Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Fees for NYSE BBO and NYSE Trades, 3490-3496 [2016-01062]
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including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76912; File No. SR–NYSE–
2016–03]
• 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–
Phlx–2016–02 on the subject line.
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Amending the
Fees for NYSE BBO and NYSE Trades
Paper Comments
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on January
4, 2016, New York Stock Exchange LLC
(‘‘NYSE’’ or the ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
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All submissions should refer to File
Number SR–Phlx–2016–02. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–Phlx–
2016–02 and should be submitted on or
before February 11, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.8
Robert W. Errett,
Deputy Secretary.
January 14, 2016.
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 BBO and NYSE Trades to:
(1) Establish a multiple data feed fee; (2)
discontinue fees relating to managed
non-display; (3) modify the application
of the access fee; and (4) reduce the
Enterprise Fee. The proposed rule
change is available on the Exchange’s
Web site at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
[FR Doc. 2016–01060 Filed 1–20–16; 8:45 am]
BILLING CODE 8011–01–P
1 15
U.S.C.78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
8 17
CFR 200.30–3(a)(12).
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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 BBO and NYSE Trades
market data products,4 as set forth on
the NYSE Proprietary Market Data Fee
Schedule (‘‘Fee Schedule’’). The
Exchange proposes to make the
following fee changes effective January
4, 2016:
• Establish a multiple data feed fee;
• Discontinue fees relating to
managed non-display;
• Modify the application of the access
fee; and
• Reduce the Enterprise Fee.
Multiple Data Feed Fee 5
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
BBO or NYSE Trades in more than two
locations would be charged $200 per
additional location per product per
month. No new reporting would be
required.6
Managed Non-Display Fees
Non-Display Use of NYSE market data
means accessing, processing, or
consuming NYSE market data delivered
via direct and/or Redistributor 7 data
feeds for a purpose other than in
support of a data recipient’s display
usage or further internal or external
4 See Securities Exchange Act Release Nos. 61914
(Apr. 14, 2010), 74 FR 21077 (Apr. 22, 2010) (SR–
NYSE–2010–30) (notice—NYSE BBO); 62181 (May
26, 2010), 75 FR 31488 (June 3, 2010) (SR–NYSE–
2010–30) (approval order—NYSE BBO); 59309 (Jan.
28, 2009), 74 FR 6073 (Feb. 4, 2009) (SR–NYSE–
2009–04) (notice—NYSE Trades); and 59309 (Mar.
19, 2009), 74 FR 13293 (Mar. 26, 2009) (approval
order—NYSE Trades) (SR–NYSE–2009–04) and
62038 (May 5, 2010), 75 FR 26825 (May 12, 2010)
(SR–NYSE–2010–22).
5 The text of footnote 6 in Exhibit 5 of this
proposed rule change was previously filed under a
separate filing. See SR–NYSE–2016–02 (Proposed
Rule Change to Amend the Fees for NYSE
OpenBook).
6 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 BBO product,
that data recipient will pay the Multiple Data Feed
fee with respect to three of the five locations.
7 ‘‘Redistributor’’ means a vendor or any other
person that provides an NYSE data product to a
data recipient or to any system that a data recipient
uses, irrespective of the means of transmission or
access.
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redistribution.8 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.9 A Redistributor approved for
Managed Non-Display Services manages
and controls the access to NYSE BBO
and NYSE Trades and does not allow for
further internal distribution or external
redistribution of NYSE BBO and NYSE
Trades by the data recipients. A
Redistributor approved for Managed
Non-Display Services is required to
report to NYSE on a monthly basis the
data recipients that are receiving NYSE
market data through the Redistributor’s
managed non-display service and the
real-time NYSE market data products
that such data recipients are receiving
through such service. Recipients of data
through Managed Non-Display Service
have no additional reporting
requirements. Data recipients that
receive NYSE BBO from an approved
Redistributor of Managed Non-Display
Services are charged a Managed NonDisplay Services Fee of $300 per month,
and data recipients that receive NYSE
Trades from an approved Redistributor
of Managed Non-Display Services are
charged a Managed Non-Display
Services Fee of $1,000 per month. Data
recipients that receive NYSE BBO and
NYSE Trades from an approved
Redistributor of Managed Non-Display
Services are also charged an Access Fee
of $750 per month.10
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
8 See e.g. Securities Exchange Act Release No.
72923 (Aug. 26, 2014), 79 FR 52079 (Sept. 2, 2014)
(SR–NYSE–2014–43) (‘‘2014 Non-Display Filing’’).
9 To be approved for Managed Non-Display
Services, a Redistributor must manage and control
the access to NYSE BBO and NYSE Trades 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 BBO
and NYSE Trades in the Redistributor’s own
messaging formats (rather than using raw NYSE
message formats) by reformatting and/or altering
NYSE BBO and NYSE Trades prior to
retransmission without affecting the integrity of
NYSE BBO and NYSE Trades and without
rendering NYSE BBO and NYSE Trades inaccurate,
unfair, uninformative, fictitious, misleading or
discriminatory.
10 A single Managed Non-Display Access Fee
applies for clients receiving both NYSE BBO and
NYSE Trades. The Exchange is also proposing in
this filing to modify this application of the access
fees. See ‘‘Modification of the application of the
access fee,’’ below.
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the limited number of Redistributors
that have qualified for Managed NonDisplay Services. As proposed, all data
recipients currently using NYSE BBO
and NYSE Trades on a managed nondisplay basis would be subject to the
same access fee of $1,500 per month,
and the same non-display services
fees,11 as other non-display data
recipients.12
Modification of the Application of the
Access Fee
The Exchange proposes to modify the
application of the access fees for NYSE
BBO and NYSE Trades.
