Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Fees for NYSE Arca BBO and NYSE Arca Trades To Lower the Enterprise Fee for Those Products, 55702-55707 [2017-25228]
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the current leveraged (inverse, 2X, and
3X) ETP market? If so, how?
2. How much additional end-of-day
volume in the underlying assets would
the proposed Funds potentially add?
How much volume do existing
leveraged ETPs typically add to end-ofday trading in the underlying assets?
3. What is the expected daily volume
of trades for the proposed Funds? How
much daily creation and redemption
activity is expected in the proposed
Funds? How much current daily
creation and redemption activity is
there for leveraged ETPs?
4. Would the volume and activity
increase during periods of downward
market movement or high volatility, and
exacerbate the downward movement or
volatility? What type of hedging
exposure is expected with these
products, and during significant down
market moves, how might related selling
behavior be affected by such exposure?
5. What types of investors would
purchase Shares of the proposed Funds?
Would they be different from investors
in existing leveraged ETPs? If so, please
explain why.
6. Currently, are leveraged ETPs
always accessed through a registered
broker/dealer? If so, are transactions
generally solicited or unsolicited? If not,
how does an investor acquire a
leveraged ETP? What is the proportion
of volume from retail versus
institutional trading?
7. Do institutional investors buy and
sell leveraged ETPs? If so, what is the
purpose of institutional investments in
leveraged ETPs? For example, are they
used for hedging or are they ever held
in mutual funds? Would institutional
investors use the proposed Funds for a
different purpose than with the existing
leveraged ETPs? If so, please explain
why. Do firms hold the securities on
their books (for example, as trading
securities or available-for-sale
securities)? If so, how are they held? If
the investors are not institutional
investors, are there any restrictions
placed on access to these investments,
including accreditation or options
eligibility?
8. What exposures do retail investors
seek when holding these ETPs? Would
retail investors hold Shares of the
proposed Funds to seek different types
of exposures than with existing
leveraged ETPs? If so, please explain
why.
9. What is the typical holding period
of leveraged ETPs by retail investors?
Are they holding the products in taxadvantaged accounts, such as Individual
Retirement Accounts (IRAs), meant for
long-term investment horizons?
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10. Do investors have access to
information sufficient to fully
understand the operation and risks of
leveraged ETPs?
11. Would the potential loss of
investment be limited to the amount
invested? For example, do investors
frequently buy leveraged ETPs on
margin?
12. How does use of long positions
versus short positions in leveraged ETPs
differ across different types of investors?
13. Which types of broker/dealers are
active with leveraged ETP investments?
Do they tend to also hold these
investments in their own portfolio?
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-2017–69 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2017–69. 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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
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to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2017–69 and
should be submitted on or before
December 13, 2017. Rebuttal comments
should be submitted by December 27,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–25241 Filed 11–21–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82099; File No. SR–
NYSEARCA–2017–129]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the Fees for
NYSE Arca BBO and NYSE Arca
Trades To Lower the Enterprise Fee for
Those Products
November 16, 2017.
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 3, 2017, 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
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 Arca BBO and NYSE Arca
Trades to lower the Enterprise Fee for
those products. 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.
20 17 CFR 200.30–3(a)(12); 17 CFR 200.30–
3(a)(57).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
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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,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
2. Statutory Basis
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
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 for those products. The
Exchange proposes to make the fee
change effective November 3, 2017.
The Exchange currently charges an
enterprise fee of $34,500 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 $22,000 per month.
As an example, under the current fee
structure for per user fees, if a firm had
10,000 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 pay $80,000 per month in
professional user fees. Under the current
pricing structure, this firm would pay a
capped fee of $34,500 and effective
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 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. 79310
(November 14, 2016), 81 FR 81820 (November 18,
2016) (SR–NYSEArca–2016–142).
6 See Securities Exchange Act Release No. 70213
(August 15, 2013), 78 FR 51796 (August 21, 2013)
(SR–NYSEArca–2013–81).
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November 3, 2017 it would pay a
capped fee of $22,000.
Under the proposed reduced
enterprise fee, the firm would pay a flat
fee of $22,000 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.7 However, upon request, 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.
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 will result
in a fee reduction for data recipients
with sufficiently large numbers 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 and the fees it pays will not
change. By reducing prices for data
recipients 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 a reduced 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
7 Professional users currently are subject to a per
display device count. See Securities Act 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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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
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.’
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 BZX
Equities Rule 11.22 (Top and Last Sale).
12 See FINRA Regulatory Notice 15–46, ‘‘Best
Execution,’’ November 2015.
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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 reduced 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
For these reasons, the Exchange
believes that the proposed fees are
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
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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14 The
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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.’’ 15
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
15 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-tohead . . . in the provision of real-time proprietary
equity data products.’’).
