of the broker dealer); and (iii) each professional
Subscriber that is included in the calculation is not
affiliated with the broker-dealer or any of its
affiliates; (iv) all Subscribers receive access to the
identical service, regardless of whether the
Subscribers are professional Subscribers or
nonprofessional Subscribers; (v) upon discovery of
the inclusion in the cap of an individual that does
not qualify as a nonprofessional Subscriber, the
broker-dealer takes reasonable action to reclassify
and report that individual as a professional
Subscriber during the immediately following
reporting period. Notwithstanding (iii) and (v), the
broker-dealer could include a professional
Subscriber that is affiliated with the broker-dealer
or its affiliates (subject to (i) and (ii)) if he or she
accesses market data on-line through his or her
personal account solely for the non-business
purpose of managing his or her own portfolio.
Notwithstanding (v), professional Subscribers may
constitute up to five percent of the pool of
Subscribers that the broker-dealer includes in the
calculation of the monthly maximum amount if
those professional Subscribers can only view data
derived from through the Subscriber’s online
brokerage account and only in an inquiry/response
per-quote display (i.e., not in a streaming display).
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user per month would apply with
respect to all Professional Users.
Non-Substantive Change to the Fee
Schedule
Non-Display Use fees for NYSE
OpenBook include the Non-Display Use
of NYSE BBO and NYSE Order
Imbalances for customers paying NYSE
OpenBook non-display fees that also
pay access fees for NYSE BBO and
NYSE Order Imbalances.17 The
Exchange proposes to describe this
application of the Non-Display Use fees
in note 1 to the Fee Schedule.18
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,19
in general, and Sections 6(b)(4) and
6(b)(5) of the Act,20 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 fees are also equitable and not
unfairly discriminatory because they
will apply to all data recipients that
choose to subscribe to NYSE OpenBook.
Multiple Data Feed Fee
The Exchange believes that it is
reasonable to require data recipients to
pay a modest additional fee [sic] taking
a data feed for a market data product in
more than two locations, because such
data recipients can derive substantial
value from being able to consume the
product in as many locations as they
want. In addition, there are
administrative burdens associated with
tracking each location at which a data
recipient receives the product. The
Multiple Data Feed Fee is designed to
encourage data recipients to better
manage their requests for additional
data feeds and to monitor their usage of
data feeds. The proposed fee is designed
to apply to data feeds received in more
than two locations so that each data
recipient can have one primary and one
backup data location before having to
pay a multiple data feed fee. The
Exchange notes that this pricing is
consistent with similar pricing adopted
in 2013 by the Consolidated Tape
17 See 2013 Non-Display Filing, supra note 4, at
20976.
18 The Exchange added a similar note, Note 1(b),
to the Fee Schedule in connection with the addition
of fees for the NYSE Integrated Feed. See Securities
Exchange Act Release No. 76485 (Nov. 20, 2015),
80 FR 74158 (Nov. 27, 2015) (SR–NYSE–2015–57).
19 15 U.S.C. 78f(b).
20 15 U.S.C. 78f(b)(4), (5).
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Association (‘‘CTA’’).21 The Exchange
also notes that the OPRA Plan imposes
a similar charge of $100 per connection
for circuit connections in addition to the
primary and backup connections.22
Managed Non-Display Fees
The Exchange believes that it is
reasonable to discontinue Managed
Non-Display Fees. As the Exchange
noted in the 2013 Non-Display Filing,
the Exchange determined at that time
that its fee structure, which was then
based primarily on counting both
display and non-display devices, was no
longer appropriate in light of market
and technology developments. Since
then, the Exchange also modified its
approach to display and non-display
fees with changes to the fees as reflected
in the 2014 Non-Display Filing.23
Discontinuing the fees applicable to
Managed Non-Display as proposed
reflects the Exchange’s continuing
review and consideration of the
application of non-display fees, and
would harmonize and simplify the
application of Non-Display Use fees by
applying them consistently to all users.
In particular, after further experience
with the application of non-display use
fees, the Exchange believes that it is
more equitable and less discriminatory
to discontinue the distinction for
Managed Non-Display services because
all data recipients using data on a nondisplay basis are using it in a
comparable way and should be subject
to similar fees regardless of whether or
not they receive the data directly from
the Exchange. The Exchange believes
that applying the same non-display fees
to all data recipients on the same basis
better reflects the significant value of
non-display data to data recipients and
eliminates what is effectively a discount
for certain data recipients, and as such
is not unfairly discriminatory. The
Exchange believes that the non-display
fees directly and appropriately reflect
the significant value of using nondisplay data in a wide range of
computer-automated functions relating
to both trading and non-trading
activities and that the number and range
of these functions continue to grow
through innovation and technology
developments.
21 See Securities Exchange Act Release No. 70010
(July 19, 2013), 78 FR 44984 (July 25, 2013) (SR–
CTA/CQ–2013–04).
22 See ‘‘Direct Access Fee,’’ Options Price
Reporting Authority Fee Schedule Fee Schedule
PRA Plan at https://www.opradata.com/pdf/fee_
schedule.pdf.
23 See note 4, supra.
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Modifications To Access Fees
The Exchange believes that it is
reasonable to make the changes
proposed to the application of access
fees for NYSE OpenBook. In both cases,
the Exchange believes the proposed
changes will make the application of the
access fees to each of products so that
an access fee entitles a customer to
receive, for the applicable product, a
data feed or feeds. Specifically, data
recipients that take the NYSE
OpenBook, NYSE BBO and/or NYSE
Order Imbalances products receive
value from each separate product they
choose to take. A data recipient that
chooses to take multiple products that
contain overlapping data (no recipient is
required to take any of these products,
or any specific combination of them)
uses each product in a different way and
therefore obtains different value from
each. Similarly, the Exchange believes
that it is reasonable to apply separate
access fees for each of NYSE OpenBook
Ultra and NYSE OpenBook Aggregated.
