Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Changes to the NYSE Arca Equities Proprietary Market Data Fees, 55660-55666 [2017-25231]
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Federal Register / Vol. 82, No. 224 / Wednesday, November 22, 2017 / Notices
The Commission invites comments on
whether the Postal Service’s request(s)
in the captioned docket(s) are consistent
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[FR Doc. 2017–25461 Filed 11–20–17; 4:15 pm]
BILLING CODE 7710–FW–P
Stacy L. Ruble,
Secretary.
BILLING CODE 7710–FW–P
SECURITIES AND EXCHANGE
COMMISSION
POSTAL REGULATORY COMMISSION
[Release No. 34–82100; File No. SR–
NYSEARCA–2017–130]
[FR Doc. 2017–25246 Filed 11–21–17; 8:45 am]
Sunshine Act Meeting
TIME AND DATE:
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Commission hearing room, 901
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Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Changes to the NYSE Arca
Equities Proprietary Market Data Fees
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.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes changes to the
NYSE Arca Equities Proprietary Market
Data Fees (‘‘Fee Schedule’’) to: (1)
Modify the Redistribution Fee for NYSE
ArcaBook and NYSE Arca Integrated
Feed; (2) modify the Non-Display Fee
for NYSE ArcaBook and NYSE Arca
Integrated Feed; and (3) modify
Professional User Fees for NYSE
ArcaBook and NYSE Arca Integrated
Feeds and establish tiered Professional
User Fees and a Professional User Fee
Cap for Broker-Dealers subscribers of
NYSE ArcaBook. The proposed rule
change is available on the Exchange’s
Web site at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes changes to the
Fee Schedule to: (1) Modify the
Redistribution Fee for NYSE ArcaBook 4
and NYSE Arca Integrated Feed; 5 (2)
4 See Securities Exchange Act Release Nos. 53592
(June 7, 2006), 71 FR 33496 (June 9, 2006) (SR–
NYSEArca–2006–21) (‘‘2006 ArcaBook Notice’’);
59039 (December 2, 2008), 73 FR 74770 (December
9, 2008) (SR–NYSEArca–2006–21); 69315 (April 5,
2013), 78 FR 21668 (April 11, 2013) (SR–
NYSEArca–2013–37) (‘‘2013 Non-Display Filing’’);
72560 (July 8, 2014), 79 FR 40801 (July 14, 2014)
(SR–NYSEArca–2014–72)(‘‘2014 ArcaBook Filing’’);
73011 (September 5, 2014), 79 FR 54315 (September
11, 2014) (SR–NYSEARCA–2014–93) (‘‘2014 NonDisplay Filing’’); 74011 (January 7, 2015), 80 FR
1681 (January 13, 2015) (SR–NYSEArca–2014–149)
(‘‘2015 ArcaBook Filing’’); and 76903 (January 14,
2016), 81 FR 3547 (January 21, 2016) (SR–
NYSEArca–2016–01).
5 See Securities Exchange Act Release Nos. 66128
(Jan. 10, 2012), 77 FR 2331 (Jan. 17, 2012) (SR–
NYSEArca–2011–96); 69315 (April 5, 2013), 78 FR
21668 (April 11, 2013) (SR–NYSEArca–2013–37)
(‘‘2013 Non-Display Filing’’); 73011 (Sept. 5, 2014),
79 FR 54315 (Sept. 11, 2014) (SR–NYSEArca–2014–
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modify the Non-Display Fee for NYSE
ArcaBook and NYSE Arca Integrated
Feed; and (3) modify Professional User
Fees for NYSE ArcaBook and NYSE
Arca Integrated Feeds and establish
tiered Professional User Fees and a
Professional User Fee Cap for BrokerDealer subscribers of NYSE ArcaBook.
The Exchange proposes to make these
fee changes operative on January 1,
2018.
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Redistribution Fee
A Redistributor is any person
approved by the Exchange that provides
an NYSE Arca data product to an
external data recipient or to any external
system that a data recipient uses,
irrespective of the means of
transmission or access. The Exchange
currently charges a redistribution fee of
$1,500 per month for NYSE ArcaBook
and $3,000 per month for NYSE Arca
Integrated Feed. The Exchange proposes
to increase the redistribution fee to
$2,000 per month for NYSE ArcaBook
and to $3,750 per month for NYSE Arca
Integrated Feed.
