Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Fees for NYSE ArcaBook, 3547-3553 [2016-01055]
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Federal Register / Vol. 81, No. 13 / Thursday, January 21, 2016 / Notices
a burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as
amended.10 In terms of inter-market
competition, the Exchange notes that it
operates in a highly competitive market
in which market participants can
readily favor competing venues if they
deem fee levels at a particular venue to
be excessive, or credit opportunities
available at other venues to be more
favorable. In such an environment, the
Exchange must continually adjust its
fees and credits to remain competitive
with other exchanges and with
alternative trading systems that have
been exempted from compliance with
the statutory standards applicable to
exchanges. Because competitors are free
to modify their own fees and credits in
response, and because market
participants may readily adjust their
order routing practices, the Exchange
believes that the degree to which fee
changes in this market may impose any
burden on competition is extremely
limited. In this instance, both the
proposed new credit tier and the
modification to the fee are subject to
extensive competition both from other
exchanges and from off-exchange
venues.
In sum, if the changes proposed
herein are unattractive to market
participants, it is likely that the
Exchange will lose market share as a
result. Accordingly, the Exchange does
not believe that the proposed changes
will impair the ability of members or
competing order execution venues to
maintain their competitive standing in
the financial markets.
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C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 11 and paragraph (f) of Rule
19b–4 12 thereunder. At any time within
60 days of the filing of the 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
10 15
U.S.C. 78f(b)(8).
U.S.C. 78s(b)(3)(A).
12 17 CFR 240.19b–4(f).
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.13
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–01064 Filed 1–20–16; 8:45 am]
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
BX–2016–001 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BX–2016–001. 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–BX–
2016–001, and should be submitted on
or before February 11, 2016.
11 15
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76903; File No. SR–
NYSEARCA–2016–01]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the Fees for
NYSE ArcaBook
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, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’ or
‘‘SEC’’) 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.
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 ArcaBook to: (1) Establish
a multiple data feed fee; (2) discontinue
fees relating to managed non-display;
and (3) 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,
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
13
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17 CFR 200.30–3(a)(12).
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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 ArcaBook,4 as set forth on
the NYSE Arca Equities 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;
and
• Discontinue fees relating to
managed non-display
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
ArcaBook in more than two locations
would be charged $200 per additional
location per month. No new reporting
would be required.5
Managed Non-Display Fees
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Non-Display Use of NYSE Arca
market data means accessing,
processing, or consuming NYSE Arca
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
4 See Securities Exchange Act Release Nos. 53592
(June 7, 2006), 71 FR 33496 (June 9, 2006) (SR–
NYSEArca–2006–21) (‘‘2006 ArcaBook Notice’’);
59039 (Dec. 2, 2008), 73 FR 74770 (Dec. 9, 2008)
(SR–NYSEArca–2006–21); 69315 (April 5, 2013), 78
FR 21668 (April 11, 2013) (SR–NYSEArca–2013–37)
(‘‘2013 Non-Display Filing’’); 72560 (July 8, 2014),
79 FR 40801 (July 14, 2014) (SR–NYSEArca–2014–
72) (‘‘2014 ArcaBook Filing’’); 73011 (Sept. 5, 2014),
79 FR 54315 (Sept. 11, 2014) (SR–NYSEARCA–
2014–93) (‘‘2014 Non-Display Filing’’); and 74011
(Jan. 7, 2015), 80 FR 1681 (Jan. 13, 2015) (SR–
NYSEArca–2014–149) (‘‘2015 ArcaBook Filing’’).
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 ArcaBook
product, that data recipient will pay the Multiple
Data Feed fee with respect to three of the five
locations.
6 ‘‘Redistributor’’ means a vendor or any other
person that provides an NYSE Arca data product to
a data recipient or to any system that a data
recipient uses, irrespective of the means of
transmission or access.
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internal or external redistribution.7
Managed Non-Display Services fees
apply when a data recipient’s nondisplay 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 ArcaBook
and does not allow for further internal
distribution or external redistribution of
NYSE ArcaBook by the data recipients.
A Redistributor approved for Managed
Non-Display Services is required to
report to NYSE Arca on a monthly basis
the data recipients that are receiving
NYSE Arca market data through the
Redistributor’s managed non-display
service and the real-time NYSE Arca
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 ArcaBook
from an approved Redistributor of
Managed Non-Display Services are
charged an access fee of $1,000 per
month and a Managed Non-Display
Services Fee of $1,800 per month, for a
total fee of $2,800 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
that have qualified for Managed NonDisplay Services. As proposed, all data
recipients currently using NYSE
ArcaBook on a managed non-display
basis would be subject to the same
access fee of $2,000 per month, and the
same non-display services fees,9 as
other data recipients.10
7 See
e.g. 2015 ArcaBook Filing, supra note 4.
be approved for Managed Non-Display
Services, a Redistributor must manage and control
the access to NYSE ArcaBook 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 ArcaBook in
the Redistributor’s own messaging formats (rather
than using raw NYSE message formats) by
reformatting and/or altering NYSE ArcaBook prior
to retransmission without affecting the integrity of
NYSE ArcaBook and without rendering NYSE
ArcaBook inaccurate, unfair, uninformative,
fictitious, misleading or discriminatory.
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 Arca BBO,
NYSE Arca Trades, and NYSE Arca Integrated Feed.
See SR–NYSEArca-2016–02 and SR–NYSEArca2016–03.