First, applying an access fee to each
product would bring consistency to the
Exchange’s application of access.
Second, because NYSE OpenBook Ultra
and NYSE OpenBook Aggregated
provide the Exchange’s depth of book
data in different forms, data recipients
that choose to receive and utilize both
forms get separate value from each. The
Exchange believes that each product has
a separate and distinct value that is
appropriate to reflect in a separate
access fee. Finally, the requirement to
pay separate access fees for each market
data product is equitable and not
unfairly discriminatory because it
would apply to all data recipients and
appropriately reflects the value of each
product to those who choose to use
them.
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Non-Professional User Fee Cap
The Exchange believes that it is
reasonable to modify the application of
the non-professional user fee cap by
eliminating the Professional User
Exception. The Exchange notes that the
Professional User Exception was an
accommodation, the benefits of which
were, when implemented, outweighed
by the complexity of the terms of, and
tracking compliance with, the
exception. Eliminating the Professional
User Exception would make the
application of the Non-Professional User
Fee Cap simpler by removing an
administrative exception that has had
very limited use and application.
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Non-Substantive Changes to the Fee
Schedule
The Exchange believes that adding a
note to the Fee Schedule to reflect that
Non-Display Use fees for NYSE
OpenBook include the Non-Display Use
of NYSE BBO and NYSE Order
Imbalances for customers paying NYSE
OpenBook non-display fees that are also
paying access fees for NYSE BBO and
NYSE Order Imbalances will remove
impediments to and help perfect a free
and open market by providing greater
transparency for the Exchange’s
customers regarding the application of
non-display use fees that have been
previously filed with the Commission
and are applicable to the existing Fee
Schedule. 24
The Exchange notes that NYSE
OpenBook is entirely optional. The
Exchange is not required to make NYSE
OpenBook available or to offer any
specific pricing alternatives to any
customers, nor is any firm required to
purchase NYSE OpenBook. Firms that
do purchase NYSE OpenBook do so for
the primary goals of using it to increase
revenues, reduce expenses, and in some
instances compete directly with the
Exchange (including for order flow);
those firms are able to determine for
themselves whether NYSE OpenBook or
any other similar products are
attractively priced or not.25
Firms that do not wish to purchase
NYSE OpenBook at the new prices have
a variety of alternative market data
products from which to choose,26 or if
NYSE OpenBook does not provide
sufficient value to firms as offered based
on the uses those firms have or planned
to make of it, such firms may simply
choose to conduct their business
operations in ways that do not use
NYSE OpenBook or use it at different
levels or in different configurations. The
Exchange notes that broker-dealers are
not required to purchase proprietary
market data to comply with their best
execution obligations.27
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),
24 See 2013 Non-Display Filing, supra note 4, at
20976.
25 See, e.g., Proposing Release on Regulation of
NMS Stock Alternative Trading Systems, Securities
Exchange Act Release No. 76474 (Nov. 18, 2015)
(File No. S7–23–15). See also, ‘‘Brokers Warned Not
to Steer Clients’ Stock Trades Into Slow Lane,’’
Bloomberg Business, December 14, 2015 (Sigma X
dark pool to use direct exchange feeds as the
primary source of price data).
26 See NASDAQ Rule 7023 (Nasdaq Totalview)
and BATS Rule 11.22(a) and (c) (BATS TCP Pitch
and Multicast Pitch).
27 See FINRA Regulatory Notice 15–46, ‘‘Best
Execution,’’ November 2015.
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3509
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.’ ’’ 28
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 proprietary market data
would be so complicated that it could
not be done practically or offer any
significant benefits.29
28 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.
29 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
asabaliauskas on DSK9F6TC42PROD 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
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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information on each equity trade,
including the last sale.’’ 30
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.’’ 31 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.32
If an exchange succeeds in competing
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
30 Press Release, U.S. Department of Justice,
Assistant Attorney General Christine Varney Holds
Conference Call Regarding NASDAQ OMX Group
Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011),
available at https://www.justice.gov/iso/opa/atr/
speeches/2011/at-speech-110516.html; see also
Complaint in U.S. v. Deutsche Borse AG and NYSE
Euronext, Case No. 11–cv–2280 (DC Dist.) ¶ 24
(‘‘NYSE and Direct Edge compete head-to-head . . .
in the provision of real-time proprietary equity data
products.’’).
31 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.
32 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.
PO 00000
Frm 00134
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executions, then its market data
products may be less desirable to
customers in light of the diminished
content and data products offered by
competing venues may become more
attractive. Thus, competition for
quotations, order flow, and trade
executions puts significant pressure on
an exchange to maintain both execution
and data fees at reasonable levels.
In addition, in the case of products
that are also redistributed through
market data vendors, such as Bloomberg
and Thompson Reuters, the vendors
themselves provide additional price
discipline for proprietary data products
because they control the primary means
of access to certain end users. These
vendors impose price discipline based
upon their business models. For
example, vendors that assess a
surcharge on data they sell are able to
refuse to offer proprietary products that
their end users do not or will not
purchase in sufficient numbers. Vendors
will not elect to make available NYSE
OpenBook unless their customers
request it, and customers will not elect
to pay the proposed fees unless NYSE
OpenBook can provide value by
sufficiently increasing revenues or
reducing costs in the customer’s
business in a manner that will offset the
fees. All of these factors operate as
constraints on pricing proprietary data
products.
