Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Fees for NYSE Arca BBO and NYSE Arca Trades To Lower the Enterprise Fee, 81820-81825 [2016-27748]
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Federal Register / Vol. 81, No. 223 / Friday, November 18, 2016 / Notices
II. Docketed Proceeding(s)
This notice will be published in the
Federal Register.
I. Introduction
The Commission gives notice that the
Postal Service filed request(s) for the
Commission to consider matters related
to negotiated service agreement(s). The
request(s) may propose the addition or
removal of a negotiated service
agreement from the market dominant or
the competitive product list, or the
modification of an existing product
currently appearing on the market
dominant or the competitive product
list.
Section II identifies the docket
number(s) associated with each Postal
Service request, the title of each Postal
Service request, the request’s acceptance
date, and the authority cited by the
Postal Service for each request. For each
request, the Commission appoints an
officer of the Commission to represent
the interests of the general public in the
proceeding, pursuant to 39 U.S.C. 505
(Public Representative). Section II also
establishes comment deadline(s)
pertaining to each request.
The public portions of the Postal
Service’s request(s) can be accessed via
the Commission’s Web site (https://
www.prc.gov). Non-public portions of
the Postal Service’s request(s), if any,
can be accessed through compliance
with the requirements of 39 CFR
3007.40.
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
with the policies of title 39. For
request(s) that the Postal Service states
concern market dominant product(s),
applicable statutory and regulatory
requirements include 39 U.S.C. 3622, 39
U.S.C. 3642, 39 CFR part 3010, and 39
CFR part 3020, subpart B. For request(s)
that the Postal Service states concern
competitive product(s), applicable
statutory and regulatory requirements
include 39 U.S.C. 3632, 39 U.S.C. 3633,
39 U.S.C. 3642, 39 CFR part 3015, and
39 CFR part 3020, subpart B. Comment
deadline(s) for each request appear in
section II.
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II. Docketed Proceeding(s)
1. Docket No(s).: CP2017–35; Filing
Title: Notice of United States Postal
Service of Filing a Functionally
Equivalent Global Expedited Package
Services 7 Negotiated Service
Agreement and Application for NonPublic Treatment of Materials Filed
Under Seal; Filing Acceptance Date:
November 10, 2016; Filing Authority: 39
CFR 3015.5; Public Representative:
Curtis E. Kidd; Comments Due:
November 21, 2016.
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Stacy L. Ruble,
Secretary.
[FR Doc. 2016–27709 Filed 11–17–16; 8:45 am]
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
Order Approving Public Company
Accounting Oversight Board
Supplemental Budget for Calendar
Year 2016
Securities Act of 1933, Release No. 10255/
November 14, 2016
Securities Exchange Act of 1934, Release No.
79303/November 14, 2016
The Sarbanes-Oxley Act of 2002, as
amended (the ‘‘Sarbanes-Oxley Act’’),1
established the Public Company
Accounting Oversight Board (‘‘PCAOB’’)
to oversee the audits of companies that
are subject to the securities laws, and
related matters, in order to protect the
interests of investors and further the
public interest in the preparation of
informative, accurate and independent
audit reports. Section 982 of the DoddFrank Wall Street Reform and Consumer
Protection Act (the ‘‘Dodd-Frank Act’’) 2
amended the Sarbanes-Oxley Act to
provide the PCAOB with explicit
authority to oversee auditors of brokerdealers registered with the Commission.
The PCAOB is to accomplish these goals
through registration of public
accounting firms and standard setting,
inspection, and disciplinary programs.
The PCAOB is subject to the
comprehensive oversight of the
Securities and Exchange Commission
(the ‘‘Commission’’).
Section 109(b) of the Sarbanes-Oxley
Act directs the PCAOB to establish a
budget for each fiscal year in accordance
with the PCAOB’s internal procedures,
subject to approval by the Commission.