Non-Display Fee
Non-Display Use of NYSE Arca
market data means accessing,
processing, or consuming NYSE Arca
market data delivered via direct and/or
Redistributor data distribution for a
purpose other than in support of a data
recipient’s display usage or further
internal or external redistribution.6
There are currently three categories
of, and fees applicable to, data
recipients for non-display use that are
listed on the Fee Schedule:
• Category 1 Fees apply when a data
recipient’s non-display use of real-time
market data is on its own behalf as
opposed to use on behalf of its clients;
• Category 2 Fees apply when a data
recipient’s non-display use of real-time
market data is on behalf of its clients as
opposed to use on its own behalf; and
• Category 3 Fees apply when a data
recipient’s non-display use of real-time
market data is for the purpose of
internally matching buy and sell orders
within an organization, including
matching customer orders on a data
recipient’s own behalf and/or on behalf
of its clients.
The Exchange proposes to amend
non-display use fees for NYSE
ArcaBook and NYSE Arca Integrated
Feed.
The current non-display fee for NYSE
ArcaBook is $5,000 per month for each
93) (‘‘2014 Non-Display Filing’’); 73993 (Jan. 6,
2015), 80 FR 1527 (Jan. 12, 2015) (SR–NYSEArca–
2014–147); and 76914 (January 14, 2016), 81 FR
3484 (January 21, 2016) (SR–NYSEArca–2016–03).
6 See e.g. 2015 ArcaBook Filing, supra note 4.
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of Category 1, Category 2 and Category
3. Category 3 fees are currently capped
at $15,000 per month. The Exchange
proposes to increase the non-display fee
for NYSE ArcaBook to $6,000 per month
for each of Category 1, Category 2 and
Category 3. The Exchange proposes a
corresponding increase in the cap for
Category 3 fees for NYSE ArcaBook to
$18,000 per month.
The current non-display fee for NYSE
Arca Integrated Feed is $7,000 per
month for each of Category 1, Category
2 and Category 3. Category 3 fees are
currently capped at $21,000. The
Exchange proposes to increase the nondisplay fee for NYSE Arca Integrated
Feed to $10,500 per month for each of
Category 1, Category 2 and Category 3.
The Exchange proposes a corresponding
increase in the cap for Category 3 fees
for NYSE Arca Integrated Feed to
$31,500 per month.
users at $40 per month). If all 2,500
users are internal users, under the
proposed fee change, this brokerdealer’s Professional User Fees would
increase to $110,000 per month (500
users at $60 per month plus 2,000 users
at $40 per month). However, the
operation of the proposed cap would
cause this broker-dealer’s fees to drop to
$75,000 per month. Thus, for this
broker-dealer the effect of the proposed
changes would be a decrease of $25,000
per month in Professional User Fees.
Further, the Exchange currently
charges a flat monthly Professional User
Fee of $40 per month per user for NYSE
Arca Integrated Feed. The Exchange
proposes to increase the monthly
Professional User Fees for NYSE Arca
Integrated Feed to $60 per month per
user. The proposed fee change would
apply to all professional users of NYSE
Arca Integrated Feed.
Professional User Fee
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 Exchange believes that the
proposed fee changes are fair and
reasonable in light of market and
technology developments. The
Exchange further believes that the
proposed fee changes are also equitable
and not unfairly discriminatory because
they would apply to all data recipients
that choose to subscribe to NYSE
ArcaBook and NYSE Arca Integrated
Feed.
The Exchange currently charges a flat
monthly Professional User Fee of $40
per user for NYSE ArcaBook. The
Exchange proposes to increase
Professional User Fees for NYSE
ArcaBook to $60 per month. The
Exchange also proposes to establish
tiered Professional User Fees for brokerdealers that are subscribers of NYSE
ArcaBook, as follows:
• $60 per month for each of 500 or
fewer professional users reported for a
broker-dealer subscriber, and
• The current rate of $40 per month
for each professional user over 500
reported for a broker-dealer subscriber.