8 To
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Non-Professional User Fee Cap
For display use of the NYSE
ArcaBook data feed, the Fee Schedule
sets forth a Professional User Fee of $40
per user per month and a NonProfessional User Fee than [sic] ranges
between $3 and $10 per user per month,
depending on the number of users.
These user fees generally apply to each
display device that has access to NYSE
ArcaBook.
For customers that are broker-dealers,
these fees are subject to a $40,000 per
month cap on non-professional user fees
(the ‘‘Non-Professional User Fee
Cap’’).11 When adopting these fees, 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
display and use of the data.12 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 ArcaBook 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
11 See 2014 ArcaBook Filing, supra note 4. In the
2006 ArcaBook Notice, the Exchange described the
Non-Professional User Fee Cap as being subject to
being increased (but not decreased) by the
percentage increase (if any) in the annual composite
share volume for the calendar year preceding that
calendar year, subject to a maximum annual
increase of five percent. The Exchange has waived
its right to implement the increases it would have
been entitled to implement and has not increased
the fee cap commensurately and hereby proposes to
set the fee cap at a constant $40,000 per month that
would not be subject to any adjustments.
12 See 2006 ArcaBook Notice, supra note 4.
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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 ArcaBook data feed
and the Professional User fee of $40 per
user per month would apply with
respect to all Professional Users.
Non-Substantive Change to the Fee
Schedule
The Non-Professional User Fee Cap
applies, as noted above, to any brokerdealer for non-professional subscribers
that maintain brokerage accounts with
the broker-dealer. The Exchange
proposes to specify in the Fee Schedule
that the cap applies to broker-dealers
only.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,13
in general, and Sections 6(b)(4) and
6(b)(5) of the Act,14 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 ArcaBook.
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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
13 15
14 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4), (5).
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Association (‘‘CTA’’).15 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.16
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.17
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.
15 See Securities Exchange Act Release No. 70010
(July 19, 2013), 78 FR 44984 (July 25, 2013) (SR–
CTA/CQ–2013–04).
16 See ‘‘Direct Access Fee,’’ Options Price
Reporting Authority Fee Schedule Fee Schedule
PRA Plan [sic] at https://www.opradata.com/pdf/
fee_schedule.pdf.
17 See note 4, supra.
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3549
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 the
exception and the burdens on customers
and on the Exchange entailed with
tracking compliance with the exception.
Eliminating the Professional User
Exception would make the application
of the Non-Professional User Fee Cap
simpler and ease administrative burdens
for customers and the Exchange by
removing an administrative exception
that has had limited use and
application.
Non-Substantive Changes to the Fee
Schedule
The Exchange believes that specifying
in the Fee Schedule that the NonProfessional User Fee Cap applies to
broker-dealers only 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
the Non-Professional User Fee Cap as
previously filed with the Commission
and applicable to the existing Fee
Schedule.18
The Exchange notes that NYSE
ArcaBook is entirely optional. The
Exchange is not required to make NYSE
ArcaBook available or to offer any
specific pricing alternatives to any
customers, nor is any firm required to
purchase NYSE ArcaBook. Firms that do
purchase NYSE ArcaBook 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 ArcaBook or
any other similar products are
attractively priced or not.19
Firms that do not wish to purchase
NYSE ArcaBook at the new prices have
a variety of alternative market data
products from which to choose,20 or if
NYSE ArcaBook does not provide
18 See
2014 ArcaBook Filing, supra note 4.
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).
20 See NASDAQ Rule 7023 (Nasdaq Totalview)
and BATS Rule 11.22(a) and (c) (BATS TCP Pitch
and Multicast Pitch).
19 See,
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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 ArcaBook 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.21
The decision of the United States
Court of Appeals for the District of
Columbia Circuit in NetCoalition v.
SEC, 615 F.3d 525 (D.C. Cir. 2010),
upheld reliance by the Securities and
Exchange Commission (‘‘Commission’’)
upon the existence of competitive
market mechanisms to set reasonable
and equitably allocated fees for
proprietary market data:
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In fact, the legislative history indicates that
the Congress intended that the market system
‘evolve through the interplay of competitive
forces as unnecessary regulatory restrictions
are removed’ and that the SEC wield its
regulatory power ‘in those situations where
competition may not be sufficient,’ such as
in the creation of a ‘consolidated
transactional reporting system.’
Id. at 535 (quoting H.R. Rep. No. 94–
229 at 92 (1975), as reprinted in 1975
U.S.C.C.A.N. 323). The court agreed
with the Commission’s conclusion that
‘‘Congress intended that ‘competitive
forces should dictate the services and
practices that constitute the U.S.
national market system for trading
equity securities.’ ’’ 22
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
21 See FINRA Regulatory Notice 15–46, ‘‘Best
Execution,’’ November 2015.
22 NetCoalition, 615 F.3d at 535.
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would be so complicated that it could
not be done practically or offer any
significant benefits.23
For these reasons, the Exchange
believes that the proposed fees are
reasonable, equitable, and not unfairly
discriminatory.
The Existence of Actual Competition
The market for proprietary data
products is currently competitive and
inherently contestable because there is
fierce competition for the inputs
necessary for the creation of proprietary
data and strict pricing discipline for the
proprietary products themselves.
Numerous exchanges compete with one
another for listings and order flow and
sales of market data itself, providing
ample opportunities for entrepreneurs
who wish to compete in any or all of
those areas, including producing and
distributing their own market data.