Joint Product Nature of Exchange
Platform
Transaction execution and proprietary
data products are complementary in that
market data is both an input and a
byproduct of the execution service. In
fact, proprietary market data and trade
executions are a paradigmatic example
of joint products with joint costs. The
decision of whether and on which
platform to post an order will depend
on the attributes of the platforms where
the order can be posted, including the
execution fees, data availability and
quality, and price and distribution of
data products. Without a platform to
post quotations, receive orders, and
execute trades, exchange data products
would not exist.
The costs of producing market data
include not only the costs of the data
distribution infrastructure, but also the
costs of designing, maintaining, and
operating the exchange’s platform for
posting quotes, accepting orders, and
executing transactions and the cost of
regulating the exchange to ensure its fair
operation and maintain investor
confidence. The total return that a
trading platform earns reflects the
revenues it receives from both products
and the joint costs it incurs.
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asabaliauskas on DSK9F6TC42PROD with NOTICES
Moreover, an exchange’s brokerdealer customers generally view the
costs of transaction executions and
market data as a unified cost of doing
business with the exchange. A brokerdealer will only choose to direct orders
to an exchange if the revenue from the
transaction exceeds its cost, including
the cost of any market data that the
broker-dealer chooses to buy in support
of its order routing and trading
decisions. If the costs of the transaction
are not offset by its value, then the
broker-dealer may choose instead not to
purchase the product and trade away
from that exchange. There is substantial
evidence of the strong correlation
between order flow and market data
purchases. For example, in September
2015, more than 80% of the transaction
volume on each of NYSE and NYSE’s
affiliates NYSE Arca, Inc. (‘‘NYSE
Arca’’) and NYSE MKT LLC (‘‘NYSE
MKT’’) was executed by market
participants that purchased one or more
proprietary market data products (the 20
firms were not the same for each
market). A supra-competitive increase
in the fees for either executions or
market data would create a risk of
reducing an exchange’s revenues from
both products.
Other market participants have noted
that proprietary market data and trade
executions are joint products of a joint
platform and have common costs.33 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.34
33 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).
34 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,
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18:26 Jan 20, 2016
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
alternative trading systems (‘‘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 FINRAregulated 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
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.’’).
PO 00000
Frm 00135
Fmt 4703
Sfmt 4703
3511
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.35 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, including but not limited
to the Exchange, NYSE MKT, NYSE
Arca, NASDAQ OMX, BATS, and Direct
Edge.
The fact that proprietary data from
ATSs, internalizing broker-dealers, and
vendors can bypass SROs is significant
in two respects. First, non-SROs can
compete directly with SROs for the
production and sale of proprietary data
products. By way of example, BATS and
NYSE Arca both published proprietary
data on the Internet before registering as
exchanges. Second, because a single
order or transaction report can appear in
an SRO proprietary product, a non-SRO
proprietary product, or both, the amount
of data available via proprietary
products is greater in size than the
actual number of orders and transaction
reports that exist in the marketplace.
With respect to NYSE OpenBook,
competitors offer close substitute
products.36 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
35 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.
36 See note 26, supra.
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may substitute another source of market
data information for its own.
Those competitive pressures imposed
by available alternatives are evident in
the Exchange’s proposed pricing.
In addition to the competition and
price discipline described above, the
market for proprietary data products is
also highly contestable because market
entry is rapid and inexpensive. The
history of electronic trading is replete
with examples of entrants that swiftly
grew into some of the largest electronic
trading platforms and proprietary data
producers: Archipelago, Bloomberg
Tradebook, Island, RediBook, Attain,
TrackECN, BATS Trading and Direct
Edge. As noted above, BATS launched
as an ATS in 2006 and became an
exchange in 2008, while Direct Edge
began operations in 2007 and obtained
exchange status in 2010.
In determining the proposed changes
to the fees for the NYSE OpenBook, the
Exchange considered the
competitiveness of the market for
proprietary data and all of the
implications of that competition. The
Exchange believes that it has considered
all relevant factors and has not
considered irrelevant factors in order to
establish fair, reasonable, and not
unreasonably discriminatory fees and an
equitable allocation of fees among all
users. The existence of numerous
alternatives to the Exchange’s products,
including proprietary data from other
sources, ensures that the Exchange
cannot set unreasonable fees, or fees
that are unreasonably discriminatory,
when vendors and subscribers can elect
these alternatives or choose not to
purchase a specific proprietary data
product if the attendant fees are not
justified by the returns that any
particular vendor or data recipient
would achieve through the purchase.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
asabaliauskas on DSK9F6TC42PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective
upon filing pursuant to Section
19(b)(3)(A) 37 of the Act and
subparagraph (f)(2) of Rule 19b–4 38
thereunder, because it establishes a due,
37 15
38 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
VerDate Sep<11>2014
18:26 Jan 20, 2016
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 39 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSE–2016–02 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–2016–02. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
39 15
Jkt 238001
PO 00000
U.S.C. 78s(b)(2)(B).
Frm 00136
Fmt 4703
Sfmt 4703
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–NYSE–
2016–02 and should be submitted on or
before February 11, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–01052 Filed 1–20–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76909; File No. SR–CBOE–
2015–106]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Approving a
Proposed Rule Change To Permit P.M.Settled Options on Broad-Based
Indexes To Expire on Any Wednesday
of the Month by Expanding the End of
Week/End of Month Pilot Program
January 14, 2016.