Rule 190 of Regulation P facilitates the
Commission’s review and approval of
PCAOB budgets and annual accounting
support fees.3 This budget rule
provides, among other things, limits on
the PCAOB’s ability to incur expenses
and obligations except as provided in
the approved budget as well as the
procedures for the submission of
supplemental budgets when it is
forecasted that the limits to incur
expenses and obligations will be
exceeded in a given year. The
Commission previously determined that
the PCAOB’s 2016 budget of $257.7
million was consistent with Section 109
of the Sarbanes-Oxley Act and
accordingly, it approved the PCAOB’s
2016 Budget on March 14, 2016.4
During 2016, the PCAOB determined
that it had under budgeted for
inspections related travel for the year,
and, on October 14, 2016 it submitted a
supplemental budget request to the
Commission. The PCAOB’s 2016
supplemental budget requests
Commission approval to transfer $1
million of FY 2016 funding from certain
program areas where the PCAOB has a
2016 underspend to the Inspections
program area to cover the projected
overspend in inspections related travel
costs. The supplemental budget does
not request an increase to the PCAOB’s
previously approved 2016 Budget of
$257.7 million.
The Commission has determined that
the PCAOB’s 2016 supplemental budget
is consistent with Section 109 of the
Sarbanes-Oxley Act. Accordingly,
It is ordered, pursuant to Section 109
of the Sarbanes-Oxley Act, that the
PCAOB supplemental budget for
calendar year 2016 is approved.
By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2016–27708 Filed 11–17–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79310; File No. SR–
NYSEArca–2016–142]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending the Fees for
NYSE Arca BBO and NYSE Arca
Trades To Lower the Enterprise Fee
November 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
November 1, 2016, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) 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
4 Release
1 15
U.S.C. 7201 et seq.
2 Public Law 111–203, 124 Stat. 1376 (2010).
3 17 CFR 202.190.
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No. 33–10054 (March 14, 2016).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 81, No. 223 / Friday, November 18, 2016 / Notices
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of the Substance
of the Proposed Rule Change
The Exchange proposes to amend the
fees for NYSE Arca BBO and NYSE Arca
Trades to lower 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
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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The Exchange proposes to amend the
fees for NYSE Arca BBO and NYSE Arca
Trades market data products,4 as set
forth on the NYSE Arca Equities
Proprietary Market Data Fee Schedule
(‘‘Fee Schedule’’). Specifically, the
Exchange proposes to lower the
Enterprise Fee. The Exchange proposes
to make the fee change effective
November 1, 2016.
The Exchange currently charges an
enterprise fee of $170,000 per month for
an unlimited number of professional
and non-professional users for each of
NYSE Arca BBO and NYSE Arca
Trades.5 A single Enterprise Fee applies
for clients receiving both NYSE Arca
4 See Securities Exchange Act Release Nos. 59308
(January 28, 2009), 74 FR 5955 (February 3, 2009)
(SR–NYSEArca–2009–05) (notice—NYSE Arca
Trades); 59598 (March 18, 2009), 74 FR 12919
(March 25, 2009) (SR–NYSEArca–2009–05)
(approval order—NYSE Arca Trades); 61937 (April
16, 2010), 78 [sic] FR 21378 (April 23, 2010) (SR–
NYSEArca–2010–23) (notice—NYSE Arca BBO);
and 62188 (May 27, 2010), 75 FR 31484 (June 3,
2010) (SR–NYSEArca–2010–23) (approval order—
NYSE Arca BBO).
5 See Securities Exchange Act Release No. 76937
(January 20, 2016), 81 FR 4353 (January 26, 2016)
(SR–NYSEArca–2016–09).
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BBO and NYSE Arca Trades.6 The
Exchange proposes to lower the
enterprise fee to $34,500 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 Arca Trades at $4 per
month and NYSE Arca BBO at $4 per
month, without the Enterprise Fee, the
firm would be subject to $320,000 per
month in professional user fees. Under
the current pricing structure, the charge
would be capped at $170,000 and
effective November 1, 2016 it would be
capped at $34,500.
Under the proposed enterprise fee, the
firm would pay a flat fee of $34,500 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.7
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,8
in general, and Sections 6(b)(4) and
6(b)(5) of the Act,9 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 proposed fee change is also
equitable and not unfairly
discriminatory because it would apply
to all data recipients that choose to
subscribe to NYSE Arca BBO and NYSE
Arca Trades.