Proprietary data products are produced
and distributed by each individual
exchange, as well as other entities, in a
vigorously competitive market. Indeed,
the U.S. Department of Justice (‘‘DOJ’’)
(the primary antitrust regulator) has
expressly acknowledged the aggressive
actual competition among exchanges,
including for the sale of proprietary
market data. In 2011, the DOJ stated that
exchanges ‘‘compete head to head to
offer real-time equity data products.
These data products include the best bid
and offer of every exchange and
information on each equity trade,
including the last sale.’’ 24
Moreover, competitive markets for
listings, order flow, executions, and
transaction reports provide pricing
discipline for the inputs of proprietary
data products and therefore constrain
markets from overpricing proprietary
market data. Broker-dealers send their
order flow and transaction reports to
multiple venues, rather than providing
them all to a single venue, which in turn
reinforces this competitive constraint.
As a 2010 Commission Concept Release
noted, the ‘‘current market structure can
be described as dispersed and complex’’
with ‘‘trading volume . . . dispersed
among many highly automated trading
centers that compete for order flow in
the same stocks’’ and ‘‘trading centers
offer[ing] a wide range of services that
are designed to attract different types of
market participants with varying trading
needs.’’ 25 More recently, SEC Chair
Mary Jo White has noted that
competition for order flow in exchangelisted equities is ‘‘intense’’ and divided
among many trading venues, including
exchanges, more than 40 alternative
trading systems, and more than 250
broker-dealers.26
23 The Exchange believes that cost-based pricing
would be impractical because it would create
enormous administrative burdens for all parties and
the Commission to cost-regulate a large number of
participants and standardize and analyze
extraordinary amounts of information, accounts,
and reports. In addition, and as described below, it
is impossible to regulate market data prices in
isolation from prices charged by markets for other
services that are joint products. Cost-based rate
regulation would also lead to litigation and may
distort incentives, including those to minimize
costs and to innovate, leading to further waste.
Under cost-based pricing, the Commission would
be burdened with determining a fair rate of return,
and the industry could experience frequent rate
increases based on escalating expense levels. Even
in industries historically subject to utility
regulation, cost-based ratemaking has been
discredited. As such, the Exchange believes that
cost-based ratemaking would be inappropriate for
proprietary market data and inconsistent with
Congress’s direction that the Commission use its
authority to foster the development of the national
market system, and that market forces will continue
to provide appropriate pricing discipline. See
Appendix C to NYSE’s comments to the
Commission’s 2000 Concept Release on the
Regulation of Market Information Fees and
Revenues, which can be found on the Commission’s
Web site at https://www.sec.gov/rules/concept/
s72899/buck1.htm.
24 Press Release, U.S. Department of Justice,
Assistant Attorney General Christine Varney Holds
Conference Call Regarding NASDAQ OMX Group
Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011),
available at https://www.justice.gov/iso/opa/atr/
speeches/2011/at-speech-110516.html; see also
Complaint in U.S. v. Deutsche Borse AG and NYSE
Euronext, Case No. 11–cv–2280 (DC Dist.) ¶ 24
(‘‘NYSE and Direct Edge compete head-to-head . . .
in the provision of real-time proprietary equity data
products.’’).
25 Concept Release on Equity Market Structure,
Securities Exchange Act Release No. 61358 (Jan. 14,
2010), 75 FR 3594 (Jan. 21, 2010) (File No. S7–02–
10). This Concept Release included data from the
third quarter of 2009 showing that no market center
traded more than 20% of the volume of listed
stocks, further evidencing the dispersal of and
competition for trading activity. Id. at 3598. Data
available on ArcaVision show that from June 30,
2013 to June 30, 2014, no exchange traded more
than 12% of the volume of listed stocks by either
trade or dollar volume, further evidencing the
continued dispersal of and fierce competition for
trading activity. See https://www.arcavision.com/
Arcavision/arcalogin.jsp.
26 Mary Jo White, Enhancing Our Equity Market
Structure, Sandler O’Neill & Partners, L.P. Global
Exchange and Brokerage Conference (June 5, 2014)
(available on the Commission Web site), citing
Tuttle, Laura, 2014, ‘‘OTC Trading: Description of
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.
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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
ArcaBook unless their customers
request it, and customers will not elect
to pay the proposed fees unless NYSE
ArcaBook 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.
asabaliauskas on DSK9F6TC42PROD with NOTICES
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.
Non-ATS OTC Trading in National Market System
Stocks,’’ at 7–8.
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The costs of producing market data
include not only the costs of the data
distribution infrastructure, but also the
costs of designing, maintaining, and
operating the exchange’s platform for
posting quotes, accepting orders, and
executing transactions and the cost of
regulating the exchange to ensure its fair
operation and maintain investor
confidence. The total return that a
trading platform earns reflects the
revenues it receives from both products
and the joint costs it incurs.
Moreover, an exchange’s brokerdealer customers generally view the
costs of transaction executions and
market data as a unified cost of doing
business with the exchange. A brokerdealer will only choose to direct orders
to an exchange if the revenue from the
transaction exceeds its cost, including
the cost of any market data that the
broker-dealer chooses to buy in support
of its order routing and trading
decisions. If the costs of the transaction
are not offset by its value, then the
broker-dealer may choose instead not to
purchase the product and trade away
from that exchange. There is substantial
evidence of the strong correlation
between order flow and market data
purchases. For example, in September
2015, more than 80% of the transaction
volume on each of the Exchange and the
Exchange’s affiliates New York Stock
Exchange LLC (‘‘NYSE’’) 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 supracompetitive increase in the fees for
either executions or market data would
create a risk of reducing an exchange’s
revenues from both products.