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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.’’ 16 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.17
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
16 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.
17 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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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.
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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.18 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
18 See generally Pricing of Market Data Services,
An Economic Analysis at vi (‘‘Given the general
structure of electronic order books and electronic
order matching, it is not possible to provide
transaction services without generating market data,
and it is not possible to generate trade transaction—
or market depth—data without also supplying a
trade execution service. In economic terms, trade
execution and market data are joint products.’’)
(Oxera 2014).
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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
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.
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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55705
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 12 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.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
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.
E:\FR\FM\22NON1.SGM
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55706
Federal Register / Vol. 82, No. 224 / Wednesday, November 22, 2017 / Notices
asabaliauskas on DSKBBXCHB2PROD with NOTICES
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 American 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
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,
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–2017–129 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–2017–129.
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.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–NYSEARCA–2017–129 and
should be submitted on or before
December 13, 2017.
23 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
25 15 U.S.C. 78s(b)(2)(B).
24 17
22 See
supra note 11 [sic].
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Federal Register / Vol. 82, No. 224 / Wednesday, November 22, 2017 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–25228 Filed 11–21–17; 8:45 am]
BILLING CODE 8011–01–P
SOCIAL SECURITY ADMINISTRATION
[Docket No: SSA–2017–0064]
Agency Information Collection
Activities: Proposed Request and
Comment Request
The Social Security Administration
(SSA) publishes a list of information
collection packages requiring clearance
by the Office of Management and
Budget (OMB) in compliance with
Public Law 104–13, the Paperwork
Reduction Act of 1995, effective October
1, 1995. This notice includes an
extension of an OMB-approved
information collection, new information
collections, and revisions of OMBapproved information collections.
SSA is soliciting comments on the
accuracy of the agency’s burden
estimate; the need for the information;
its practical utility; ways to enhance its
quality, utility, and clarity; and ways to
minimize burden on respondents,
including the use of automated
collection techniques or other forms of
information technology. Mail, email, or
fax your comments and
recommendations on the information
collection(s) to the OMB Desk Officer
and SSA Reports Clearance Officer at
the following addresses or fax numbers.
(OMB), Office of Management and
Budget, Attn: Desk Officer for SSA,
Fax: 202–395–6974, Email address:
OIRA_Submission@omb.eop.gov.
(SSA), Social Security Administration,
OLCA, Attn: Reports Clearance
Director, 3100 West High Rise, 6401
Security Blvd., Baltimore, MD 21235,
Fax: 410–966–2830, Email address:
OR.Reports.Clearance@ssa.gov.
Or you may submit your comments
online through www.regulations.gov,
referencing Docket ID Number [SSA–
2017–0064].
I. The information collections below
are pending at SSA. SSA will submit
them to OMB within 60 days from the
date of this notice. To be sure we
consider your comments, we must
receive them no later than January 22,
2018 Individuals can obtain copies of
the collection instruments by writing to
the above email address.
55707
1. Fee Agreement for Representation
Before the Social Security
Administration—0960–NEW. SSA
requires individuals who represent a
claimant before the Social Security
Administration and want to receive a
fee for their services to obtain SSA’s
authorization of the fee under the Social
Security Act (Act). We currently have
two different, but mutually exclusive,
methods to authorize a fee for a
representative’s services before SSA.
SSA authorizes the fee either via the
agreement process, if the representative
submits the fee agreement before the
first favorable decision, or the fee
petition process, if the representative
submits the request after the favorable
decision. Currently SSA has no
standardized form for the fee agreement
process. Therefore, we created the SSA–
1693 to make it easier for
representatives to obtain the
authorization for a fee agreement. SSA
will use the information we collect on
the SSA–1693 to review the request and
authorize any fee to representatives who
seek to charge and collect from a
claimant. The respondents are the
representatives who help claimants
through the application process.
Type of Request: Request for a new
information collection.
Modality of
completion
Number of
respondents
Frequency of
response
Average burden
per response
(minutes)
Estimated total
annual burden
(hours)
SSA–1693 ........................................................................
600,000
1
12
120,000
2. Statement of Interpreter—0960–
NEW. SSA and the Disability
Determination Services (DDS) will use
Form SSA–4321, Statement of
Interpreter, when a person requiring an
interpreter prefers to provide their own
interpreter during an interview or
conversation between the person
requiring an interpreter and SSA or
DDS. SSA will require the interpreter to
sign Form SSA–4321, and confirm,
among other things, that: (1) They will
not knowingly give false information;
(2) they will act as an interpreter and
witness, and (3) they will accurately
interpret the interview to the best of
their ability. Section 205(a) of the Act,
as amended in 42 U.S.C. 405(a),
authorizes SSA collect this information.