Each NYSE BBO data feed recipient
currently pays a monthly $1,500 access
fee for NYSE BBO, and each NYSE
Trades data feed recipient currently
pays a monthly $1,500 access fee for
NYSE Trades. A single access fee
applies for data recipients receiving
both NYSE BBO and NYSE Trades.13
The Exchange proposes to amend the
access fees so that recipients of NYSE
BBO and NYSE Trades would be
required to pay a separate access fees for
NYSE BBO ($1,500 per month) and
NYSE Trades ($1,500 per month). This
change would have no impact on
customers who receive only NYSE BBO
or only NYSE Trades.
In addition, the Exchange notes that
recipients of NYSE OpenBook that also
receive NYSE BBO and NYSE Order
Imbalances do not currently pay an
access fee for NYSE BBO and NYSE
Order Imbalances.14 The Exchange has
proposed by separate rule filing to
amend the NYSE OpenBook access fee
so that recipients of NYSE OpenBook
who also receive NYSE BBO or NYSE
Order Imbalances would be required to
pay separate access fees for NYSE BBO
($1,500 per month) and/or NYSE Order
Imbalances ($500 per month) in
addition to the access fee for NYSE
OpenBook.15 This change would have
no impact on customers who do not
receive NYSE OpenBook but who do
receive NYSE BBO or NYSE Order
Imbalances.
11 See
Fee Schedule.
order to harmonize its approach to fees for
its market data products, the Exchange is
simultaneously proposing to remove fees related to
Managed Non-Display Services for NYSE OpenBook
and NYSE Order Imbalances. See SR–NYSE–2016–
02 and SR–NYSE–2016–04. The fees applicable to
the NYSE Integrated market data product effective
as of January 4, 2016 do not include Managed NonDisplay Services fees.
13 See Securities Exchange Act Release No. 61914
(April 15, 2010), 75 FR 21077 (April 22, 2010) (SR–
NYSE–2010–30) at 21078.
14 See Securities Exchange Act Release No. 59544
(Mar. 9, 2009), 74 FR 11162 (March 16, 2009) (SR–
NYSE–2008–131), at 11163.
15 See SR–NYSE–2016–02.
12 In
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Reduction to Enterprise Fee
The Exchange currently charges an
enterprise fee of $190,000 per month for
an unlimited number of professional
and non-professional users for each of
NYSE BBO and NYSE Trades. A single
Enterprise Fee applies for clients
receiving both NYSE BBO and NYSE
Trades.16 The Exchange proposes to
lower the enterprise fee to $185,000 per
month.
As an example, under the current fee
structure for per user fees, if a firm had
40,000 professional users who each
received NYSE Trades at $4 per month
and NYSE BBO at $4 per month, then
the firm would pay $320,000 per month
in professional user fees. Under the
current pricing structure, the charge
would be capped at $190,000 and
effective January it would be capped at
$185,000.
Under the proposed enterprise fee, the
firm would pay a flat fee of $185,000 for
an unlimited number of professional
and non-professional users for both
products. As is the case currently, a data
recipient that pays the enterprise fee
would not have to report the number of
such users on a monthly basis.17
However, every six months, a data
recipient must provide the Exchange
with a count of the total number of
natural person users of each product,
including both professional and nonprofessional users.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the provisions of Section 6 of the Act,18
in general, and Sections 6(b)(4) and
6(b)(5) of the Act,19 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 BBO and
NYSE Trades.
Multiple Data Feed Fee
The Exchange believes that it is
reasonable to require data recipients to
pay a modest additional fee taking a
data feed for a market data product in
16 See Securities Exchange Act Release No. 70211
(Aug. 15, 2013), 78 FR 51781 (Aug. 21, 2013) (SR–
NYSE–2013–58).
17 Professional users currently are subject to a per
display device count. See Securities Act Release
No. 73985 (Jan. 5. 2015), 80 FR 1456 (Jan. 9, 2015)
(SR–NYSE–2014–75).
18 15 U.S.C. 78f(b).
19 15 U.S.C. 78f(b)(4), (5).
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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’’).20 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.21
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Managed Non-Display Fees
The Exchange believes that it is
reasonable to discontinue Managed
Non-Display Fees. In 2013, the
Exchange determined 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.22 Since then,
the Exchange also modified its approach
to display and non-display fees with
changes to the fees as reflected in the
2014 Non-Display Filing.23
Discontinuing the fees applicable to
Managed Non-Display as proposed
reflects the Exchange’s continuing
review and consideration of the
application of non-display fees, and
would harmonize and simplify the
application of Non-Display Use fees by
applying them consistently to all users.
In particular, after further experience
with the application of non-display use
fees, the Exchange believes that it is
more equitable and less discriminatory
to discontinue the distinction for
Managed Non-Display services because
all data recipients using data on a nondisplay basis are using it in a
comparable way and should be subject
to similar fees regardless of whether or
20 See
Securities Exchange Act Release No. 70010
(July 19, 2013), 78 FR 44984 (July 25, 2013) (SR–
CTA/CQ–2013–04).
21 See ‘‘Direct Access Fee,’’ Options Price
Reporting Authority Fee Schedule Fee
Schedule[sic] PRA [sic] Plan at https://
www.opradata.com/pdf/fee_schedule.pdf.
22 See Securities Exchange Act Release No. 69278
(April 2, 2013), 78 FR 20973 (April 8, 2013) (SR–
NYSE–2013–25).
23 See note 8, supra.
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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.
Modifications to Access Fee
The Exchange believes that it is
reasonable to make the changes
proposed to the application of access
fees for NYSE BBO and NYSE Trades.
The Exchange believes the proposed
changes will make the application of the
access fees to each of products so that
an access fee entitles a customer to
receive, for the applicable product, a
data feed or feeds. Specifically, data
recipients that take the NYSE BBO and/
or NYSE Trades products receive value
from each product they choose to take.
A data recipient that chooses to take
multiple products (no recipient is
required to take any of these products,
or any specific combination of them)
uses each product in a different way and
therefore obtains different value from
each. The Exchange believes that each
product has a separate and distinct
value that is appropriate to reflect in a
separate access fee. Finally, the
requirement to pay separate access fees
for each market data product is
equitable and not unfairly
discriminatory because it would apply
to all data recipients and appropriately
reflects the value of each product to
those who choose to use them.