Other market participants have noted
that proprietary market data and trade
executions are joint products of a joint
platform and have common costs.27 The
Exchange agrees with and adopts those
discussions and the arguments therein.
The Exchange also notes that the
economics literature confirms that there
is no way to allocate common costs
between joint products that would shed
27 See Securities Exchange Act Release No. 72153
(May 12, 2014), 79 FR 28575, 28578 n.15 (May 16,
2014) (SR–NASDAQ–2014–045) (‘‘[A]ll of the
exchange’s costs are incurred for the unified
purposes of attracting order flow, executing and/or
routing orders, and generating and selling data
about market activity. The total return that an
exchange earns reflects the revenues it receives
from the joint products and the total costs of the
joint products.’’). See also Securities Exchange Act
Release No. 62907 (Sept. 14, 2010), 75 FR 57314,
57317 (Sept. 20, 2010) (SR–NASDAQ–2010–110),
and Securities Exchange Act Release No. 62908
(Sept. 14, 2010), 75 FR 57321, 57324 (Sept. 20,
2010) (SR–NASDAQ–2010–111).
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3551
any light on competitive or efficient
pricing.28
Analyzing the cost of market data
product production and distribution in
isolation from the cost of all of the
inputs supporting the creation of market
data and market data products will
inevitably underestimate the cost of the
data and data products because it is
impossible to obtain the data inputs to
create market data products without a
fast, technologically robust, and wellregulated execution system, and system
and regulatory costs affect the price of
both obtaining the market data itself and
creating and distributing market data
products. It would be equally
misleading, however, to attribute all of
an exchange’s costs to the market data
portion of an exchange’s joint products.
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
28 See generally Mark Hirschey, Fundamentals of
Managerial Economics, at 600 (2009) (‘‘It is
important to note, however, that although it is
possible to determine the separate marginal costs of
goods produced in variable proportions, it is
impossible to determine their individual average
costs. This is because common costs are expenses
necessary for manufacture of a joint product.
Common costs of production—raw material and
equipment costs, management expenses, and other
overhead—cannot be allocated to each individual
by-product on any economically sound basis. . . .
Any allocation of common costs is wrong and
arbitrary.’’). This is not new economic theory. See,
e.g., F. W. Taussig, ‘‘A Contribution to the Theory
of Railway Rates,’’ Quarterly Journal of Economics
V(4) 438, 465 (July 1891) (‘‘Yet, surely, the division
is purely arbitrary. These items of cost, in fact, are
jointly incurred for both sorts of traffic; and I cannot
share the hope entertained by the statistician of the
Commission, Professor Henry C. Adams, that we
shall ever reach a mode of apportionment that will
lead to trustworthy results.’’).
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asabaliauskas on DSK9F6TC42PROD with NOTICES
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.29 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, NYSE MKT,
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
29 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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actual number of orders and transaction
reports that exist in the marketplace.
With respect to NYSE ArcaBook,
competitors offer close substitute
products.30 Because market data users
can find suitable substitutes for most
proprietary market data products, a
market that overprices its market data
products stands a high risk that users
may substitute another source of market
data information for its own.
Those competitive pressures imposed
by available alternatives are evident in
the Exchange’s proposed pricing.
In addition to the competition and
price discipline described above, the
market for proprietary data products is
also highly contestable because market
entry is rapid and inexpensive. The
history of electronic trading is replete
with examples of entrants that swiftly
grew into some of the largest electronic
trading platforms and proprietary data
producers: Archipelago, Bloomberg
Tradebook, Island, RediBook, Attain,
TrackECN, BATS Trading and Direct
Edge. As noted above, BATS launched
as an ATS in 2006 and became an
exchange in 2008, while Direct Edge
began operations in 2007 and obtained
exchange status in 2010.
In determining the proposed changes
to the fees for NYSE ArcaBook, 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) 31 of the Act and
subparagraph (f)(2) of Rule 19b–4 32
thereunder, because it establishes a due,
fee, or other charge imposed by the
Exchange.
At any time within 60 days of the
filing of such proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
under Section 19(b)(2)(B) 33 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEARCA–2016–01 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–NYSEARCA–2016–01. 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
31 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
33 15 U.S.C. 78s(b)(2)(B).
32 17
30 See
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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–
NYSEARCA–2016–01 and should be
submitted on or before February 11,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–01055 Filed 1–20–16; 8:45 am]
BILLING CODE 8011–01–P
DEPARTMENT OF STATE
[Public Notice 9414]
30-Day Notice of Proposed Information
Collection: Commodity Jurisdiction
Determination
Notice of request for public
comment and submission to OMB of
proposed collection of information.
ACTION:
The Department of State has
submitted the information collection
described below to the Office of
Management and Budget (OMB) for
approval. In accordance with the
Paperwork Reduction Act of 1995 we
are requesting comments on this
collection from all interested
individuals and organizations. The
purpose of this Notice is to allow 30
days for public comment.
DATES: Submit comments directly to the
Office of Management and Budget
(OMB) up to February 22, 2016.
ADDRESSES: Direct comments to the
Department of State Desk Officer in the
Office of Information and Regulatory
Affairs at the Office of Management and
Budget (OMB). You may submit
comments by the following methods:
• Email: oira_submission@
omb.eop.gov. You must include the DS
asabaliauskas on DSK9F6TC42PROD with NOTICES
SUMMARY:
34 17
CFR 200.30–3(a)(12).