The Exchange notes that it has not
increased NYSE ArcaBook subscriber
fees for display use since 2014.7 With
this proposed change, all subscribers
would pay more for some of their
professional users than they do today.
However, some subscribers that qualify
for the proposed tiered rate, i.e.,
subscribers with more than 500
professional users, would pay less
under the proposed fee change than
they would absent the proposed tiered
fees.
In addition, the Exchange proposes to
cap the Professional User Fee for brokerdealers that are subscribers of NYSE
ArcaBook at $75,000 per month.
To illustrate the application of the
proposed Professional User Fee increase
and the Professional Use Fee cap, a
broker-dealer with 2,500 professional
users who receive NYSE ArcaBook
would currently pay $100,000 per
month in Professional User Fees (2,500
7 See Securities Exchange Act Release No. 71483
(February 5, 2014), 79 FR 8217 (February 11, 2014)
(SR–NYSEArca–2014–12)
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Redistribution Fee
The Exchange believes the proposed
changes to the redistribution fee for
NYSE ArcaBook and NYSE Arca
Integrated Feed are equitable and
reasonable because they compare
favorably to redistribution fees that are
currently charged by other exchanges.10
The Exchange believes that it is
reasonable to charge redistribution fees
8 15
U.S.C. 78f(b).
U.S.C. 78f(b)(4) and (5).
10 Cboe BZX U.S. Equities Exchange (‘‘BZX
Equities’’) charges $5,000 per month for external
distribution of the BZX Depth market data product.
See https://markets.cboe.com/us/equities/
membership/fee_schedule/bzx/. In addition, the
Nasdaq Stock Market (‘‘Nasdaq’’) charges $3,750 per
month for external distribution of the NASDAQ
TotalView market data product. See https://
www.nasdaqtrader.com/
Trader.aspx?id=DPUSdata#tv.
9 15
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because vendors receive value from
redistributing the data in their business
products for their customers. The
Exchange believes the proposed change
to the redistribution fees also are not
unfairly discriminatory because they
would continue to be charged on an
equal basis to any vendor that chooses
to redistribute the data.
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Non-Display Fee
The Exchange believes that the
proposed fee increases for each of
Categories 1, 2, and 3 for NYSE
ArcaBook and NYSE Arca Integrated
Feed are equitable and reasonable. In
establishing the non-display fees in
April 2013, the Exchange set its fees at
levels that were below or comparable to
similar fees charged by certain of its
competitors.11 The Exchange then
modestly increased such fees in 2014
after gaining further experience with its
non-display fee structure. The Exchange
believes the proposed fees better reflect
the significant value of the non-display
data to data recipients, which purchase
data on an entirely voluntary basis.
Non-display data continues to be used
by data recipients for a wide variety of
profit-generating purposes, including
proprietary and agency trading and
smart order routing, as well as by data
recipients that operate order matching
and execution platforms that compete
directly with the Exchange for order
flow. Non-display data also continues to
be used for a variety of non-trading
purposes that indirectly support trading,
such as risk management and
compliance. While some of these nontrading uses do not directly generate
profits, they can nonetheless
substantially reduce the recipient’s costs
by automating such functions so that
they can be carried out in a more
efficient and accurate manner and
reduce errors and labor costs, thereby
benefitting end users. The Exchange
believes that the proposed fees directly
and appropriately reflect the significant
value of using non-display data in a
wide range of computer-automated
functions relating to both trading and
non-trading activities and that the
number and range of these functions
continue to grow through innovation
and technology developments.12
11 See Securities Exchange Act Release No. 69315
(April 5, 2013), 78 FR 21668 (April 11, 2013) (SR–
NYSEArca–2013–37).
12 See also Exchange Act Release No. 69157,
March 18, 2013, 78 FR 17946, 17949 (March 25,
2013) (SR–CTA/CQ–2013–01) (‘‘[D]ata feeds have
become more valuable, as recipients now use them
to perform a far larger array of non-display
functions. Some firms even base their business
models on the incorporation of data feeds into black
boxes and application programming interfaces that
apply trading algorithms to the data, but that do not
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The Exchange believes the proposed
fee increases are also reasonable in that
they support the Exchange’s efforts to
regularly upgrade systems to support
more modern data distribution formats
and protocols as technology evolves. For
example, the Exchange’s extensive
improvements to its trading platform
and feed technology has significantly
lowered the latency of its proprietary
data products available over the XDP
protocol, which transmits data faster
and more efficiently than the
Exchange’s previous data distribution
channel. For example, the average
latency of NYSE ArcaBook and NYSE
Arca Integrated Feed is approximately
one-third of what it was in 2014.