Reduction to Enterprise Fee
The proposed enterprise fees for
NYSE BBO and NYSE Trades are
reasonable because they could result in
a fee reduction for data recipients with
a large number of professional and
nonprofessional users, as described in
the example above. If a data recipient
has a smaller number of professional
users of NYSE BBO and/or NYSE
Trades, then it may continue to use the
per user fee structure. By reducing
prices for data recipient [sic] with a
large number of professional and nonprofessional users, the Exchange
believes that more data recipient [sic]
may choose to offer NYSE BBO and
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NYSE Trades, thereby expanding the
distribution of this market data for the
benefit of investors. The Exchange also
believes that offering an enterprise fee
expands the range of options for offering
NYSE BBO and NYSE Trades and
allows data recipients greater choice in
selecting the most appropriate level of
data and fees for the professional and
non-professional users they are
servicing.
The Exchange notes that NYSE BBO
and NYSE Trades are entirely optional.
The Exchange is not required to make
NYSE BBO and NYSE Trades available
or to offer any specific pricing
alternatives to any customers, nor is any
firm required to purchase NYSE BBO
and NYSE Trades. Firms that do
purchase NYSE BBO and NYSE Trades
do so for the primary goals of using
them 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 BBO and NYSE Trades
or any other similar products are
attractively priced or not.24
Firms that do not wish to purchase
NYSE BBO and NYSE Trades at the new
prices have a variety of alternative
market data products from which to
choose,25 or if NYSE BBO and NYSE
Trades do not provide sufficient value
to firms as offered based on the uses
those firms have or planned to make of
it, such firms may simply choose to
conduct their business operations in
ways that do not use NYSE BBO and
NYSE Trades or use them 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.26
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
24 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).
25 See NASDAQ Rule 7047 (Nasdaq Basic) and
BATS Rule 11.22 (BATS TOP and Last Sale).
26 See FINRA Regulatory Notice 15–46, ‘‘Best
Execution,’’ November 2015.
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‘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.’ ’’ 27
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.28
27 NetCoalition,
615 F.3d at 535.
Exchange believes that cost-based pricing
would be impractical because it would create
enormous administrative burdens for all parties and
the Commission to cost-regulate a large number of
participants and standardize and analyze
extraordinary amounts of information, accounts,
and reports. In addition, and as described below, it
is impossible to regulate market data prices in
isolation from prices charged by markets for other
services that are joint products. Cost-based rate
regulation would also lead to litigation and may
distort incentives, including those to minimize
costs and to innovate, leading to further waste.
Under cost-based pricing, the Commission would
be burdened with determining a fair rate of return,
and the industry could experience frequent rate
increases based on escalating expense levels. Even
in industries historically subject to utility
regulation, cost-based ratemaking has been
discredited. As such, the Exchange believes that
cost-based ratemaking would be inappropriate for
proprietary market data and inconsistent with
Congress’s direction that the Commission use its
authority to foster the development of the national
market system, and that market forces will continue
to provide appropriate pricing discipline. See
Appendix C to NYSE’s comments to the
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28 The
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For these reasons, the Exchange
believes that the proposed fees are
reasonable, equitable, and not unfairly
discriminatory.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. An
exchange’s ability to price its
proprietary market data feed products is
constrained by actual competition for
the sale of proprietary market data
products, the joint product nature of
exchange platforms, and the existence of
alternatives to the Exchange’s
proprietary data.
The Existence of Actual Competition
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.’’ 29
Moreover, competitive markets for
listings, order flow, executions, and
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.
29 Press Release, U.S. Department of Justice,
Assistant Attorney General Christine Varney Holds
Conference Call Regarding NASDAQ OMX Group
Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011),
available at https://www.justice.gov/iso/opa/atr/
speeches/2011/at-speech-110516.html; see also
Complaint in U.S. v. Deutsche Borse AG and NYSE
Euronext, Case No. 11–cv–2280 (D.C. Dist.) ¶ 24
(‘‘NYSE and Direct Edge compete head-to-head . . .
in the provision of real-time proprietary equity data
products.’’).
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3493
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.’’ 30 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.31
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
30 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.
31 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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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
BBO or NYSE Trades unless their
customers request it, and customers will
not elect to pay the proposed fees unless
NYSE BBO and NYSE Trades can
provide value by sufficiently increasing
revenues or reducing costs in the
customer’s business in a manner that
will offset the fees. All of these factors
operate as constraints on pricing
proprietary data products.
Joint Product Nature of Exchange
Platform
Transaction execution and proprietary
data products are complementary in that
market data is both an input and a
byproduct of the execution service. In
fact, proprietary market data and trade
executions are a paradigmatic example
of joint products with joint costs. The
decision of whether and on which
platform to post an order will depend
on the attributes of the platforms where
the order can be posted, including the
execution fees, data availability and
quality, and price and distribution of
data products. Without a platform to
post quotations, receive orders, and
execute trades, exchange data products
would not exist.
The costs of producing market data
include not only the costs of the data
distribution infrastructure, but also the
costs of designing, maintaining, and
operating the exchange’s platform for
posting quotes, accepting orders, and
executing transactions and the cost of
regulating the exchange to ensure its fair
operation and maintain investor
confidence. The total return that a
trading platform earns reflects the
revenues it receives from both products
and the joint costs it incurs.
Moreover, an exchange’s brokerdealer customers generally view the
costs of transaction executions and
market data as a unified cost of doing
business with the exchange. A brokerdealer will only choose to direct orders
to an exchange if the revenue from the
transaction exceeds its cost, including
the cost of any market data that the
broker-dealer chooses to buy in support
of its order routing and trading
decisions. If the costs of the transaction
are not offset by its value, then the
broker-dealer may choose instead not to
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purchase the product and trade away
from that exchange. There is substantial
evidence of the strong correlation
between order flow and market data
purchases. For example, in September
2015, more than 80% of the transaction
volume on each of NYSE and NYSE’s
affiliates NYSE Arca, Inc. (‘‘NYSE
Arca’’) and NYSE MKT LLC (‘‘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.32 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.33
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
32 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).