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18:26 Jan 20, 2016
Jkt 238001
form number, information collection
title, and the OMB control number in
the subject line of your message.
• Fax: 202–395–5806. Attention: Desk
Officer for Department of State.
FOR FURTHER INFORMATION CONTACT:
Direct requests for additional
information regarding the collection
listed in this notice, including requests
for copies of the proposed collection
instrument and supporting documents,
to Mr. Steven Derscheid, PM/DDTC,
SA–1, 12th Floor, Directorate of Defense
Trade Controls, Bureau of PoliticalMilitary Affairs, Department of State,
Washington, DC 20522–0112, who may
be reached via email at derscheidsa@
state.gov.
SUPPLEMENTARY INFORMATION:
• Title of Information Collection:
Commodity Jurisdiction Determination.
• OMB Control Number: 1405–0163.
• Type of Request: Revision of
Currently Approved Collection.
• Originating Office: Bureau of
Political-Military Affairs, Directorate of
Defense Trade Controls (PM/DDTC).
• Form Number: DS–4076.
• Respondents: Business and
Nonprofit Organizations.
• Estimated Number of Respondents:
1,043.
• Estimated Number of Responses:
1,043.
• Average Time per Response: 4
hours.
• Total Estimated Burden Time: 4,172
hours.
• Frequency: On occasion.
• Obligation to Respond: Voluntary.
We are soliciting public comments to
permit the Department to:
• Evaluate whether the proposed
information collection is necessary for
the proper functions of the Department.
• Evaluate the accuracy of our
estimate of the time and cost burden for
this proposed collection, including the
validity of the methodology and
assumptions used.
• Enhance the quality, utility, and
clarity of the information to be
collected.
• Minimize the reporting burden on
those who are to respond, including the
use of automated collection techniques
or other forms of information
technology.
Please note that comments submitted in
response to this Notice are public
record. Before including any detailed
personal information, you should be
aware that your comments as submitted,
including your personal information,
will be available for public review.
Abstract of proposed collection: The
Directorate of Defense Trade Controls
(DDTC), Bureau of Political-Military
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3553
Affairs, U.S. Department of State, in
accordance with the Arms Export
Control Act (AECA) (22 U.S.C. 2751 et
seq.) and the International Traffic in
Arms Regulations (ITAR) (22 CFR parts
120–130), has the principal missions of
taking final action on license
applications and other requests for
defense trade transactions via
commercial channels, ensuring
compliance with the statute and
regulations, and collecting various types
of reports. By statute, Executive Order,
regulation, and delegation of authority,
DDTC is charged with controlling the
export and temporary import of defense
articles, the provision of defense
services, and the brokering thereof,
which are covered by the U.S.
Munitions List (USML).
The information submitted pursuant
to the Commodity Jurisdiction
Determination (OMB Control #1405–
0163) will be used to evaluate whether
a particular defense article or defense
service is covered by the USML and
therefore is subject to the export
licensing jurisdiction of the Department
of State. This collection may also be
used to request a change in USML
category designation, request the
removal of the defense article from the
USML, or request the reconsideration of
a previous commodity jurisdiction
determination.
Methodology: This information
collection may be sent to the Directorate
of Defense Trade Controls via the
following methods: electronically or
mail.
Dated: January 5, 2016.
Lisa Aguirre,
Managing Director, Directorate of Defense
Trade Controls, Bureau of Political-Military
Affairs, Department of State.
[FR Doc. 2016–01163 Filed 1–20–16; 8:45 am]
BILLING CODE 4710–25–P
DEPARTMENT OF STATE
[Public Notice: 9418]
Additional Culturally Significant
Objects Imported for Exhibition
Determinations: ‘‘Bellissima: Italy and
High Fashion 1945–1968’’ Exhibition
ACTION:
Notice; correction.
On January 11, 2016, notice
was published on page 1274 of the
Federal Register (volume 81, number 6)
of determinations made by the
Department of State pertaining to
certain objects imported for temporary
display in the exhibition ‘‘Bellissima:
Italy and High Fashion 1945–1968.’’ The
referenced notice is corrected here to
SUMMARY:
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]]>Agencies
[Federal Register Volume 81, Number 13 (Thursday, January 21, 2016)]
[Notices]
[Pages 3547-3553]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01055]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76903; File No. SR-NYSEARCA-2016-01]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending the Fees
for NYSE ArcaBook
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, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'' or ``SEC'') 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 ArcaBook to: (1)
Establish a multiple data feed fee; (2) discontinue fees relating to
managed non-display; and (3) 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,
[[Page 3548]]
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 ArcaBook,\4\ as
set forth on the NYSE Arca Equities 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. 53592 (June 7,
2006), 71 FR 33496 (June 9, 2006) (SR-NYSEArca-2006-21) (``2006
ArcaBook Notice''); 59039 (Dec. 2, 2008), 73 FR 74770 (Dec. 9, 2008)
(SR-NYSEArca-2006-21); 69315 (April 5, 2013), 78 FR 21668 (April 11,
2013) (SR-NYSEArca-2013-37) (``2013 Non-Display Filing''); 72560
(July 8, 2014), 79 FR 40801 (July 14, 2014) (SR-NYSEArca-2014-72)
(``2014 ArcaBook Filing''); 73011 (Sept. 5, 2014), 79 FR 54315
(Sept. 11, 2014) (SR-NYSEARCA-2014-93) (``2014 Non-Display
Filing''); and 74011 (Jan. 7, 2015), 80 FR 1681 (Jan. 13, 2015) (SR-
NYSEArca-2014-149) (``2015 ArcaBook Filing'').