I. Introduction
On November 17, 2015, Chicago
Board Options Exchange, Incorporated
(‘‘CBOE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
expand the End of Week/End of Month
Pilot Program to permit P.M.-settled
options on broad-based indexes to
expire on any Wednesday of the month
and extend the duration of the pilot
program. The proposed rule change was
published for comment in the Federal
Register on December 3, 2015.3 The
Commission received no comments on
the proposal. This order approves the
proposed rule change.
II. Description of the Proposal
CBOE proposes to expand and extend
the duration of its existing End of Week/
End of Month Pilot Program (the
40 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 76529
(November 30, 2015), 80 FR 75695 (December 3,
2015) (‘‘Notice’’).
1 15
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]]>Agencies
[Federal Register Volume 81, Number 13 (Thursday, January 21, 2016)]
[Notices]
[Pages 3506-3512]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01052]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76900; File No. SR-NYSE-2016-02]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending the Fees for NYSE OpenBook
January 14, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on January 4, 2016, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the fees for NYSE OpenBook to: (1)
Establish a multiple data feed fee; (2) discontinue fees relating to
managed non-display; (3) modify the application of the access fee; and
(4) modify the application of the non-professional user fee cap. The
proposed rule change is available on the Exchange's Web site at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the fees for NYSE OpenBook,\4\ as
set forth on the NYSE Proprietary Market Data Fee Schedule (``Fee
Schedule''). The Exchange proposes to make the following fee changes
effective January 4, 2016:
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release Nos. 57861 (May 23,
2008), 73 FR 31905 (June 4, 2008) (SR-NYSE-2008-42) (``2008 NYSE
OpenBook Notice''), 59544 (Mar. 9, 2009), 74 FR 11162 (March 16,
2009) (SR-NYSE-2008-131) (``2009 NYSE OpenBook Order'') and 62038
(May 5, 2010), 75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22). See
also Securities Exchange Act Release Nos. 69278 (April 2, 2013), 78
FR 20973 (April 8, 2013) (SR-NYSE-2013-25) (``2013 Non-Display
Filing''), 72923 (Aug. 26, 2014), 79 FR 52079 (Sept. 2, 2014) (SR-
NYSE-2014-43) (``2014 Non-Display Filing'') and 74027 (Jan. 9,
2015), 80 FR 2148 (Jan. 15, 2015) (SR-NYSE-2014-76) (``2015 NYSE
OpenBook Notice'').
---------------------------------------------------------------------------
Establish a multiple data feed fee;
Discontinue fees relating to managed non-display; and
Modify the application of the access fee.
The Exchange also proposes to modify the application of the non-
professional fee cap, effective April 1, 2016.
Multiple Data Feed Fee
The Exchange proposes to establish a new monthly fee, the
``Multiple Data Feed Fee,'' that would apply to data recipients that
take a data feed for a market data product in more than two locations.
Data recipients taking NYSE OpenBook in more than two locations would
be charged $200 per additional location per month. No new reporting
would be required.\5\
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\5\ Data vendors currently report a unique Vendor Account Number
for each location at which they provide a data feed to a data
recipient. The Exchange considers each Vendor Account Number a
location. For example, if a data recipient has five Vendor Account
Numbers, representing five locations, for the receipt of the NYSE
OpenBook product, that data recipient will pay the Multiple Data
Feed fee with respect to three of the five locations.
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[[Page 3507]]
Managed Non-Display Fees
Non-Display Use of NYSE market data means accessing, processing, or
consuming NYSE market data delivered via direct and/or Redistributor
\6\ data feeds for a purpose other than in support of a data
recipient's display usage or further internal or external
redistribution.\7\ Managed Non-Display Services fees apply when a data
recipient's non-display applications are hosted by a Redistributor that
has been approved for Managed Non-Display Services.\8\ A Redistributor
approved for Managed Non-Display Services manages and controls the
access to NYSE OpenBook and does not allow for further internal
distribution or external redistribution of NYSE OpenBook by the data
recipients. A Redistributor approved for Managed Non-Display Services
is required to report to NYSE on a monthly basis the data recipients
that are receiving NYSE market data through the Redistributor's managed
non-display service and the real-time NYSE market data products that
such data recipients are receiving through such service. Recipients of
data through Managed Non-Display Service have no additional reporting
requirements. Data recipients that receive NYSE OpenBook from an
approved Redistributor of Managed Non-Display Services are charged an
access fee of $2,500 per month and a Managed Non-Display Services Fee
of $2,400 per month, for a total fee of $4,900 per month.
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\6\ ``Redistributor'' means a vendor or any other person that
provides an NYSE data product to a data recipient or to any system
that a data recipient uses, irrespective of the means of
transmission or access.
\7\ See e.g. 2015 NYSE OpenBook Notice, supra note 4.
\8\ To be approved for Managed Non-Display Services, a
Redistributor must manage and control the access to NYSE OpenBook
for data recipients' non-display applications and not allow for
further internal distribution or external redistribution of the
information by data recipients. In addition, the Redistributor is
required to (a) host the data recipients' non-display applications
in equipment located in the Redistributor's data center and/or
hosted space/cage and (b) offer NYSE OpenBook in the Redistributor's
own messaging formats (rather than using raw NYSE message formats)
by reformatting and/or altering NYSE OpenBook prior to
retransmission without affecting the integrity of NYSE OpenBook and
without rendering NYSE OpenBook inaccurate, unfair, uninformative,
fictitious, misleading or discriminatory.