33 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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create market data products without a
fast, technologically robust, and wellregulated execution system, and system
and regulatory costs affect the price of
both obtaining the market data itself and
creating and distributing market data
products. It would be equally
misleading, however, to attribute all of
an exchange’s costs to the market data
portion of an exchange’s joint products.
Rather, all of an exchange’s costs are
incurred for the unified purposes of
attracting order flow, executing and/or
routing orders, and generating and
selling data about market activity. The
total return that an exchange earns
reflects the revenues it receives from the
joint products and the total costs of the
joint products.
As noted above, the level of
competition and contestability in the
market is evident in the numerous
alternative venues that compete for
order flow, including 11 equities selfregulatory organization (‘‘SRO’’)
markets, as well as various forms of
alternative trading systems (‘‘ATSs’’),
including dark pools and electronic
communication networks (‘‘ECNs’’), and
internalizing broker-dealers. SRO
markets compete to attract order flow
and produce transaction reports via
trade executions, and two FINRAregulated Trade Reporting Facilities
compete to attract transaction reports
from the non-SRO venues.
Competition among trading platforms
can be expected to constrain the
aggregate return that each platform
earns from the sale of its joint products,
but different trading platforms may
choose from a range of possible, and
equally reasonable, pricing strategies as
the means of recovering total costs. For
example, some platforms may choose to
pay rebates to attract orders, charge
relatively low prices for market data
products (or provide market data
products free of charge), and charge
relatively high prices for accessing
posted liquidity. Other platforms may
choose a strategy of paying lower
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.34 In
34 This is simply a securities market-specific
example of the well-established principle that in
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this environment, there is no economic
basis for regulating maximum prices for
one of the joint products in an industry
in which suppliers face competitive
constraints with regard to the joint
offering.
Existence of Alternatives
The large number of SROs, ATSs, and
internalizing broker-dealers that
currently produce proprietary data or
are currently capable of producing it
provides further pricing discipline for
proprietary data products. Each SRO,
ATS, and broker-dealer is currently
permitted to produce and sell
proprietary data products, and many
currently do, including but not limited
to the Exchange, NYSE MKT, NYSE
Arca, NASDAQ OMX, BATS, and Direct
Edge.
The fact that proprietary data from
ATSs, internalizing broker-dealers, and
vendors can bypass SROs is significant
in two respects. First, non-SROs can
compete directly with SROs for the
production and sale of proprietary data
products. By way of example, BATS and
NYSE Arca both published proprietary
data on the Internet before registering as
exchanges. Second, because a single
order or transaction report can appear in
an SRO proprietary product, a non-SRO
proprietary product, or both, the amount
of data available via proprietary
products is greater in size than the
actual number of orders and transaction
reports that exist in the marketplace.
With respect to NYSE BBO and NYSE
Trades, competitors offer close
substitute products.35 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
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.
35 See supra note 25.
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as an ATS in 2006 and became an
exchange in 2008, while Direct Edge
began operations in 2007 and obtained
exchange status in 2010.
In determining the proposed changes
to the fees for the NYSE BBO and NYSE
Trades, 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) 36 of the Act and
subparagraph (f)(2) of Rule 19b–4 37
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) 38 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
36 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
38 15 U.S.C. 78s(b)(2)(B).
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSE–2016–03 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549.
All submissions should refer to File
Number SR–NYSE–2016–03. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Section, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing will also be available for
inspection and copying at the NYSE’s
principal office and on its Internet Web
site at www.nyse.com. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–NYSE–
2016–03 and should be submitted on or
before February 11, 2016.
37 17
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Federal Register / Vol. 81, No. 13 / Thursday, January 21, 2016 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.39
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–01062 Filed 1–20–16; 8:45 am]
BILLING CODE 8011–01–P
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
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–76911; File No. SR–
NYSEMKT–2016–05]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the Fees for
NYSE MKT Order Imbalances
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 MKT LLC (the
‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
fees for NYSE MKT Order Imbalances
to: (1) Establish a multiple data feed fee;
and (2) discontinue fees relating to
managed non-display. 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.
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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,
39 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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The Exchange proposes to amend the
fees for NYSE MKT Order Imbalances 4
as set forth on the NYSE MKT 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
for NYSE MKT Order Imbalances; and
• Discontinue fees relating to
managed non-display for NYSE MKT
Order Imbalances.
Multiple Data Feed Fee for NYSE MKT
Order Imbalances 5
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
MKT Order Imbalances in more than
two locations would be charged $200
per product per additional location per
month. No new reporting would be
required.6
Managed Non-Display Fees for NYSE
MKT Order Imbalances
Non-Display Use of NYSE MKT
market data means accessing,
processing, or consuming NYSE MKT
market data delivered via direct and/or
Redistributor 7 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. 59743
(April 9, 2009), 74 FR 17699 (April 16, 2009) (SR–
NYSEAmex–2009–11) (Notice—NYSE MKT Order
Imbalances), 72020 (Sept. 9, 2014), 79 FR 55040
(Sept. 15, 2014) (SR–NYSEMKT–2014–72) (‘‘2014
Non-Display Filing’’), and 73995 (Jan. 6, 2015), 80
FR 1560 (Jan. 12, 2015) (SR–NYSEMKT–2014–114).
5 The text of footnote 5 in Exhibit 5 of this
proposed rule change was previously filed under a
separate filing. See SR–NYSEMKT–2016–03
(Proposed Rule Change to Amend the Fees for
NYSE MKT OpenBook).