The Exchange believes the proposed
fees are competitive with offerings by
other exchanges, which structure and
set their fees comparably. For example,
Nasdaq charges professional subscribers
monthly fees for non-display usage
based upon direct access to NASDAQ
level 2, NASDAQ TotalView, or
NASDAQ OpenView, which range from
$375 per month for customers with one
to 39 subscribers to $75,000 per month
for customers with 250 or more
subscribers.13 In addition, Nasdaq PHLX
(‘‘PHLX’’) offers an alternative $10,000
per month ‘‘Non-Display Enterprise
License’’ fee that permits distribution to
an unlimited number of internal nondisplay subscribers without incurring
additional fees for each internal
subscriber.14 The Non-Display
Enterprise License covers non-display
subscriber fees for all PHLX proprietary
direct data feed products and is in
addition to any other associated
distributor fees for PHLX proprietary
direct data fee products.
Professional User Fee
The Exchange believes that the
proposed subscriber fees are reasonable,
equitable and not unfairly
discriminatory because the fee structure
of differentiated professional and nonprofessional fees has long been used by
the Exchange for other products, by
other exchanges for their products, and
by the CTA and CQ Plans in order to
make data more broadly available.
The Exchange believes that the tiered
structure with decreasing fees as the
number of professional subscribers
increase is equitable and not unfairly
discriminatory because it is similar to
the tiered structure used for professional
subscribers by the CTA and CQ for
require widespread data access by the firm’s
employees. As a result, these firms pay little for
data usage beyond access fees, yet their data access
and usage is critical to their businesses.’’).
13 See Nasdaq Rule 7023(b)(4).
14 See Section IX of the PHLX Pricing Schedule.
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Network A data 15 Broker-dealers that
purchase NYSE ArcaBook typically
have more than 500 professional users
and would therefore be impacted by the
change in fees for up to the first 500
such users. The fees for such brokerdealers for users above that level will
remain at the current level.
Additionally, as proposed, professional
user fees will be based on a tiered fee
structure that depends on the number of
users, with a reduced per user rate for
those professional users that exceed
500. Subscribers would pay $60 per user
per month for 500 and fewer users, and
would pay the current rate of $40 per
user per month for those users that
exceed 500. This tiered structure is an
equitable allocation of reasonable dues,
fees and other charges because the
proposed fees are commensurate with
the value of the data feed.
The Exchange further believes the
proposed monthly Professional User Fee
of $60 for NYSE ArcaBook and NYSE
Arca Integrated Feed is reasonable
because the proposed fee is comparable
to the $60 per month fee currently
charged by the New York Stock
Exchange LLC (‘‘NYSE’’) to professional
users of the NYSE OpenBook market
data product,16 and is lower than the
$76 per month fee currently charged by
Nasdaq to professional users of the
Nasdaq TotalView market data
product.17 And as noted above, the
Exchange has not raised the subscriber
fees for display use of NYSE ArcaBook
since 2014 and for NYSE Arca
Integrated Feed since 2013 when fees
for NYSE Arca Integrated Feed were
first adopted. Since then, the Exchange
has continually enhanced its market
data products through technology
upgrades to meet industry and customer
demands. The Exchange believes that
the proposed fees are fair and
reasonable in light of the Exchange’s
ongoing effort to improve the delivery
technology for market data.
The Exchange believes that it is
reasonable to establish the Professional
Fee Cap. The purpose of the
Professional User Fee is to charge for
each use of NYSE ArcaBook data feed.
The Exchange believes it is appropriate
to charge user fees for employees that
work on different trading desks or who
15 Those monthly fees are $50 for 1–2 devices,
$30 for 3–999 devices, $25 for 1,000–9,999 devices,
and $20 for 10,000 or more devices. See CTA
Network A Rate Schedule, available at https://
www.nyxdata.com/nysedata/
default.aspx?tabid=518.