The proposed enterprise fees for
NYSE Arca BBO and NYSE Arca Trades
are reasonable because they could result
in a fee reduction for data recipients
with a large number of professional and
non-professional users, as described in
the example above. If a data recipient
has a smaller number of professional
users of NYSE Arca BBO and/or NYSE
Arca Trades, then it may continue to use
the per user fee structure. By reducing
prices for data recipient with a large
6 See Securities Exchange Act Release No. 70213
(August 15, 2013), 78 FR 51796 (August 21, 2013)
(SR–NYSEArca–2013–81).
7 Professional users currently are subject to a per
display device count. See Securities Act [sic]
Release No. 73998 (January 6, 2015), 80 FR 1549
(January 12, 2015) (SR–NYSEArca–2014–148).
8 15 U.S.C. 78f(b).
9 15 U.S.C. 78f(b)(4), (5).
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number of professional and nonprofessional users, the Exchange
believes that more data recipients may
choose to offer NYSE Arca BBO and
NYSE Arca 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 Arca BBO and NYSE
Arca 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 Arca
BBO and NYSE Arca Trades are entirely
optional. The Exchange is not required
to make NYSE Arca BBO and NYSE
Arca Trades available or to offer any
specific pricing alternatives to any
customers, nor is any firm required to
purchase NYSE Arca BBO and NYSE
Arca Trades. Firms that do purchase
NYSE Arca BBO and NYSE Arca 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 Arca BBO and NYSE
Arca Trades or any other similar
products are attractively priced or not.10
Firms that do not wish to purchase
NYSE Arca BBO and NYSE Arca Trades
have a variety of alternative market data
products from which to choose,11 or if
NYSE Arca BBO and NYSE Arca 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 Arca BBO and NYSE
Arca 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.12
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
10 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).
11 See NASDAQ Rule 7047 (Nasdaq Basic) and
Bats Rule 11.22 (Bats TOP and Last Sale).
12 See FINRA Regulatory Notice 15–46, ‘‘Best
Execution,’’ November 2015.
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Federal Register / Vol. 81, No. 223 / Friday, November 18, 2016 / Notices
market mechanisms to set reasonable
and equitably allocated fees for
proprietary market data:
In fact, the legislative history indicates that
the Congress intended that the market system
‘evolve through the interplay of competitive
forces as unnecessary regulatory restrictions
are removed’ and that the SEC wield its
regulatory power ‘in those situations where
competition may not be sufficient,’ such as
in the creation of a ‘consolidated
transactional reporting system.’
Id. at 535 (quoting H.R. Rep. No. 94–
229 at 92 (1975), as reprinted in 1975
U.S.C.C.A.N. 323). The court agreed
with the Commission’s conclusion that
‘‘Congress intended that ‘competitive
forces should dictate the services and
practices that constitute the U.S.
national market system for trading
equity securities.’ ’’ 13
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.14
13 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
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In addition, the Exchange believes
that the proposed fees are reasonable
when compared to fees for comparable
products offered by at least one other
exchange. For example, Bats BZX
Exchange (‘‘BZX’’) charges an enterprise
fee of $15,000 per month for each of
BZX Top and BZX Last Sale, which
includes best bid and offer and last sale
data, respectively.15 While the Exchange
is proposing enterprise fees that would
be higher than the fees currently
charged by BZX, the Exchange believes
the proposed fees, which would be
lower than current fees, are appropriate
and would be beneficial to firms with a
large number of users.
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,
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.
15 See Market Data Fees at https://
batstrading.com/support/fee_schedule/bzx/.
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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.’’ 16
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.’’ 17 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.18
16 Press Release, U.S. Department of Justice,
Assistant Attorney General Christine Varney Holds
Conference Call Regarding NASDAQ OMX Group
Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011),
available at https://www.justice.gov/iso/opa/atr/
speeches/2011/at-speech-110516.html; see also
Complaint in U.S. v. Deutsche Borse AG and NYSE
Euronext, Case No. 11–cv–2280 (DC Dist.) ¶ 24
(‘‘NYSE and Direct Edge compete head-to-head . . .
in the provision of real-time proprietary equity data
products.’’).