6 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 Order Imbalance
Data Feed product, that data recipient will pay the
Multiple Data Feed fee with respect to three of the
five locations.
7 ‘‘Redistributor’’ means a vendor or any other
person that provides an NYSE MKT 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.8
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.9 A
Redistributor approved for Managed
Non-Display Services manages and
controls the access to NYSE MKT Order
Imbalances and does not allow for
further internal distribution or external
redistribution of NYSE MKT Order
Imbalances by the data recipients. A
Redistributor approved for Managed
Non-Display Services is required to
report to NYSE MKT on a monthly basis
the data recipients that are receiving
NYSE MKT market data through the
Redistributor’s managed non-display
service and the real-time NYSE MKT
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 MKT
Order Imbalances from an approved
Redistributor of Managed Non-Display
Services are charged an access fee of
$250 per month and a Managed NonDisplay Services Fee of $100 per month,
for a total fee of $350 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 MKT
Order Imbalances on a managed nondisplay basis would continue to be
subject to an access fee of $500 per
month, and the same non-display
services fees,10 as other data
recipients.11
8 See
2014 Non-Display Filing, supra note 4.
be approved for Managed Non-Display
Services, a Redistributor must manage and control
the access to NYSE MKT Order Imbalances 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 MKT
Order Imbalances in the Redistributor’s own
messaging formats (rather than using raw NYSE
MKT message formats) by reformatting and/or
altering NYSE MKT Order Imbalances prior to
retransmission without affecting the integrity of
NYSE MKT Order Imbalances and without
rendering NYSE MKT Order Imbalances inaccurate,
unfair, uninformative, fictitious, misleading or
discriminatory.
10 See Fee Schedule.
11 In order to harmonize its approach to fees for
its market data products, the Exchange is
9 To
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]]>Agencies
[Federal Register Volume 81, Number 13 (Thursday, January 21, 2016)]
[Notices]
[Pages 3490-3496]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01062]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-76912; File No. SR-NYSE-2016-03]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change
Amending the Fees for NYSE BBO and NYSE Trades
January 14, 2016.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on January 4, 2016, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the fees for NYSE BBO and NYSE
Trades to: (1) Establish a multiple data feed fee; (2) discontinue fees
relating to managed non-display; (3) modify the application of the
access fee; and (4) reduce the Enterprise Fee. The proposed rule change
is available on the Exchange's Web site at www.nyse.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the fees for NYSE BBO and NYSE
Trades market data products,\4\ as set forth on the NYSE Proprietary
Market Data Fee Schedule (``Fee Schedule''). The Exchange proposes to
make the following fee changes effective January 4, 2016:
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release Nos. 61914 (Apr. 14,
2010), 74 FR 21077 (Apr. 22, 2010) (SR-NYSE-2010-30) (notice--NYSE
BBO); 62181 (May 26, 2010), 75 FR 31488 (June 3, 2010) (SR-NYSE-
2010-30) (approval order--NYSE BBO); 59309 (Jan. 28, 2009), 74 FR
6073 (Feb. 4, 2009) (SR-NYSE-2009-04) (notice--NYSE Trades); and
59309 (Mar. 19, 2009), 74 FR 13293 (Mar. 26, 2009) (approval order--
NYSE Trades) (SR-NYSE-2009-04) and 62038 (May 5, 2010), 75 FR 26825
(May 12, 2010) (SR-NYSE-2010-22).
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Establish a multiple data feed fee;
Discontinue fees relating to managed non-display;
Modify the application of the access fee; and
Reduce the Enterprise Fee.
Multiple Data Feed Fee \5\
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 BBO or NYSE Trades in more than two
locations would be charged $200 per additional location per product per
month. No new reporting would be required.\6\
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\5\ The text of footnote 6 in Exhibit 5 of this proposed rule
change was previously filed under a separate filing. See SR-NYSE-
2016-02 (Proposed Rule Change to Amend the Fees for NYSE OpenBook).
\6\ 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
BBO product, that data recipient will pay the Multiple Data Feed fee
with respect to three of the five locations.
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Managed Non-Display Fees
Non-Display Use of NYSE market data means accessing, processing, or
consuming NYSE market data delivered via direct and/or Redistributor
\7\ data feeds for a purpose other than in support of a data
recipient's display usage or further internal or external
[[Page 3491]]
redistribution.\8\ 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.\9\ A Redistributor
approved for Managed Non-Display Services manages and controls the
access to NYSE BBO and NYSE Trades and does not allow for further
internal distribution or external redistribution of NYSE BBO and NYSE
Trades by the data recipients. A Redistributor approved for Managed
Non-Display Services is required to report to NYSE on a monthly basis
the data recipients that are receiving NYSE market data through the
Redistributor's managed non-display service and the real-time NYSE
market data products that such data recipients are receiving through
such service. Recipients of data through Managed Non-Display Service
have no additional reporting requirements. Data recipients that receive
NYSE BBO from an approved Redistributor of Managed Non-Display Services
are charged a Managed Non-Display Services Fee of $300 per month, and
data recipients that receive NYSE Trades from an approved Redistributor
of Managed Non-Display Services are charged a Managed Non-Display
Services Fee of $1,000 per month. Data recipients that receive NYSE BBO
and NYSE Trades from an approved Redistributor of Managed Non-Display
Services are also charged an Access Fee of $750 per month.\10\
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\7\ ``Redistributor'' means a vendor or any other person that
provides an NYSE data product to a data recipient or to any system
that a data recipient uses, irrespective of the means of
transmission or access.
\8\ See e.g. Securities Exchange Act Release No. 72923 (Aug. 26,
2014), 79 FR 52079 (Sept. 2, 2014) (SR-NYSE-2014-43) (``2014 Non-
Display Filing'').