---------------------------------------------------------------------------
Establish a multiple data feed fee; and
Discontinue fees relating to managed non-display
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 ArcaBook in more than two locations would
be charged $200 per additional location per month. No new reporting
would be required.\5\
---------------------------------------------------------------------------
\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
ArcaBook product, that data recipient will pay the Multiple Data
Feed fee with respect to three of the five locations.
---------------------------------------------------------------------------
Managed Non-Display Fees
Non-Display Use of NYSE Arca market data means accessing,
processing, or consuming NYSE Arca 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 ArcaBook and does not allow for further internal
distribution or external redistribution of NYSE ArcaBook by the data
recipients. A Redistributor approved for Managed Non-Display Services
is required to report to NYSE Arca on a monthly basis the data
recipients that are receiving NYSE Arca market data through the
Redistributor's managed non-display service and the real-time NYSE Arca
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 ArcaBook from an approved Redistributor of Managed Non-Display
Services are charged an access fee of $1,000 per month and a Managed
Non-Display Services Fee of $1,800 per month, for a total fee of $2,800
per month.
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\6\ ``Redistributor'' means a vendor or any other person that
provides an NYSE Arca 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 ArcaBook Filing, supra note 4.
\8\ To be approved for Managed Non-Display Services, a
Redistributor must manage and control the access to NYSE ArcaBook
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 ArcaBook in the Redistributor's
own messaging formats (rather than using raw NYSE message formats)
by reformatting and/or altering NYSE ArcaBook prior to
retransmission without affecting the integrity of NYSE ArcaBook and
without rendering NYSE ArcaBook 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
ArcaBook on a managed non-display basis would be subject to the same
access fee of $2,000 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 Arca BBO, NYSE
Arca Trades, and NYSE Arca Integrated Feed. See SR-NYSEArca-2016-02
and SR-NYSEArca-2016-03.
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Non-Professional User Fee Cap
For display use of the NYSE ArcaBook data feed, the Fee Schedule
sets forth a Professional User Fee of $40 per user per month and a Non-
Professional User Fee than [sic] ranges between $3 and $10 per user per
month, depending on the number of users. These user fees generally
apply to each display device that has access to NYSE ArcaBook.
For customers that are broker-dealers, these fees are subject to a
$40,000 per month cap on non-professional user fees (the ``Non-
Professional User Fee Cap'').\11\ When adopting these fees, 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 display and
use of the data.\12\ 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.
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\11\ See 2014 ArcaBook Filing, supra note 4. In the 2006
ArcaBook Notice, the Exchange described the Non-Professional User
Fee Cap as being subject to being increased (but not decreased) by
the percentage increase (if any) in the annual composite share
volume for the calendar year preceding that calendar year, subject
to a maximum annual increase of five percent. The Exchange has
waived its right to implement the increases it would have been
entitled to implement and has not increased the fee cap
commensurately and hereby proposes to set the fee cap at a constant
$40,000 per month that would not be subject to any adjustments.
\12\ See 2006 ArcaBook Notice, supra note 4.
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The Exchange proposes to eliminate the Professional User Exception
for NYSE ArcaBook 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
[[Page 3549]]
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 ArcaBook
data feed and the Professional User fee of $40 per user per month would
apply with respect to all Professional Users.
Non-Substantive Change to the Fee Schedule
The Non-Professional User Fee Cap applies, as noted above, to any
broker-dealer for non-professional subscribers that maintain brokerage
accounts with the broker-dealer. The Exchange proposes to specify in
the Fee Schedule that the cap applies to broker-dealers only.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\13\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ 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.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ 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
ArcaBook.
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'').\15\ 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.\16\
---------------------------------------------------------------------------
\15\ See Securities Exchange Act Release No. 70010 (July 19,
2013), 78 FR 44984 (July 25, 2013) (SR-CTA/CQ-2013-04).
\16\ See ``Direct Access Fee,'' Options Price Reporting
Authority Fee Schedule Fee Schedule PRA Plan [sic] 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.\17\ 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.
---------------------------------------------------------------------------
\17\ See note 4, supra.
---------------------------------------------------------------------------
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 the exception
and the burdens on customers and on the Exchange entailed with tracking
compliance with the exception. Eliminating the Professional User
Exception would make the application of the Non-Professional User Fee
Cap simpler and ease administrative burdens for customers and the
Exchange by removing an administrative exception that has had limited
use and application.
Non-Substantive Changes to the Fee Schedule
The Exchange believes that specifying in the Fee Schedule that the
Non-Professional User Fee Cap applies to broker-dealers only 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 the Non-Professional User Fee Cap as previously
filed with the Commission and applicable to the existing Fee
Schedule.\18\
---------------------------------------------------------------------------
\18\ See 2014 ArcaBook Filing, supra note 4.
---------------------------------------------------------------------------
The Exchange notes that NYSE ArcaBook is entirely optional. The
Exchange is not required to make NYSE ArcaBook available or to offer
any specific pricing alternatives to any customers, nor is any firm
required to purchase NYSE ArcaBook. Firms that do purchase NYSE
ArcaBook 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 ArcaBook or any other similar products are
attractively priced or not.\19\
---------------------------------------------------------------------------
\19\ 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 ArcaBook at the new prices
have a variety of alternative market data products from which to
choose,\20\ or if NYSE ArcaBook does not provide
[[Page 3550]]
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 ArcaBook 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.\21\
---------------------------------------------------------------------------
\20\ See NASDAQ Rule 7023 (Nasdaq Totalview) and BATS Rule
11.22(a) and (c) (BATS TCP Pitch and Multicast Pitch).