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The Exchange proposes to discontinue the fees related to Managed
Non-Display Services because of the limited number of Redistributors
that have qualified for Managed Non-Display Services and the
administrative burdens associated with the program in light of the
limited number of Redistributors that have qualified for Managed Non-
Display Services. As proposed, all data recipients currently using NYSE
OpenBook on a managed non-display basis would be subject to the same
access fee of $5,000 per month, and the same non-display services
fees,\9\ as other data recipients.\10\
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\9\ See Fee Schedule.
\10\ In order to harmonize its approach to fees for its market
data products, the Exchange is simultaneously proposing to remove
fees related to Managed Non-Display Services for NYSE BBO, NYSE
Trades, and NYSE Order Imbalances. See SR-NYSE-2016-03 and SR-NYSE-
2016-04. The fees applicable to the NYSE Integrated market data
product effective as of January 4, 2016 do not include Managed Non-
Display Services fees.
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Modification of the Application of the Access Fee
The Exchange proposes to make two changes to the application of the
access fee for NYSE OpenBook.
First, each NYSE OpenBook data feed recipient currently pays a
monthly $5,000 access fee for NYSE OpenBook. Recipients of NYSE
OpenBook that also receive NYSE BBO and NYSE Order Imbalances do not
currently pay an access fee for NYSE BBO and NYSE Order Imbalances.\11\
The Exchange proposes to amend the NYSE OpenBook access fee so that
recipients of NYSE OpenBook who also receive NYSE BBO or NYSE Order
Imbalances would be required to pay a separate access fees for NYSE BBO
($1,500 per month) and/or NYSE Order Imbalances ($500 per month) in
addition to the access fee for NYSE OpenBook. This change would have no
impact on customers who do not receive NYSE OpenBook but who do receive
NYSE BBO or NYSE Order Imbalances.
---------------------------------------------------------------------------
\11\ See 2009 NYSE OpenBook Order, supra note 4, at 11163.
---------------------------------------------------------------------------
Second, NYSE OpenBook is currently available in two forms: NYSE
OpenBook Aggregated (formerly known as NYSE OpenBook Realtime) and NYSE
OpenBook Ultra. NYSE OpenBook Aggregated distributes the Exchange's
limit order data in real-time at intervals of one second. NYSE OpenBook
Ultra makes available limit order data in real-time upon receipt of
each displayed limit order.\12\
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\12\ See 2008 NYSE OpenBook Notice, supra note 4. NYSE OpenBook
Ultra also includes information regarding the changes in limit order
interest, provides more precise timestamp resolution (microseconds)
and provides a format that is optimized for speed and
recoverability.
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When the Exchange introduced NYSE OpenBook Ultra, the Exchange
represented that it would continue to support and make available NYSE
OpenBook Aggregated as an optional alternative without additional or
different fees or terms.\13\ At that time, the Exchange stated that it
anticipated reassessing its pricing for NYSE OpenBook, and that it
might restructure or modify the charges applicable to the NYSE OpenBook
Aggregated and NYSE OpenBook Ultra packages. Currently, recipients of
NYSE OpenBook Aggregated and NYSE OpenBook Ultra pay an access of
$5,000 per month whether they receive one or both products. The
Exchange proposes to charge separate access fees for each of NYSE
OpenBook Ultra and NYSE OpenBook Aggregated. As proposed, the Exchange
would charge an access fee of $5,000 per month for NYSE OpenBook
Aggregated and an access fee of $5,000 per month for NYSE OpenBook
Ultra.\14\
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\13\ See 2008 NYSE OpenBook Notice, supra note 4, at 31906.
\14\ All other fees applicable to NYSE OpenBook will continue to
apply as they do currently, whether a data recipient receives one or
both of NYSE OpenBook Aggregated and NYSE OpenBook Ultra.
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Non-Professional User Fee Cap
For display use of the NYSE OpenBook data feed, the Fee Schedule
sets forth a Professional User Fee of $60 per user per month and a Non-
Professional User Fee of $15 per user per month. These user fees
generally apply to each display device that has access to NYSE
OpenBook.
For customers that are broker-dealers, these fees are subject to a
$25,000 per month cap on non-professional user fees (the ``Non-
Professional User Fee Cap'').\15\ In 2009, the Exchange adopted
guidelines under which the broker-dealer would be eligible for the Non-
Professional User Fee Cap notwithstanding the inclusion, temporarily or
unintentionally, of a limited number of account-holding professional
users (the ``Professional User Exception''), subject to a complex set
of conditions relating to the percentage of professional users, the
relationship of those professional users to the broker-dealer, and the
method of
[[Page 3508]]
display and use of the data.\16\ The Exchange proposed the Professional
User Exception to the Non-Professional User Fee Cap to permit broker-
dealers that primarily serve non-institutional brokerage account
holders to offer an online client experience without undue
administrative burdens while at the same time guarding against
potential abuses by monitoring the use of the exception closely and
reserving the right to deny application of the exception if a broker-
dealer is determined to be misusing it, such as by opening up retail
brokerage accounts to disseminate data to institutional clients.