\9\ To be approved for Managed Non-Display Services, a
Redistributor must manage and control the access to NYSE BBO and
NYSE Trades 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 BBO and NYSE
Trades in the Redistributor's own messaging formats (rather than
using raw NYSE message formats) by reformatting and/or altering NYSE
BBO and NYSE Trades prior to retransmission without affecting the
integrity of NYSE BBO and NYSE Trades and without rendering NYSE BBO
and NYSE Trades inaccurate, unfair, uninformative, fictitious,
misleading or discriminatory.
\10\ A single Managed Non-Display Access Fee applies for clients
receiving both NYSE BBO and NYSE Trades. The Exchange is also
proposing in this filing to modify this application of the access
fees. See ``Modification of the application of the access fee,''
below.
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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
BBO and NYSE Trades on a managed non-display basis would be subject to
the same access fee of $1,500 per month, and the same non-display
services fees,\11\ as other non-display data recipients.\12\
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\11\ See Fee Schedule.
\12\ 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 OpenBook and
NYSE Order Imbalances. See SR-NYSE-2016-02 and SR-NYSE-2016-04. The
fees applicable to the NYSE Integrated market data product effective
as of January 4, 2016 do not include Managed Non-Display Services
fees.
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Modification of the Application of the Access Fee
The Exchange proposes to modify the application of the access fees
for NYSE BBO and NYSE Trades.
Each NYSE BBO data feed recipient currently pays a monthly $1,500
access fee for NYSE BBO, and each NYSE Trades data feed recipient
currently pays a monthly $1,500 access fee for NYSE Trades. A single
access fee applies for data recipients receiving both NYSE BBO and NYSE
Trades.\13\ The Exchange proposes to amend the access fees so that
recipients of NYSE BBO and NYSE Trades would be required to pay a
separate access fees for NYSE BBO ($1,500 per month) and NYSE Trades
($1,500 per month). This change would have no impact on customers who
receive only NYSE BBO or only NYSE Trades.
---------------------------------------------------------------------------
\13\ See Securities Exchange Act Release No. 61914 (April 15,
2010), 75 FR 21077 (April 22, 2010) (SR-NYSE-2010-30) at 21078.
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In addition, the Exchange notes that recipients of NYSE OpenBook
that also receive NYSE BBO and NYSE Order Imbalances do not currently
pay an access fee for NYSE BBO and NYSE Order Imbalances.\14\ The
Exchange has proposed by separate rule filing to amend the NYSE
OpenBook access fee so that recipients of NYSE OpenBook who also
receive NYSE BBO or NYSE Order Imbalances would be required to pay
separate access fees for NYSE BBO ($1,500 per month) and/or NYSE Order
Imbalances ($500 per month) in addition to the access fee for NYSE
OpenBook.\15\ This change would have no impact on customers who do not
receive NYSE OpenBook but who do receive NYSE BBO or NYSE Order
Imbalances.
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\14\ See Securities Exchange Act Release No. 59544 (Mar. 9,
2009), 74 FR 11162 (March 16, 2009) (SR-NYSE-2008-131), at 11163.
\15\ See SR-NYSE-2016-02.
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Reduction to Enterprise Fee
The Exchange currently charges an enterprise fee of $190,000 per
month for an unlimited number of professional and non-professional
users for each of NYSE BBO and NYSE Trades. A single Enterprise Fee
applies for clients receiving both NYSE BBO and NYSE Trades.\16\ The
Exchange proposes to lower the enterprise fee to $185,000 per month.
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 70211 (Aug. 15,
2013), 78 FR 51781 (Aug. 21, 2013) (SR-NYSE-2013-58).
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As an example, under the current fee structure for per user fees,
if a firm had 40,000 professional users who each received NYSE Trades
at $4 per month and NYSE BBO at $4 per month, then the firm would pay
$320,000 per month in professional user fees. Under the current pricing
structure, the charge would be capped at $190,000 and effective January
it would be capped at $185,000.
Under the proposed enterprise fee, the firm would pay a flat fee of
$185,000 for an unlimited number of professional and non-professional
users for both products. As is the case currently, a data recipient
that pays the enterprise fee would not have to report the number of
such users on a monthly basis.\17\ However, every six months, a data
recipient must provide the Exchange with a count of the total number of
natural person users of each product, including both professional and
non-professional users.
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\17\ Professional users currently are subject to a per display
device count. See Securities Act Release No. 73985 (Jan. 5. 2015),
80 FR 1456 (Jan. 9, 2015) (SR-NYSE-2014-75).
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\18\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\19\ 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.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78f(b).
\19\ 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
BBO and NYSE Trades.
Multiple Data Feed Fee
The Exchange believes that it is reasonable to require data
recipients to pay a modest additional fee taking a data feed for a
market data product in
[[Page 3492]]
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'').\20\ 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.\21\
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\20\ See Securities Exchange Act Release No. 70010 (July 19,
2013), 78 FR 44984 (July 25, 2013) (SR-CTA/CQ-2013-04).
\21\ See ``Direct Access Fee,'' Options Price Reporting
Authority Fee Schedule Fee Schedule[sic] PRA [sic] Plan at https://www.opradata.com/pdf/fee_schedule.pdf.
---------------------------------------------------------------------------
Managed Non-Display Fees
The Exchange believes that it is reasonable to discontinue Managed
Non-Display Fees. In 2013, the Exchange determined 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.\22\ Since then, the Exchange also modified its
approach to display and non-display fees with changes to the fees as
reflected in the 2014 Non-Display Filing.\23\ Discontinuing the fees
applicable to Managed Non-Display as proposed reflects the Exchange's
continuing review and consideration of the application of non-display
fees, and would harmonize and simplify the application of Non-Display
Use fees by applying them consistently to all users. In particular,
after further experience with the application of non-display use fees,
the Exchange believes that it is more equitable and less discriminatory
to discontinue the distinction for Managed Non-Display services because
all data recipients using data on a non-display basis are using it in a
comparable way and should be subject to similar fees regardless of
whether or not they receive the data directly from the Exchange. The
Exchange believes that applying the same non-display fees to all data
recipients on the same basis better reflects the significant value of
non-display data to data recipients and eliminates what is effectively
a discount for certain data recipients, and as such is not unfairly
discriminatory. The Exchange believes that the non-display fees
directly and appropriately reflect the significant value of using non-
display data in a wide range of computer-automated functions relating
to both trading and non-trading activities and that the number and
range of these functions continue to grow through innovation and
technology developments.