\21\ 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.' '' \22\
---------------------------------------------------------------------------
\22\ NetCoalition, 615 F.3d at 535.
---------------------------------------------------------------------------
As explained below in the Exchange's Statement on Burden on
Competition, the Exchange believes that there is substantial evidence
of competition in the marketplace for proprietary market data and that
the Commission can rely upon such evidence in concluding that the fees
established in this filing are the product of competition and therefore
satisfy the relevant statutory standards. In addition, the existence of
alternatives to these data products, such as consolidated data and
proprietary data from other sources, as described below, further
ensures that the Exchange cannot set unreasonable fees, or fees that
are unreasonably discriminatory, when vendors and subscribers can
select such alternatives.
As the NetCoalition decision noted, the Commission is not required
to undertake a cost-of-service or ratemaking approach. The Exchange
believes that, even if it were possible as a matter of economic theory,
cost-based pricing for proprietary market data would be so complicated
that it could not be done practically or offer any significant
benefits.\23\
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\23\ The Exchange believes that cost-based pricing would be
impractical because it would create enormous administrative burdens
for all parties and the Commission to cost-regulate a large number
of participants and standardize and analyze extraordinary amounts of
information, accounts, and reports. In addition, and as described
below, it is impossible to regulate market data prices in isolation
from prices charged by markets for other services that are joint
products. Cost-based rate regulation would also lead to litigation
and may distort incentives, including those to minimize costs and to
innovate, leading to further waste. Under cost-based pricing, the
Commission would be burdened with determining a fair rate of return,
and the industry could experience frequent rate increases based on
escalating expense levels. Even in industries historically subject
to utility regulation, cost-based ratemaking has been discredited.
As such, the Exchange believes that cost-based ratemaking would be
inappropriate for proprietary market data and inconsistent with
Congress's direction that the Commission use its authority to foster
the development of the national market system, and that market
forces will continue to provide appropriate pricing discipline. See
Appendix C to NYSE's comments to the Commission's 2000 Concept
Release on the Regulation of Market Information Fees and Revenues,
which can be found on the Commission's Web site at https://www.sec.gov/rules/concept/s72899/buck1.htm.
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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
The market for proprietary data products is currently competitive
and inherently contestable because there is fierce competition for the
inputs necessary for the creation of proprietary data and strict
pricing discipline for the proprietary products themselves. Numerous
exchanges compete with one another for listings and order flow and
sales of market data itself, providing ample opportunities for
entrepreneurs who wish to compete in any or all of those areas,
including producing and distributing their own market data. Proprietary
data products are produced and distributed by each individual exchange,
as well as other entities, in a vigorously competitive market. Indeed,
the U.S. Department of Justice (``DOJ'') (the primary antitrust
regulator) has expressly acknowledged the aggressive actual competition
among exchanges, including for the sale of proprietary market data. In
2011, the DOJ stated that exchanges ``compete head to head to offer
real-time equity data products. These data products include the best
bid and offer of every exchange and information on each equity trade,
including the last sale.'' \24\
---------------------------------------------------------------------------
\24\ Press Release, U.S. Department of Justice, Assistant
Attorney General Christine Varney Holds Conference Call Regarding
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011), available at https://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html; see
also Complaint in U.S. v. Deutsche Borse AG and NYSE Euronext, Case
No. 11-cv-2280 (DC Dist.) ] 24 (``NYSE and Direct Edge compete head-
to-head . . . in the provision of real-time proprietary equity data
products.'').
---------------------------------------------------------------------------
Moreover, competitive markets for listings, order flow, executions,
and transaction reports provide pricing discipline for the inputs of
proprietary data products and therefore constrain markets from
overpricing proprietary market data. Broker-dealers send their order
flow and transaction reports to multiple venues, rather than providing
them all to a single venue, which in turn reinforces this competitive
constraint. As a 2010 Commission Concept Release noted, the ``current
market structure can be described as dispersed and complex'' with
``trading volume . . . dispersed among many highly automated trading
centers that compete for order flow in the same stocks'' and ``trading
centers offer[ing] a wide range of services that are designed to
attract different types of market participants with varying trading
needs.'' \25\ More recently, SEC Chair Mary Jo White has noted that
competition for order flow in exchange-listed equities is ``intense''
and divided among many trading venues, including exchanges, more than
40 alternative trading systems, and more than 250 broker-dealers.\26\
---------------------------------------------------------------------------
\25\ Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21,
2010) (File No. S7-02-10). This Concept Release included data from
the third quarter of 2009 showing that no market center traded more
than 20% of the volume of listed stocks, further evidencing the
dispersal of and competition for trading activity. Id. at 3598. Data
available on ArcaVision show that from June 30, 2013 to June 30,
2014, no exchange traded more than 12% of the volume of listed
stocks by either trade or dollar volume, further evidencing the
continued dispersal of and fierce competition for trading activity.
See https://www.arcavision.com/Arcavision/arcalogin.jsp.
\26\ Mary Jo White, Enhancing Our Equity Market Structure,
Sandler O'Neill & Partners, L.P. Global Exchange and Brokerage
Conference (June 5, 2014) (available on the Commission Web site),
citing Tuttle, Laura, 2014, ``OTC Trading: Description of Non-ATS
OTC Trading in National Market System Stocks,'' at 7-8.