Type of Request: Request for a new
information collection.
Number of
respondents
Frequency of
response
Average burden
per response
(minutes)
Estimated total
annual burden
(hours)
SSA–4321 ........................................................................
asabaliauskas on DSKBBXCHB2PROD with NOTICES
Modality of
completion
5,170,399
1
5
430,867
3. Statement of Living Arrangements,
In-Kind Support, and Maintenance—20
CFR 416.1130–416.1148–0960–0174.
SSA determines Supplemental Security
Income (SSI) payment amounts based
on applicants’ and recipients’ needs. We
measure individuals’ needs, in part, by
the amount of income they receive,
26 17
including in-kind support and
maintenance in the form of food and
shelter other people provide. SSA uses
Form SSA–8006–F4 to determine if inkind support and maintenance exists for
SSI applicants and recipients. This
information also assists SSA in
determining the income value of in-kind
support and maintenance SSI applicants
and recipients receive. The respondents
are individuals who apply for SSI
payments, or who complete an SSI
eligibility redetermination.
Type of Request: Revision of an OMBapproved information collection.
CFR 200.30–3(a)(12).
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]]>Agencies
[Federal Register Volume 82, Number 224 (Wednesday, November 22, 2017)]
[Notices]
[Pages 55702-55707]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25228]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82099; File No. SR-NYSEARCA-2017-129]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the Fees
for NYSE Arca BBO and NYSE Arca Trades To Lower the Enterprise Fee for
Those Products
November 16, 2017.
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 3, 2017, 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 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 Arca BBO and NYSE
Arca Trades to lower the Enterprise Fee for those products. 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.
[[Page 55703]]
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 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 for
those products. The Exchange proposes to make the fee change effective
November 3, 2017.
---------------------------------------------------------------------------
\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 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 $34,500 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 $22,000 per month.
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 79310 (November 14,
2016), 81 FR 81820 (November 18, 2016) (SR-NYSEArca-2016-142).
\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 10,000 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 pay $80,000 per month in professional
user fees. Under the current pricing structure, this firm would pay a
capped fee of $34,500 and effective November 3, 2017 it would pay a
capped fee of $22,000.
Under the proposed reduced enterprise fee, the firm would pay a
flat fee of $22,000 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.\7\ However, upon request, 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 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 will result in a fee reduction for data
recipients with sufficiently large numbers 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 and the fees it pays will not change. By reducing prices for
data recipients 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 a reduced 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 BZX Equities Rule
11.22 (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 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.'
[[Page 55704]]
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
reduced 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.
---------------------------------------------------------------------------
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.'' \15\
---------------------------------------------------------------------------
\15\ 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.'' \16\ 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.\17\
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\16\ 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.
\17\ Mary Jo White, Enhancing Our Equity Market Structure,
Sandler O'Neill & Partners, L.P. Global Exchange and Brokerage
Conference (June 5, 2014) (available on the Commission Web site),
citing Tuttle, Laura, 2014, ``OTC Trading: Description of Non-ATS
OTC Trading in National Market System Stocks,'' at 7-8.
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If an exchange succeeds in competing for quotations, order flow,
and trade executions, then it earns trading revenues and increases the
value of its proprietary market data products because they will contain
greater quote and trade information. Conversely, if an exchange is less
successful in attracting quotes, order flow, and trade executions, then
its market data products may be less desirable to customers in light of
the diminished content and data products offered by competing venues
may become more attractive. Thus, competition for quotations, order
flow, and trade executions puts significant pressure on an exchange to
maintain both execution and data fees at reasonable levels.
In addition, in the case of products that are also redistributed
through market data vendors, such as Bloomberg and Thompson Reuters,
the vendors themselves provide additional price discipline for
proprietary data products because they control the primary means of
access to certain end users. These vendors impose price discipline
based upon their business models. For
[[Page 55705]]
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.\18\ 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.
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\18\ See generally Pricing of Market Data Services, An Economic
Analysis at vi (``Given the general structure of electronic order
books and electronic order matching, it is not possible to provide
transaction services without generating market data, and it is not
possible to generate trade transaction--or market depth--data
without also supplying a trade execution service. In economic terms,
trade execution and market data are joint products.'') (Oxera 2014).
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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 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 12 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.\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
[[Page 55706]]
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 American 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 11 [sic].
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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 [email protected]. Please include
File Number SR-NYSEARCA-2017-129 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-2017-129. 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. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEARCA-2017-129 and should
be submitted on or before December 13, 2017.
[[Page 55707]]
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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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-25228 Filed 11-21-17; 8:45 am]
BILLING CODE 8011-01-P