---------------------------------------------------------------------------
\22\ See Securities Exchange Act Release No. 69278 (April 2,
2013), 78 FR 20973 (April 8, 2013) (SR-NYSE-2013-25).
\23\ See note 8, supra.
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Modifications to Access Fee
The Exchange believes that it is reasonable to make the changes
proposed to the application of access fees for NYSE BBO and NYSE
Trades. The Exchange believes the proposed changes will make the
application of the access fees to each of products so that an access
fee entitles a customer to receive, for the applicable product, a data
feed or feeds. Specifically, data recipients that take the NYSE BBO
and/or NYSE Trades products receive value from each product they choose
to take. A data recipient that chooses to take multiple products (no
recipient is required to take any of these products, or any specific
combination of them) uses each product in a different way and therefore
obtains different value from each. The Exchange believes that each
product has a separate and distinct value that is appropriate to
reflect in a separate access fee. Finally, the requirement to pay
separate access fees for each market data product is equitable and not
unfairly discriminatory because it would apply to all data recipients
and appropriately reflects the value of each product to those who
choose to use them.
Reduction to Enterprise Fee
The proposed enterprise fees for NYSE BBO and NYSE Trades are
reasonable because they could result in a fee reduction for data
recipients with a large number of professional and nonprofessional
users, as described in the example above. If a data recipient has a
smaller number of professional users of NYSE BBO and/or NYSE Trades,
then it may continue to use the per user fee structure. By reducing
prices for data recipient [sic] with a large number of professional and
non-professional users, the Exchange believes that more data recipient
[sic] may choose to offer NYSE BBO and NYSE Trades, thereby expanding
the distribution of this market data for the benefit of investors. The
Exchange also believes that offering an enterprise fee expands the
range of options for offering NYSE BBO and NYSE Trades and allows data
recipients greater choice in selecting the most appropriate level of
data and fees for the professional and non-professional users they are
servicing.
The Exchange notes that NYSE BBO and NYSE Trades are entirely
optional. The Exchange is not required to make NYSE BBO and NYSE Trades
available or to offer any specific pricing alternatives to any
customers, nor is any firm required to purchase NYSE BBO and NYSE
Trades. Firms that do purchase NYSE BBO and NYSE Trades do so for the
primary goals of using them 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 BBO and NYSE Trades or any other similar products are attractively
priced or not.\24\
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\24\ 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 BBO and NYSE Trades at the
new prices have a variety of alternative market data products from
which to choose,\25\ or if NYSE BBO and NYSE Trades do not provide
sufficient value to firms as offered based on the uses those firms have
or planned to make of it, such firms may simply choose to conduct their
business operations in ways that do not use NYSE BBO and NYSE Trades or
use them 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.\26\
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\25\ See NASDAQ Rule 7047 (Nasdaq Basic) and BATS Rule 11.22
(BATS TOP and Last Sale).
\26\ See FINRA Regulatory Notice 15-46, ``Best Execution,''
November 2015.
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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
[[Page 3493]]
`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.' '' \27\
---------------------------------------------------------------------------
\27\ 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.\28\
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\28\ 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.'' \29\
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\29\ Press Release, U.S. Department of Justice, Assistant
Attorney General Christine Varney Holds Conference Call Regarding
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011), available at https://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html; see
also Complaint in U.S. v. Deutsche Borse AG and NYSE Euronext, Case
No. 11-cv-2280 (D.C. Dist.) ] 24 (``NYSE and Direct Edge compete
head-to-head . . . in the provision of real-time proprietary equity
data products.'').
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Moreover, competitive markets for listings, order flow, executions,
and transaction reports provide pricing discipline for the inputs of
proprietary data products and therefore constrain markets from
overpricing proprietary market data. Broker-dealers send their order
flow and transaction reports to multiple venues, rather than providing
them all to a single venue, which in turn reinforces this competitive
constraint. As a 2010 Commission Concept Release noted, the ``current
market structure can be described as dispersed and complex'' with
``trading volume . . . dispersed among many highly automated trading
centers that compete for order flow in the same stocks'' and ``trading
centers offer[ing] a wide range of services that are designed to
attract different types of market participants with varying trading
needs.'' \30\ 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.\31\
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\30\ 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.
\31\ Mary Jo White, Enhancing Our Equity Market Structure,
Sandler O'Neill & Partners, L.P. Global Exchange and Brokerage
Conference (June 5, 2014) (available on the Commission Web site),
citing Tuttle, Laura, 2014, ``OTC Trading: Description of Non-ATS
OTC Trading in National Market System Stocks,'' at 7-8.
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If an exchange succeeds in competing for quotations, order flow,
and trade executions, then it earns trading revenues and increases the
value of its proprietary market data products because they will contain
greater quote and trade information. Conversely, if an exchange is less
successful in attracting quotes, order flow, and trade executions, then
its market data products may be less desirable to customers in light of
the diminished content and data products offered by competing venues
may become more attractive. Thus, competition for quotations, order
flow, and trade executions puts significant pressure on an exchange to
maintain both execution and data fees at reasonable levels.
In addition, in the case of products that are also redistributed
through market data vendors, such as Bloomberg and Thompson Reuters,
the vendors
[[Page 3494]]
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 BBO or NYSE Trades unless their
customers request it, and customers will not elect to pay the proposed
fees unless NYSE BBO and NYSE Trades 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 NYSE and NYSE's affiliates NYSE Arca,
Inc. (``NYSE Arca'') and NYSE MKT LLC (``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.\32\ 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.\33\
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\32\ 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).