17 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.
18 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
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If an exchange succeeds in competing
for quotations, order flow, and trade
executions, then it earns trading
revenues and increases the value of its
proprietary market data products
because they will contain greater quote
and trade information. Conversely, if an
exchange is less successful in attracting
quotes, order flow, and trade
executions, then its market data
products may be less desirable to
customers in light of the diminished
content and data products offered by
competing venues may become more
attractive. Thus, competition for
quotations, order flow, and trade
executions puts significant pressure on
an exchange to maintain both execution
and data fees at reasonable levels.
In addition, in the case of products
that are also redistributed through
market data vendors, such as Bloomberg
and Thompson Reuters, the vendors
themselves provide additional price
discipline for proprietary data products
because they control the primary means
of access to certain end users. These
vendors impose price discipline based
upon their business models. For
example, vendors that assess a
surcharge on data they sell are able to
refuse to offer proprietary products that
their end users do not or will not
purchase in sufficient numbers. Vendors
will not elect to make available NYSE
Arca BBO or NYSE Arca Trades unless
their customers request it, and
customers will not elect to pay the
proposed fees unless NYSE Arca BBO
and NYSE Arca 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.
Non-ATS OTC Trading in National Market System
Stocks,’’ at 7–8.
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The costs of producing market data
include not only the costs of the data
distribution infrastructure, but also the
costs of designing, maintaining, and
operating the exchange’s platform for
posting quotes, accepting orders, and
executing transactions and the cost of
regulating the exchange to ensure its fair
operation and maintain investor
confidence. The total return that a
trading platform earns reflects the
revenues it receives from both products
and the joint costs it incurs.
Moreover, an exchange’s brokerdealer customers generally view the
costs of transaction executions and
market data as a unified cost of doing
business with the exchange. A brokerdealer will only choose to direct orders
to an exchange if the revenue from the
transaction exceeds its cost, including
the cost of any market data that the
broker-dealer chooses to buy in support
of its order routing and trading
decisions. If the costs of the transaction
are not offset by its value, then the
broker-dealer may choose instead not to
purchase the product and trade away
from that exchange.
Other market participants have noted
that proprietary market data and trade
executions are joint products of a joint
platform and have common costs.19 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.20
19 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).
20 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
PO 00000
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Fmt 4703
Sfmt 4703
81823
Analyzing the cost of market data
product production and distribution in
isolation from the cost of all of the
inputs supporting the creation of market
data and market data products will
inevitably underestimate the cost of the
data and data products because it is
impossible to obtain the data inputs to
create market data products without a
fast, technologically robust, and wellregulated execution system, and system
and regulatory costs affect the price of
both obtaining the market data itself and
creating and distributing market data
products. It would be equally
misleading, however, to attribute all of
an exchange’s costs to the market data
portion of an exchange’s joint products.
Rather, all of an exchange’s costs are
incurred for the unified purposes of
attracting order flow, executing and/or
routing orders, and generating and
selling data about market activity. The
total return that an exchange earns
reflects the revenues it receives from the
joint products and the total costs of the
joint products.
As noted above, the level of
competition and contestability in the
market is evident in the numerous
alternative venues that compete for
order flow, including 13 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
jointly incurred for both sorts of traffic; and I cannot
share the hope entertained by the statistician of the
Commission, Professor Henry C. Adams, that we
shall ever reach a mode of apportionment that will
lead to trustworthy results.’’).
E:\FR\FM\18NON1.SGM
18NON1
81824
Federal Register / Vol. 81, No. 223 / Friday, November 18, 2016 / Notices
mstockstill on DSK3G9T082PROD with NOTICES
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.21 In
this environment, there is no economic
basis for regulating maximum prices for
one of the joint products in an industry
in which suppliers face competitive
constraints with regard to the joint
offering.