16 See NYSE Proprietary Market Data Fees at
https://www.nyse.com/publicdocs/nyse/data/
NYSE_Market_Data_Fee_Schedule.pdf.
17 See Nasdaq Price List—U.S. Equities at https://
www.nasdaqtrader.com/
Trader.aspx?id=DPUSdata#tv.
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provide advisory services. These
internal uses are intended to provide
value to customers of the broker-dealer,
whether in the execution of trades, or
with designing an investment portfolio,
and are therefore an integral part of a
broker-dealer’s business model. While
the Exchange anticipates that only the
largest broker-dealers would avail
themselves to the proposed fee cap, in
the Exchange’s view, limiting the fee
exposure of a subset of its customers,
i.e., large broker-dealers, does not
unreasonably discriminate against other
customers under Section 603(a)(2) of
Regulation NMS. Additionally, the
Exchange notes that fee caps have long
been accepted as an economically
efficient form of volume discount for the
heaviest users of market data and would
allow for a broad dissemination of the
Exchange’s market data product.18 The
concept of adopting a fee cap applicable
to broker-dealer subscribers is not novel.
The Exchange currently has a NonProfessional Fee Cap applicable to
Broker-Dealers only that subscribe to
NYSE ArcaBook.19
The Exchange proposes these higher
fees in light of the fact that since 2014,
the value of NYSE ArcaBook and NYSE
Arca Integrated Feed data feeds has
increased significantly while fees for
these products have not increased. The
Exchange notes that in that time, the
Exchange has continually upgraded its
technology to keep pace with changes in
the industry and evolving customer
needs. Further, the standardization of
the market data specifications recently
implemented by the Exchange may
provide value to subscribers that utilize
data feeds from more than one NYSE
market. This standardization enables
greatly increased efficiency for firms by
allowing them to leverage their
development work on one market across
multiple markets and reduces the
overall impact of the price increases.
The Exchange notes that NYSE
ArcaBook and NYSE Arca Integrated
Feed are entirely optional. Firms are not
required to purchase NYSE ArcaBook
and NYSE Arca Integrated Feed. Firms
that do purchase NYSE ArcaBook and
18 See e.g., Nasdaq Rule 7023(c), Enterprise
License Fees at https://nasdaq.cchwallstreet.com/
NASDAQTools/
PlatformViewer.asp?selectednode=chp_1_1_4_
6&manual=%2Fnasdaq%2Fmain%2Fnasdaqequityrules%2F.
19 See NYSE Arca Equities Proprietary Market
Data Fees at https://www.nyse.com/publicdocs/
nyse/data/NYSE_Arca_Equities_Fee_Schedule.pdf.
See also Securities Exchange Act Release Nos.
59039 (December 2, 2008), 73 FR 74770 (December
9, 2008) (SR–NYSEArca–2006–21); 72560 (July 8,
2014), 79 FR 40801 (July 14, 2014) (SR–NYSEArca–
2014–72); and 76903 (January 14, 2016), 81 FR 3547
(January 21, 2016) (SR–NYSEArca–2016–01).
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NYSE Arca Integrated Feed do so for the
primary goals of using the data feeds to
increase profits, reduce expenses, and in
some instances compete directly with
the Exchange (including for order flow);
those firms are able to determine for
themselves whether NYSE ArcaBook
and NYSE Arca Integrated Feed or any
other similar products are attractively
priced or not.
Firms that do not wish to purchase
NYSE ArcaBook and NYSE Arca
Integrated Feed at the new prices have
a variety of alternative market data
products from which to choose,20 or if
NYSE ArcaBook and NYSE Arca
Integrated Feed does not provide
sufficient value to firms as offered based
on the uses those firms have or planned
to make of it, such firms may simply
choose to conduct their business
operations in ways that do not use
NYSE ArcaBook and NYSE Arca
Integrated Feed 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.21
The decision of the United States
Court of Appeals for the District of
Columbia Circuit in NetCoalition v.