\33\ See generally Mark Hirschey, Fundamentals of Managerial
Economics, at 600 (2009) (``It is important to note, however, that
although it is possible to determine the separate marginal costs of
goods produced in variable proportions, it is impossible to
determine their individual average costs. This is because common
costs are expenses necessary for manufacture of a joint product.
Common costs of production--raw material and equipment costs,
management expenses, and other overhead--cannot be allocated to each
individual by-product on any economically sound basis . . . . Any
allocation of common costs is wrong and arbitrary.''). This is not
new economic theory. See, e.g., F.W. Taussig, ``A Contribution to
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4)
438, 465 (July 1891) (``Yet, surely, the division is purely
arbitrary. These items of cost, in fact, are jointly incurred for
both sorts of traffic; and I cannot share the hope entertained by
the statistician of the Commission, Professor Henry C. Adams, that
we shall ever reach a mode of apportionment that will lead to
trustworthy results.'').
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Analyzing the cost of market data product production and
distribution in isolation from the cost of all of the inputs supporting
the creation of market data and market data products will inevitably
underestimate the cost of the data and data products because it is
impossible to obtain the data inputs to create market data products
without a fast, technologically robust, and well-regulated execution
system, and system and regulatory costs affect the price of both
obtaining the market data itself and creating and distributing market
data products. It would be equally misleading, however, to attribute
all of an exchange's costs to the market data portion of an exchange's
joint products. Rather, all of an exchange's costs are incurred for the
unified purposes of attracting order flow, executing and/or routing
orders, and generating and selling data about market activity. The
total return that an exchange earns reflects the revenues it receives
from the joint products and the total costs of the joint products.
As noted above, the level of competition and contestability in the
market is evident in the numerous alternative venues that compete for
order flow, including 11 equities self-regulatory organization
(``SRO'') markets, as well as various forms of alternative trading
systems (``ATSs''), including dark pools and electronic communication
networks (``ECNs''), and internalizing broker-dealers. SRO markets
compete to attract order flow and produce transaction reports via trade
executions, and two FINRA-regulated Trade Reporting Facilities compete
to attract transaction reports from the non-SRO venues.
Competition among trading platforms can be expected to constrain
the aggregate return that each platform earns from the sale of its
joint products, but different trading platforms may choose from a range
of possible, and equally reasonable, pricing strategies as the means of
recovering total costs. For example, some platforms may choose to pay
rebates to attract orders, charge relatively low prices for market data
products (or provide market data products free of charge), and charge
relatively high prices for accessing posted liquidity. Other platforms
may choose a strategy of paying lower rebates (or no rebates) to
attract orders, setting relatively high prices for market data
products, and setting relatively low prices for accessing posted
liquidity. For example, BATS Global Markets (``BATS'') and Direct Edge,
which previously operated as ATSs and obtained exchange status in 2008
and 2010, respectively, provided certain market data at no charge on
their Web sites in order to attract more order flow, and used revenue
rebates from resulting additional executions to maintain low execution
charges for their users.\34\ In
[[Page 3495]]
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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\34\ This is simply a securities market-specific example of the
well-established principle that in certain circumstances more sales
at lower margins can be more profitable than fewer sales at higher
margins; this example is additional evidence that market data is an
inherent part of a market's joint platform.
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Existence of Alternatives
The large number of SROs, ATSs, and internalizing broker-dealers
that currently produce proprietary data or are currently capable of
producing it provides further pricing discipline for proprietary data
products. Each SRO, ATS, and broker-dealer is currently permitted to
produce and sell proprietary data products, and many currently do,
including but not limited to the Exchange, NYSE MKT, NYSE Arca, NASDAQ
OMX, BATS, and Direct Edge.
The fact that proprietary data from ATSs, internalizing broker-
dealers, and vendors can bypass SROs is significant in two respects.
First, non-SROs can compete directly with SROs for the production and
sale of proprietary data products. By way of example, BATS and NYSE
Arca both published proprietary data on the Internet before registering
as exchanges. Second, because a single order or transaction report can
appear in an SRO proprietary product, a non-SRO proprietary product, or
both, the amount of data available via proprietary products is greater
in size than the actual number of orders and transaction reports that
exist in the marketplace. With respect to NYSE BBO and NYSE Trades,
competitors offer close substitute products.\35\ Because market data
users can find suitable substitutes for most proprietary market data
products, a market that overprices its market data products stands a
high risk that users may substitute another source of market data
information for its own.
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\35\ See supra note 25.
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Those competitive pressures imposed by available alternatives are
evident in the Exchange's proposed pricing.
In addition to the competition and price discipline described
above, the market for proprietary data products is also highly
contestable because market entry is rapid and inexpensive. The history
of electronic trading is replete with examples of entrants that swiftly
grew into some of the largest electronic trading platforms and
proprietary data producers: Archipelago, Bloomberg Tradebook, Island,
RediBook, Attain, TrackECN, BATS Trading and Direct Edge. As noted
above, BATS launched as an ATS in 2006 and became an exchange in 2008,
while Direct Edge began operations in 2007 and obtained exchange status
in 2010.
In determining the proposed changes to the fees for the NYSE BBO
and NYSE Trades, 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) \36\ of the Act and subparagraph (f)(2) of Rule
19b-4 \37\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\36\ 15 U.S.C. 78s(b)(3)(A).
\37\ 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) \38\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\38\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSE-2016-03 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549.
All submissions should refer to File Number SR-NYSE-2016-03. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Section, 100 F Street
NE., Washington, DC 20549 on official business days between the hours
of 10:00 a.m. and 3:00 p.m. Copies of the filing will also be available
for inspection and copying at the NYSE's principal office and on its
Internet Web site at www.nyse.com. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NYSE-2016-03 and should be submitted on or before
February 11, 2016.
[[Page 3496]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\39\
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\39\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-01062 Filed 1-20-16; 8:45 am]
BILLING CODE 8011-01-P