---------------------------------------------------------------------------
\15\ See 2009 NYSE OpenBook Order, supra note 4. The 2009 NYSE
OpenBook Order described the $25,000 fee cap as being subject to
increase or decrease by the percentage increase or decrease in the
annual cost-of-living adjustment (``COLA'') that the U.S. Social
Security Administration applies to Supplemental Security Income for
the calendar year preceding that subsequent calendar year. Although
COLAs have represented increases in each year since this fee was
adopted in 2009 (https://www.ssa.gov/oact/cola/colaseries.html, last
visited on November 30, 2015), the Exchange has waived its right to
implement the increases it would have been entitled to implement and
has not increased the fee cap commensurate with the intervening
COLAs and hereby proposes to set the fee cap at a constant $25,000
per month that would not be subject to COLA adjustments.
\16\ See 2009 NYSE OpenBook Order, supra note 3 at 11164. The
Professional User Exception provided that a broker-dealer could
include professional Subscribers in the calculation of the monthly
maximum amount for the Non-Professional User Fee Cap if: (i)
Nonprofessional Subscribers comprise no less than 95 percent of the
pool of Subscribers that are included in the calculation; (ii) each
professional Subscriber included in the calculation maintains an
active brokerage account directly with the broker-dealer (that is,
with the broker-dealer rather than with a correspondent firm of the
broker dealer); and (iii) each professional Subscriber that is
included in the calculation is not affiliated with the broker-dealer
or any of its affiliates; (iv) all Subscribers receive access to the
identical service, regardless of whether the Subscribers are
professional Subscribers or nonprofessional Subscribers; (v) upon
discovery of the inclusion in the cap of an individual that does not
qualify as a nonprofessional Subscriber, the broker-dealer takes
reasonable action to reclassify and report that individual as a
professional Subscriber during the immediately following reporting
period. Notwithstanding (iii) and (v), the broker-dealer could
include a professional Subscriber that is affiliated with the
broker-dealer or its affiliates (subject to (i) and (ii)) if he or
she accesses market data on-line through his or her personal account
solely for the non-business purpose of managing his or her own
portfolio. Notwithstanding (v), professional Subscribers may
constitute up to five percent of the pool of Subscribers that the
broker-dealer includes in the calculation of the monthly maximum
amount if those professional Subscribers can only view data derived
from through the Subscriber's online brokerage account and only in
an inquiry/response per-quote display (i.e., not in a streaming
display).
---------------------------------------------------------------------------
The Exchange proposes to eliminate the Professional User Exception
for NYSE OpenBook effective April 1, 2016. The Exchange notes the
Professional User Exception was an accommodation, the benefits of which
were, when implemented, outweighed by the complexity of the terms of
the exception and the burdens on customers and on the Exchange that
have to track compliance with the exception. In addition, the Exchange
notes that the Professional User Exception has been used by a small
number of customers since it was adopted.
Accordingly, as proposed, the Non-Professional User Fee Cap would
no longer include any professional users that receive NYSE OpenBook
data feed and the Professional User fee of $60 per user per month would
apply with respect to all Professional Users.
Non-Substantive Change to the Fee Schedule
Non-Display Use fees for NYSE OpenBook include the Non-Display Use
of NYSE BBO and NYSE Order Imbalances for customers paying NYSE
OpenBook non-display fees that also pay access fees for NYSE BBO and
NYSE Order Imbalances.\17\ The Exchange proposes to describe this
application of the Non-Display Use fees in note 1 to the Fee
Schedule.\18\
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\17\ See 2013 Non-Display Filing, supra note 4, at 20976.
\18\ The Exchange added a similar note, Note 1(b), to the Fee
Schedule in connection with the addition of fees for the NYSE
Integrated Feed. See Securities Exchange Act Release No. 76485 (Nov.
20, 2015), 80 FR 74158 (Nov. 27, 2015) (SR-NYSE-2015-57).
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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,\19\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\20\ 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.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 78f(b).
\20\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------
The fees are also equitable and not unfairly discriminatory because
they will apply to all data recipients that choose to subscribe to NYSE
OpenBook.
Multiple Data Feed Fee
The Exchange believes that it is reasonable to require data
recipients to pay a modest additional fee [sic] taking a data feed for
a market data product in more than two locations, because such data
recipients can derive substantial value from being able to consume the
product in as many locations as they want. In addition, there are
administrative burdens associated with tracking each location at which
a data recipient receives the product. The Multiple Data Feed Fee is
designed to encourage data recipients to better manage their requests
for additional data feeds and to monitor their usage of data feeds. The
proposed fee is designed to apply to data feeds received in more than
two locations so that each data recipient can have one primary and one
backup data location before having to pay a multiple data feed fee. The
Exchange notes that this pricing is consistent with similar pricing
adopted in 2013 by the Consolidated Tape Association (``CTA'').\21\ The
Exchange also notes that the OPRA Plan imposes a similar charge of $100
per connection for circuit connections in addition to the primary and
backup connections.\22\
---------------------------------------------------------------------------
\21\ See Securities Exchange Act Release No. 70010 (July 19,
2013), 78 FR 44984 (July 25, 2013) (SR-CTA/CQ-2013-04).
\22\ See ``Direct Access Fee,'' Options Price Reporting
Authority Fee Schedule Fee Schedule PRA Plan at https://www.opradata.com/pdf/fee_schedule.pdf.