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[[Page 3551]]
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 ArcaBook unless
their customers request it, and customers will not elect to pay the
proposed fees unless NYSE ArcaBook can provide value by sufficiently
increasing revenues or reducing costs in the customer's business in a
manner that will offset the fees. All of these factors operate as
constraints on pricing proprietary data products.
Joint Product Nature of Exchange Platform
Transaction execution and proprietary data products are
complementary in that market data is both an input and a byproduct of
the execution service. In fact, proprietary market data and trade
executions are a paradigmatic example of joint products with joint
costs. The decision of whether and on which platform to post an order
will depend on the attributes of the platforms where the order can be
posted, including the execution fees, data availability and quality,
and price and distribution of data products. Without a platform to post
quotations, receive orders, and execute trades, exchange data products
would not exist.
The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's platform for posting quotes,
accepting orders, and executing transactions and the cost of regulating
the exchange to ensure its fair operation and maintain investor
confidence. The total return that a trading platform earns reflects the
revenues it receives from both products and the joint costs it incurs.
Moreover, an exchange's broker-dealer customers generally view the
costs of transaction executions and market data as a unified cost of
doing business with the exchange. A broker-dealer will only choose to
direct orders to an exchange if the revenue from the transaction
exceeds its cost, including the cost of any market data that the
broker-dealer chooses to buy in support of its order routing and
trading decisions. If the costs of the transaction are not offset by
its value, then the broker-dealer may choose instead not to purchase
the product and trade away from that exchange. There is substantial
evidence of the strong correlation between order flow and market data
purchases. For example, in September 2015, more than 80% of the
transaction volume on each of the Exchange and the Exchange's
affiliates New York Stock Exchange LLC (``NYSE'') and NYSE MKT LLC
(``NYSE MKT'') was executed by market participants that purchased one
or more proprietary market data products (the 20 firms were not the
same for each market). A supra-competitive increase in the fees for
either executions or market data would create a risk of reducing an
exchange's revenues from both products.
Other market participants have noted that proprietary market data
and trade executions are joint products of a joint platform and have
common costs.\27\ The Exchange agrees with and adopts those discussions
and the arguments therein. The Exchange also notes that the economics
literature confirms that there is no way to allocate common costs
between joint products that would shed any light on competitive or
efficient pricing.\28\
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\27\ See Securities Exchange Act Release No. 72153 (May 12,
2014), 79 FR 28575, 28578 n.15 (May 16, 2014) (SR-NASDAQ-2014-045)
(``[A]ll of the exchange's costs are incurred for the unified
purposes of attracting order flow, executing and/or routing orders,
and generating and selling data about market activity. The total
return that an exchange earns reflects the revenues it receives from
the joint products and the total costs of the joint products.'').
See also Securities Exchange Act Release No. 62907 (Sept. 14, 2010),
75 FR 57314, 57317 (Sept. 20, 2010) (SR-NASDAQ-2010-110), and
Securities Exchange Act Release No. 62908 (Sept. 14, 2010), 75 FR
57321, 57324 (Sept. 20, 2010) (SR-NASDAQ-2010-111).
\28\ See generally Mark Hirschey, Fundamentals of Managerial
Economics, at 600 (2009) (``It is important to note, however, that
although it is possible to determine the separate marginal costs of
goods produced in variable proportions, it is impossible to
determine their individual average costs. This is because common
costs are expenses necessary for manufacture of a joint product.
Common costs of production--raw material and equipment costs,
management expenses, and other overhead--cannot be allocated to each
individual by-product on any economically sound basis. . . . Any
allocation of common costs is wrong and arbitrary.''). This is not
new economic theory. See, e.g., F. W. Taussig, ``A Contribution to
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4)
438, 465 (July 1891) (``Yet, surely, the division is purely
arbitrary. These items of cost, in fact, are jointly incurred for
both sorts of traffic; and I cannot share the hope entertained by
the statistician of the Commission, Professor Henry C. Adams, that
we shall ever reach a mode of apportionment that will lead to
trustworthy results.'').
---------------------------------------------------------------------------
Analyzing the cost of market data product production and
distribution in isolation from the cost of all of the inputs supporting
the creation of market data and market data products will inevitably
underestimate the cost of the data and data products because it is
impossible to obtain the data inputs to create market data products
without a fast, technologically robust, and well-regulated execution
system, and system and regulatory costs affect the price of both
obtaining the market data itself and creating and distributing market
data products. It would be equally misleading, however, to attribute
all of an exchange's costs to the market data portion of an exchange's
joint products. 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
[[Page 3552]]
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.\29\ 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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\29\ 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.
---------------------------------------------------------------------------
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, NYSE MKT, 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 ArcaBook, competitors
offer close substitute products.\30\ Because market data users can find
suitable substitutes for most proprietary market data products, a
market that overprices its market data products stands a high risk that
users may substitute another source of market data information for its
own.
---------------------------------------------------------------------------
\30\ See supra note 20.
---------------------------------------------------------------------------
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 NYSE ArcaBook,
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) \31\ of the Act and subparagraph (f)(2) of Rule
19b-4 \32\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\31\ 15 U.S.C. 78s(b)(3)(A).
\32\ 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) \33\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\33\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEARCA-2016-01 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-NYSEARCA-2016-01. 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
[[Page 3553]]
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-NYSEARCA-2016-01 and should
be submitted on or before February 11, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-01055 Filed 1-20-16; 8:45 am]
BILLING CODE 8011-01-P