Existence of Alternatives
The large number of SROs, ATSs, and
internalizing broker-dealers that
currently produce proprietary data or
are currently capable of producing it
provides further pricing discipline for
proprietary data products. Each SRO,
ATS, and broker-dealer is currently
permitted to produce and sell
proprietary data products, and many
currently do, including but not limited
to the Exchange, New York Stock
Exchange LLC, NYSE MKT LLC,
NASDAQ, 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.
Indeed, in the case of NYSE Arca BBO
and NYSE Arca Trades, the data
provided through these products
appears both in (i) real-time core data
products offered by the Securities
Information Processors (SIPs) for a fee,
and (ii) free SIP data products with a 15minute time delay, and finds a close
substitute in similar products of
competing venues.22 Because market
data users can find suitable substitutes
for most proprietary market data
products, a market that overprices its
21 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.
22 See supra note 15.
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20:21 Nov 17, 2016
Jkt 241001
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. A proliferation of dark pools and
other ATSs operate profitably with
fragmentary share of consolidated
market volume.
In determining the proposed changes
to the fees for the NYSE Arca BBO and
NYSE Arca 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) 23 of the Act and
subparagraph (f)(2) of Rule 19b–4 24
thereunder, because it establishes a due,
23 15
24 17
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U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
Frm 00106
Fmt 4703
Sfmt 4703
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) 25 of the Act to
determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2016–142 on the subject
line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2016–142. 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
25 15
E:\FR\FM\18NON1.SGM
U.S.C. 78s(b)(2)(B).
18NON1
Federal Register / Vol. 81, No. 223 / Friday, November 18, 2016 / Notices
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2016–142, and should be
submitted on or before December 9,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Brent J. Fields,
Secretary.
[FR Doc. 2016–27748 Filed 11–17–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of Investor
Education and Advocacy,
Washington, DC 20549–0213.
mstockstill on DSK3G9T082PROD with NOTICES
Extension:
Rule 12d3–1, SEC File No. 270–504, OMB
Control No. 3235–0561
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission (the
‘‘Commission’’) is soliciting comments
on the collections of information
summarized below. The Commission
plans to submit these existing
collections of information to the Office
of Management and Budget (‘‘OMB’’) for
extension and approval.
Section 12(d)(3) of the Investment
Company Act of 1940 (15 U.S.C. 80a)
generally prohibits registered
investment companies (‘‘funds’’), and
companies controlled by funds, from
purchasing securities issued by a
registered investment adviser, broker,
dealer, or underwriter (‘‘securitiesrelated businesses’’). Rule 12d3–1
(‘‘Exemption of acquisitions of
securities issued by persons engaged in
securities related businesses’’ (17 CFR
270.12d3–1)) permits a fund to invest
up to five percent of its assets in
securities of an issuer deriving more
than fifteen percent of its gross revenues
from securities-related businesses, but a
fund may not rely on rule 12d3–1 to
acquire securities of its own investment
26 17
CFR 200.30–3(a)(12).
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20:21 Nov 17, 2016
Jkt 241001
adviser or any affiliated person of its
own investment adviser.
A fund may, however, rely on an
exemption in rule 12d3–1 to acquire
securities issued by its subadvisers in
circumstances in which the subadviser
would have little ability to take
advantage of the fund, because it is not
in a position to direct the fund’s
securities purchases. The exemption in
rule 12d3–1(c)(3) is available if (i) the
subadviser is not, and is not an affiliated
person of, an investment adviser that
provides advice with respect to the
portion of the fund that is acquiring the
securities, and (ii) the advisory contracts
of the subadviser, and any subadviser
that is advising the purchasing portion
of the fund, prohibit them from
consulting with each other concerning
securities transactions of the fund, and
limit their responsibility in providing
advice to providing advice with respect
to discrete portions of the fund’s
portfolio.