---------------------------------------------------------------------------
Managed Non-Display Fees
The Exchange believes that it is reasonable to discontinue Managed
Non-Display Fees. As the Exchange noted in the 2013 Non-Display Filing,
the Exchange determined at that time that its fee structure, which was
then based primarily on counting both display and non-display devices,
was no longer appropriate in light of market and technology
developments. Since then, the Exchange also modified its approach to
display and non-display fees with changes to the fees as reflected in
the 2014 Non-Display Filing.\23\ Discontinuing the fees applicable to
Managed Non-Display as proposed reflects the Exchange's continuing
review and consideration of the application of non-display fees, and
would harmonize and simplify the application of Non-Display Use fees by
applying them consistently to all users. In particular, after further
experience with the application of non-display use fees, the Exchange
believes that it is more equitable and less discriminatory to
discontinue the distinction for Managed Non-Display services because
all data recipients using data on a non-display basis are using it in a
comparable way and should be subject to similar fees regardless of
whether or not they receive the data directly from the Exchange. The
Exchange believes that applying the same non-display fees to all data
recipients on the same basis better reflects the significant value of
non-display data to data recipients and eliminates what is effectively
a discount for certain data recipients, and as such is not unfairly
discriminatory. The Exchange believes that the non-display fees
directly and appropriately reflect the significant value of using non-
display data in a wide range of computer-automated functions relating
to both trading and non-trading activities and that the number and
range of these functions continue to grow through innovation and
technology developments.
---------------------------------------------------------------------------
\23\ See note 4, supra.
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[[Page 3509]]
Modifications To Access Fees
The Exchange believes that it is reasonable to make the changes
proposed to the application of access fees for NYSE OpenBook. In both
cases, the Exchange believes the proposed changes will make the
application of the access fees to each of products so that an access
fee entitles a customer to receive, for the applicable product, a data
feed or feeds. Specifically, data recipients that take the NYSE
OpenBook, NYSE BBO and/or NYSE Order Imbalances products receive value
from each separate product they choose to take. A data recipient that
chooses to take multiple products that contain overlapping data (no
recipient is required to take any of these products, or any specific
combination of them) uses each product in a different way and therefore
obtains different value from each. Similarly, the Exchange believes
that it is reasonable to apply separate access fees for each of NYSE
OpenBook Ultra and NYSE OpenBook Aggregated. First, applying an access
fee to each product would bring consistency to the Exchange's
application of access. Second, because NYSE OpenBook Ultra and NYSE
OpenBook Aggregated provide the Exchange's depth of book data in
different forms, data recipients that choose to receive and utilize
both forms get separate value from each. The Exchange believes that
each product has a separate and distinct value that is appropriate to
reflect in a separate access fee. Finally, the requirement to pay
separate access fees for each market data product is equitable and not
unfairly discriminatory because it would apply to all data recipients
and appropriately reflects the value of each product to those who
choose to use them.
Non-Professional User Fee Cap
The Exchange believes that it is reasonable to modify the
application of the non-professional user fee cap by eliminating the
Professional User Exception. The Exchange notes that the Professional
User Exception was an accommodation, the benefits of which were, when
implemented, outweighed by the complexity of the terms of, and tracking
compliance with, the exception. Eliminating the Professional User
Exception would make the application of the Non-Professional User Fee
Cap simpler by removing an administrative exception that has had very
limited use and application.
Non-Substantive Changes to the Fee Schedule
The Exchange believes that adding a note to the Fee Schedule to
reflect that Non-Display Use fees for NYSE OpenBook include the Non-
Display Use of NYSE BBO and NYSE Order Imbalances for customers paying
NYSE OpenBook non-display fees that are also paying access fees for
NYSE BBO and NYSE Order Imbalances will remove impediments to and help
perfect a free and open market by providing greater transparency for
the Exchange's customers regarding the application of non-display use
fees that have been previously filed with the Commission and are
applicable to the existing Fee Schedule. \24\
---------------------------------------------------------------------------
\24\ See 2013 Non-Display Filing, supra note 4, at 20976.
---------------------------------------------------------------------------
The Exchange notes that NYSE OpenBook is entirely optional. The
Exchange is not required to make NYSE OpenBook available or to offer
any specific pricing alternatives to any customers, nor is any firm
required to purchase NYSE OpenBook. Firms that do purchase NYSE
OpenBook do so for the primary goals of using it to increase revenues,
reduce expenses, and in some instances compete directly with the
Exchange (including for order flow); those firms are able to determine
for themselves whether NYSE OpenBook or any other similar products are
attractively priced or not.\25\
---------------------------------------------------------------------------
\25\ See, e.g., Proposing Release on Regulation of NMS Stock
Alternative Trading Systems, Securities Exchange Act Release No.
76474 (Nov. 18, 2015) (File No. S7-23-15). See also, ``Brokers
Warned Not to Steer Clients' Stock Trades Into Slow Lane,''
Bloomberg Business, December 14, 2015 (Sigma X dark pool to use
direct exchange feeds as the primary source of price data).
---------------------------------------------------------------------------
Firms that do not wish to purchase NYSE OpenBook at the new prices
have a variety of alternative market data products from which to
choose,\26\ or if NYSE OpenBook does not provide sufficient value to
firms as offered based on the uses those firms have or planned to make
of it, such firms may simply choose to conduct their business
operations in ways that do not use NYSE OpenBook or use it at different
levels or in different configurations. The Exchange notes that broker-
dealers are not required to purchase proprietary market data to comply
with their best execution obligations.\27\
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\26\ See NASDAQ Rule 7023 (Nasdaq Totalview) and BATS Rule
11.22(a) and (c) (BATS TCP Pitch and Multicast Pitch).
\27\ See FINRA Regulatory Notice 15-46, ``Best Execution,''
November 2015.