SEC, 615 F.3d 525 (D.C. Cir. 2010),
upheld reliance by the Securities and
Exchange Commission (‘‘Commission’’)
upon the existence of competitive
market mechanisms to set reasonable
and equitably allocated fees for
proprietary market data:
In fact, the legislative history indicates that
the Congress intended that the market system
‘evolve through the interplay of competitive
forces as unnecessary regulatory restrictions
are removed’ and that the SEC wield its
regulatory power ‘in those situations where
competition may not be sufficient,’ such as
in the creation of a ‘consolidated
transactional reporting system.’
Id. at 535 (quoting H.R. Rep. No. 94–
229 at 92 (1975), as reprinted in 1975
U.S.C.C.A.N. 323). The court agreed
with the Commission’s conclusion that
‘‘Congress intended that ‘competitive
forces should dictate the services and
practices that constitute the U.S.
national market system for trading
equity securities.’ ’’ 22
As explained below in the Exchange’s
Statement on Burden on Competition,
the Exchange believes that there is
substantial evidence of competition in
the marketplace for proprietary market
data and that the Commission can rely
20 See Nasdaq Rule 7023 (Nasdaq TotalView) and
BZX Equities Rule 11.22(a) and (c) (TCP Depth and
Multicast Depth).
21 See FINRA Regulatory Notice 15–46, ‘‘Best
Execution,’’ November 2015.
22 NetCoalition, 615 F.3d at 535.
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upon such evidence in concluding that
the fees established in this filing are the
product of competition and therefore
satisfy the relevant statutory standards.
In addition, the existence of alternatives
to these data products, such as
consolidated data and proprietary data
from other sources, as described below,
further ensures that the Exchange
cannot set unreasonable fees, or fees
that are unreasonably discriminatory,
when vendors and subscribers can
select such alternatives.
As the NetCoalition decision noted,
the Commission is not required to
undertake a cost-of-service or
ratemaking approach. The Exchange
believes that, even if it were possible as
a matter of economic theory, cost-based
pricing for proprietary market data
would be so complicated that it could
not be done practically or offer any
significant benefits.23
For the reasons stated above, the
Exchange believes that the proposed
fees are fair and equitable, and not
unreasonably discriminatory. As
described above, the proposed fees are
based on pricing conventions and
distinctions that exist in the Exchange’s
current fee schedule, and the fee
schedules of other exchanges. These
distinctions are each based on
principles of fairness and equity that
have helped for many years to maintain
fair, equitable, and not unreasonably
discriminatory fees, and that apply with
equal or greater force to the current
proposal. Thus, although the proposal
results in a fee increase, these increases
are based on careful analysis of
empirical data and the application of
23 The Exchange believes that cost-based pricing
would be impractical because it would create
enormous administrative burdens for all parties and
the Commission to cost-regulate a large number of
participants and standardize and analyze
extraordinary amounts of information, accounts,
and reports. In addition, and as described below, it
is impossible to regulate market data prices in
isolation from prices charged by markets for other
services that are joint products. Cost-based rate
regulation would also lead to litigation and may
distort incentives, including those to minimize
costs and to innovate, leading to further waste.
Under cost-based pricing, the Commission would
be burdened with determining a fair rate of return,
and the industry could experience frequent rate
increases based on escalating expense levels. Even
in industries historically subject to utility
regulation, cost-based ratemaking has been
discredited. As such, the Exchange believes that
cost-based ratemaking would be inappropriate for
proprietary market data and inconsistent with
Congress’s direction that the Commission use its
authority to foster the development of the national
market system, and that market forces will continue
to provide appropriate pricing discipline. See
Appendix C to NYSE’s comments to the
Commission’s 2000 Concept Release on the
Regulation of Market Information Fees and
Revenues, which can be found on the Commission’s
Web site at https://www.sec.gov/rules/concept/
s72899/buck1.htm.
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time-tested pricing principles accepted
and applied by the Commission for
many years.
As described in greater detail below,
if the market deems the NYSE ArcaBook
and NYSE Integrated Feeds not to
provide fair value at the prices to be
charged, firms can discontinue or
change the ways they use these products
because the products are optional to all
parties. The Exchange continually
reviews pricing policies aimed at
increasing fairness and equitable
allocation of fees among subscribers.
NYSE Arca believes that periodically it
must adjust the subscriber fees to reflect
market forces and the Exchange believes
it is an appropriate time to adjust the
fees that are the subject of this proposed
rule change to more accurately reflect
the investments made to enhance these
products through technology upgrades.