Based on an analysis of third-party
information, the staff estimates that
approximately 319 fund portfolios enter
into subadvisory agreements each year.1
Based on discussions with industry
representatives, the staff estimates that
it will require approximately 3 attorney
hours to draft and execute additional
clauses in new subadvisory contracts in
order for funds and subadvisers to be
able to rely on the exemptions in rule
12d3–1. Because these additional
clauses are identical to the clauses that
a fund would need to insert in their
subadvisory contracts to rely on rules
10f–3, 17a–10, and 17e–1 and because
we believe that funds that use one such
rule generally use all of these rules, we
apportion this 3 hour time burden
equally to all four rules. Therefore, we
estimate that the burden allocated to
rule 12d3–1 for this contract change
would be 0.75 hours.2 Assuming that all
319 funds that enter into new
subadvisory contracts each year make
the modification to their contract
required by the rule, we estimate that
the rule’s contract modification
requirement will result in 239.25
burden hours annually.3
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a currently valid
control number.
1 Based on information available from
Morningstar and the ICI Fact Book, we estimate that
37 percent of funds are advised by subadvisers.
2 This estimate is based on the following
calculation (3 hours ÷ 4 rules = .75 hours).
3 This estimate is based on the following
calculation: (0.75 hours × 319 portfolios = 239.25
burden hours).
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81825
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comments
to Pamela Dyson, Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Remi
Pavlik-Simon, 100 F Street NE.,
Washington, DC 20549; or send an email
to: PRA_Mailbox@sec.gov.
Dated: November 14, 2016.
Brent J. Fields,
Secretary.
[FR Doc. 2016–27749 Filed 11–17–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79304; File No. SR–DTC–
2016–013]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Filing and Immediate Effectiveness of
a Proposed Rule Change To Modify the
DTC Settlement Service Guide and
Distributions Guide Relating to the
Anticipated U.S. Market Transition to a
Shortened Settlement Cycle
November 14, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4, thereunder 2
notice is hereby given that on November
7, 2016, The Depository Trust Company
(‘‘DTC’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I, II and III below, which Items
have been prepared by the clearing
agency. DTC filed the proposed rule
change pursuant to Section 19(b)(3)(A) 3
of the Act and Rule 19b–4(f)(4) 4
thereunder. The proposed rule change
was effective upon filing with the
Commission. The Commission is
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b–4(f)(4).
2 17
E:\FR\FM\18NON1.SGM
18NON1
]]>Agencies
[Federal Register Volume 81, Number 223 (Friday, November 18, 2016)]
[Notices]
[Pages 81820-81825]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27748]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79310; File No. SR-NYSEArca-2016-142]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Amending the Fees
for NYSE Arca BBO and NYSE Arca Trades To Lower the Enterprise Fee
November 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 November 1, 2016, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') 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
[[Page 81821]]
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 the
Substance of the Proposed Rule Change
The Exchange proposes to amend the fees for NYSE Arca BBO and NYSE
Arca Trades to lower 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the fees for NYSE Arca BBO and NYSE
Arca Trades market data products,\4\ as set forth on the NYSE Arca
Equities Proprietary Market Data Fee Schedule (``Fee Schedule'').
Specifically, the Exchange proposes to lower the Enterprise Fee. The
Exchange proposes to make the fee change effective November 1, 2016.
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release Nos. 59308 (January 28,
2009), 74 FR 5955 (February 3, 2009) (SR-NYSEArca-2009-05) (notice--
NYSE Arca Trades); 59598 (March 18, 2009), 74 FR 12919 (March 25,
2009) (SR-NYSEArca-2009-05) (approval order--NYSE Arca Trades);
61937 (April 16, 2010), 78 [sic] FR 21378 (April 23, 2010) (SR-
NYSEArca-2010-23) (notice--NYSE Arca BBO); and 62188 (May 27, 2010),
75 FR 31484 (June 3, 2010) (SR-NYSEArca-2010-23) (approval order--
NYSE Arca BBO).
---------------------------------------------------------------------------
The Exchange currently charges an enterprise fee of $170,000 per
month for an unlimited number of professional and non-professional
users for each of NYSE Arca BBO and NYSE Arca Trades.\5\ A single
Enterprise Fee applies for clients receiving both NYSE Arca BBO and
NYSE Arca Trades.\6\ The Exchange proposes to lower the enterprise fee
to $34,500 per month.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 76937 (January 20,
2016), 81 FR 4353 (January 26, 2016) (SR-NYSEArca-2016-09).