---------------------------------------------------------------------------
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.' '' \28\
---------------------------------------------------------------------------
\28\ 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 proprietary market data would be so complicated
that it could not be done practically or offer any significant
benefits.\29\
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\29\ 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 3510]]
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.'' \30\
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\30\ Press Release, U.S. Department of Justice, Assistant
Attorney General Christine Varney Holds Conference Call Regarding
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011), available at https://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html; see
also Complaint in U.S. v. Deutsche Borse AG and NYSE Euronext, Case
No. 11-cv-2280 (DC Dist.) ] 24 (``NYSE and Direct Edge compete head-
to-head . . . in the provision of real-time proprietary equity data
products.'').
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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.'' \31\ 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.\32\
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\31\ 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.
\32\ 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 competing 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 in light of
the diminished content and data products offered by competing venues
may become more attractive. Thus, competition for quotations, order
flow, and trade executions puts significant pressure on an exchange to
maintain both execution and data fees at reasonable levels.
In addition, in the case of products that are also redistributed
through market data vendors, such as Bloomberg and Thompson Reuters,
the vendors themselves provide additional price discipline for
proprietary data products because they control the primary means of
access to certain end users. These vendors impose price discipline
based upon their business models. For example, vendors that assess a
surcharge on data they sell are able to refuse to offer proprietary
products that their end users do not or will not purchase in sufficient
numbers. Vendors will not elect to make available NYSE OpenBook unless
their customers request it, and customers will not elect to pay the
proposed fees unless NYSE OpenBook can provide value by sufficiently
increasing revenues or reducing costs in the customer's business in a
manner that will offset the fees. All of these factors operate as
constraints on pricing proprietary data products.
Joint Product Nature of Exchange Platform
Transaction execution and proprietary data products are
complementary in that market data is both an input and a byproduct of
the execution service. In fact, proprietary market data and trade
executions are a paradigmatic example of joint products with joint
costs. The decision of whether and on which platform to post an order
will depend on the attributes of the platforms where the order can be
posted, including the execution fees, data availability and quality,
and price and distribution of data products. Without a platform to post
quotations, receive orders, and execute trades, exchange data products
would not exist.
The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's platform for posting quotes,
accepting orders, and executing transactions and the cost of regulating
the exchange to ensure its fair operation and maintain investor
confidence. The total return that a trading platform earns reflects the
revenues it receives from both products and the joint costs it incurs.
[[Page 3511]]
Moreover, an exchange's broker-dealer customers generally view the
costs of transaction executions and market data as a unified cost of
doing business with the exchange. A broker-dealer will only choose to
direct orders to an exchange if the revenue from the transaction
exceeds its cost, including the cost of any market data that the
broker-dealer chooses to buy in support of its order routing and
trading decisions. If the costs of the transaction are not offset by
its value, then the broker-dealer may choose instead not to purchase
the product and trade away from that exchange. There is substantial
evidence of the strong correlation between order flow and market data
purchases. For example, in September 2015, more than 80% of the
transaction volume on each of NYSE and NYSE's affiliates NYSE Arca,
Inc. (``NYSE Arca'') and NYSE MKT LLC (``NYSE MKT'') was executed by
market participants that purchased one or more proprietary market data
products (the 20 firms were not the same for each market). A supra-
competitive increase in the fees for either executions or market data
would create a risk of reducing an exchange's revenues from both
products.
Other market participants have noted that proprietary market data
and trade executions are joint products of a joint platform and have
common costs.\33\ 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.\34\
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\33\ 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).
\34\ 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 alternative trading
systems (``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.\35\ 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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\35\ 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,
including but not limited to the Exchange, NYSE MKT, NYSE Arca, NASDAQ
OMX, BATS, and Direct Edge.
The fact that proprietary data from ATSs, internalizing broker-
dealers, and vendors can bypass SROs is significant in two respects.
First, non-SROs can compete directly with SROs for the production and
sale of proprietary data products. By way of example, BATS and NYSE
Arca both published proprietary data on the Internet before registering
as exchanges. Second, because a single order or transaction report can
appear in an SRO proprietary product, a non-SRO proprietary product, or
both, the amount of data available via proprietary products is greater
in size than the actual number of orders and transaction reports that
exist in the marketplace. With respect to NYSE OpenBook, competitors
offer close substitute products.\36\ 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
[[Page 3512]]
may substitute another source of market data information for its own.
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\36\ See note 26, supra.
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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 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 determining the proposed changes to the fees for the NYSE
OpenBook, the Exchange considered the competitiveness of the market for
proprietary data and all of the implications of that competition. The
Exchange believes that it has considered all relevant factors and has
not considered irrelevant factors in order to establish fair,
reasonable, and not unreasonably discriminatory fees and an equitable
allocation of fees among all users. The existence of numerous
alternatives to the Exchange's products, including proprietary data
from other sources, ensures that the Exchange cannot set unreasonable
fees, or fees that are unreasonably discriminatory, when vendors and
subscribers can elect these alternatives or choose not to purchase a
specific proprietary data product if the attendant fees are not
justified by the returns that any particular vendor or data recipient
would achieve through the purchase.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \37\ of the Act and subparagraph (f)(2) of Rule
19b-4 \38\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\37\ 15 U.S.C. 78s(b)(3)(A).
\38\ 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) \39\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\39\ 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-2016-02 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-2016-02. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSE-2016-02 and should be
submitted on or before February 11, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
Robert W. Errett,
Deputy Secretary.
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\40\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-01052 Filed 1-20-16; 8:45 am]
BILLING CODE 8011-01-P