\6\ See Securities Exchange Act Release No. 70213 (August 15,
2013), 78 FR 51796 (August 21, 2013) (SR-NYSEArca-2013-81).
---------------------------------------------------------------------------
As an example, under the current fee structure for per user fees,
if a firm had 40,000 professional users who each received NYSE Arca
Trades at $4 per month and NYSE Arca BBO at $4 per month, without the
Enterprise Fee, the firm would be subject to $320,000 per month in
professional user fees. Under the current pricing structure, the charge
would be capped at $170,000 and effective November 1, 2016 it would be
capped at $34,500.
Under the proposed enterprise fee, the firm would pay a flat fee of
$34,500 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.\7\ 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.
---------------------------------------------------------------------------
\7\ Professional users currently are subject to a per display
device count. See Securities Act [sic] Release No. 73998 (January 6,
2015), 80 FR 1549 (January 12, 2015) (SR-NYSEArca-2014-148).
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\8\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\9\ 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.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------
The proposed fee change is also equitable and not unfairly
discriminatory because it would apply to all data recipients that
choose to subscribe to NYSE Arca BBO and NYSE Arca Trades.
The proposed enterprise fees for NYSE Arca BBO and NYSE Arca Trades
are reasonable because they could result in a fee reduction for data
recipients with a large number of professional and non-professional
users, as described in the example above. If a data recipient has a
smaller number of professional users of NYSE Arca BBO and/or NYSE Arca
Trades, then it may continue to use the per user fee structure. By
reducing prices for data recipient with a large number of professional
and non-professional users, the Exchange believes that more data
recipients may choose to offer NYSE Arca BBO and NYSE Arca 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 Arca BBO and NYSE
Arca 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 Arca BBO and NYSE Arca Trades are
entirely optional. The Exchange is not required to make NYSE Arca BBO
and NYSE Arca Trades available or to offer any specific pricing
alternatives to any customers, nor is any firm required to purchase
NYSE Arca BBO and NYSE Arca Trades. Firms that do purchase NYSE Arca
BBO and NYSE Arca 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 Arca BBO and NYSE Arca
Trades or any other similar products are attractively priced or
not.\10\
---------------------------------------------------------------------------
\10\ 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 Arca BBO and NYSE Arca
Trades have a variety of alternative market data products from which to
choose,\11\ or if NYSE Arca BBO and NYSE Arca 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 Arca BBO and NYSE Arca
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.\12\
---------------------------------------------------------------------------
\11\ See NASDAQ Rule 7047 (Nasdaq Basic) and Bats Rule 11.22
(Bats TOP and Last Sale).
\12\ See FINRA Regulatory Notice 15-46, ``Best Execution,''
November 2015.
---------------------------------------------------------------------------
The decision of the United States Court of Appeals for the District
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010), upheld reliance by the Securities and Exchange Commission
(``Commission'') upon the existence of competitive
[[Page 81822]]
market mechanisms to set reasonable and equitably allocated fees for
---------------------------------------------------------------------------
proprietary market data:
In fact, the legislative history indicates that the Congress
intended that the market system `evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed' and that the SEC wield its regulatory power `in those
situations where competition may not be sufficient,' such as in the
creation of a `consolidated transactional reporting system.'
Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted
in 1975 U.S.C.C.A.N. 323). The court agreed with the Commission's
conclusion that ``Congress intended that `competitive forces should
dictate the services and practices that constitute the U.S. national
market system for trading equity securities.' '' \13\
---------------------------------------------------------------------------
\13\ 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.\14\
---------------------------------------------------------------------------
\14\ 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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In addition, the Exchange believes that the proposed fees are
reasonable when compared to fees for comparable products offered by at
least one other exchange. For example, Bats BZX Exchange (``BZX'')
charges an enterprise fee of $15,000 per month for each of BZX Top and
BZX Last Sale, which includes best bid and offer and last sale data,
respectively.\15\ While the Exchange is proposing enterprise fees that
would be higher than the fees currently charged by BZX, the Exchange
believes the proposed fees, which would be lower than current fees, are
appropriate and would be beneficial to firms with a large number of
users.
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\15\ See Market Data Fees at https://batstrading.com/support/fee_schedule/bzx/.
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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.'' \16\
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\16\ Press Release, U.S. Department of Justice, Assistant
Attorney General Christine Varney Holds Conference Call Regarding
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011), available at https://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html; see
also Complaint in U.S. v. Deutsche Borse AG and NYSE Euronext, Case
No. 11-cv-2280 (DC Dist.) ] 24 (``NYSE and Direct Edge compete head-
to-head . . . in the provision of real-time proprietary equity data
products.'').
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Moreover, competitive markets for listings, order flow, executions,
and transaction reports provide pricing discipline for the inputs of
proprietary data products and therefore constrain markets from
overpricing proprietary market data. Broker-dealers send their order
flow and transaction reports to multiple venues, rather than providing
them all to a single venue, which in turn reinforces this competitive
constraint. As a 2010 Commission Concept Release noted, the ``current
market structure can be described as dispersed and complex'' with
``trading volume . . . dispersed among many highly automated trading
centers that compete for order flow in the same stocks'' and ``trading
centers offer[ing] a wide range of services that are designed to
attract different types of market participants with varying trading
needs.'' \17\ 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.\18\
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\17\ 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.
\18\ Mary Jo White, Enhancing Our Equity Market Structure,
Sandler O'Neill & Partners, L.P. Global Exchange and Brokerage
Conference (June 5, 2014) (available on the Commission Web site),
citing Tuttle, Laura, 2014, ``OTC Trading: Description of Non-ATS
OTC Trading in National Market System Stocks,'' at 7-8.
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[[Page 81823]]
If an exchange succeeds in competing for quotations, order flow,
and trade executions, then it earns trading revenues and increases the
value of its proprietary market data products because they will contain
greater quote and trade information. Conversely, if an exchange is less
successful in attracting quotes, order flow, and trade executions, then
its market data products may be less desirable to customers in light of
the diminished content and data products offered by competing venues
may become more attractive. Thus, competition for quotations, order
flow, and trade executions puts significant pressure on an exchange to
maintain both execution and data fees at reasonable levels.
In addition, in the case of products that are also redistributed
through market data vendors, such as Bloomberg and Thompson Reuters,
the vendors themselves provide additional price discipline for
proprietary data products because they control the primary means of
access to certain end users. These vendors impose price discipline
based upon their business models. For example, vendors that assess a
surcharge on data they sell are able to refuse to offer proprietary
products that their end users do not or will not purchase in sufficient
numbers. Vendors will not elect to make available NYSE Arca BBO or NYSE
Arca Trades unless their customers request it, and customers will not
elect to pay the proposed fees unless NYSE Arca BBO and NYSE Arca
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.
Other market participants have noted that proprietary market data
and trade executions are joint products of a joint platform and have
common costs.\19\ 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.\20\
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\19\ 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).
\20\ 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 13 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
[[Page 81824]]
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.\21\ In this environment, there is no economic basis
for regulating maximum prices for one of the joint products in an
industry in which suppliers face competitive constraints with regard to
the joint offering.
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\21\ 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, New York Stock Exchange LLC,
NYSE MKT LLC, NASDAQ, 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. Indeed, in the case of NYSE Arca BBO and NYSE
Arca Trades, the data provided through these products appears both in
(i) real-time core data products offered by the Securities Information
Processors (SIPs) for a fee, and (ii) free SIP data products with a 15-
minute time delay, and finds a close substitute in similar products of
competing venues.\22\ 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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\22\ See supra note 15.
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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. A
proliferation of dark pools and other ATSs operate profitably with
fragmentary share of consolidated market volume.
In determining the proposed changes to the fees for the NYSE Arca
BBO and NYSE Arca 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) \23\ of the Act and subparagraph (f)(2) of Rule
19b-4 \24\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 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) \25\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\25\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2016-142 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2016-142. 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
[[Page 81825]]
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2016-142, and
should be submitted on or before December 9, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-27748 Filed 11-17-16; 8:45 am]
BILLING CODE 8011-01-P