For these reasons, the Exchange
believes that the proposed fees are
reasonable, equitable, and not unfairly
discriminatory.
asabaliauskas on DSKBBXCHB2PROD with NOTICES
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 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
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offer real-time equity data products.
These data products include the best bid
and offer of every exchange and
information on each equity trade,
including the last sale.’’ 24
Moreover, competitive markets for
listings, order flow, executions, and
transaction reports impose pricing
discipline for the inputs of proprietary
data products and therefore constrain
markets from overpricing proprietary
market data. Broker-dealers send their
order flow and transaction reports to
multiple venues, rather than providing
them all to a single venue, which in turn
reinforces this competitive constraint.
As a 2010 Commission Concept Release
noted, the ‘‘current market structure can
be described as dispersed and complex’’
with ‘‘trading volume . . . dispersed
among many highly automated trading
centers that compete for order flow in
the same stocks’’ and ‘‘trading centers
offer[ing] a wide range of services that
are designed to attract different types of
market participants with varying trading
needs.’’ 25 More recently, former SEC
Chair Mary Jo White reported that
competition for order flow in exchangelisted equities is ‘‘intense’’ and divided
among many trading venues, including
exchanges, more than 40 alternative
trading systems, and more than 250
broker-dealers.26 And as the
Commission’s own Chief Administrative
Law Judge found after considering
extensive fact and expert testimony and
documentary evidence on the subject,
‘‘there is fierce competition for trading
services (or ‘order flow’)’’ among
24 Press Release, U.S. Department of Justice,
Assistant Attorney General Christine Varney Holds
Conference Call Regarding NASDAQ OMX Group
Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011),
available at https://www.justice.gov/iso/opa/atr/
speeches/2011/at-speech-110516.html; see also
Complaint in U.S. v. Deutsche Borse AG and NYSE
Euronext, Case No. 11-cv-2280 (DC Dist.) ¶ 24
(‘‘NYSE and Direct Edge compete head-to-head . . .
in the provision of real-time proprietary equity data
products.’’).
25 Concept Release on Equity Market Structure,
Securities Exchange Act Release No. 61358 (Jan. 14,
2010), 75 FR 3594 (Jan. 21, 2010) (File No. S7–02–
10). This Concept Release included data from the
third quarter of 2009 showing that no market center
traded more than 20% of the volume of listed
stocks, further evidencing the dispersal of and
competition for trading activity. Id. at 3598. Data
available on ArcaVision show that from June 30,
2013 to June 30, 2014, no exchange traded more
than 12% of the volume of listed stocks by either
trade or dollar volume, further evidencing the
continued dispersal of and fierce competition for
trading activity. See https://www.arcavision.com/
Arcavision/arcalogin.jsp.
26 Mary Jo White, Enhancing Our Equity Market
Structure, Sandler O’Neill & Partners, L.P. Global
Exchange and Brokerage Conference (June 5, 2014)
(available on the Commission Web site), citing
Tuttle, Laura, 2014, ‘‘OTC Trading: Description of
Non-ATS OTC Trading in National Market System
Stocks,’’ at 7–8.
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exchanges, and ‘‘the record evidence
shows that competition plays a
significant role in restraining exchange
pricing of depth-of-book products.’’ In
the Matter of the Application of
Securities Industry And Financial
Markets Association For Review of
Actions Taken By Self-Regulatory
Organizations, Initial Decision Release
No. 1015, Administrative Proceeding
File No. 3–15350 (June 1, 2016), at pp.
8 and 33.
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 NYSE ArcaBook
and NYSE Arca Integrated Feed
available unless their customers request
it, and customers will not elect to pay
the proposed fees unless NYSE
ArcaBook and NYSE Arca Integrated
Feed 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
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of joint products with joint costs.27 The
decision of whether and on which
platform to post an order will depend
on the attributes of the platforms where
the order can be posted, including the
execution fees, data availability and
quality, and price and distribution of
data products. Without a platform to
post quotations, receive orders, and
execute trades, exchange data products
would not exist.
The costs of producing market data
include not only the costs of the data
distribution infrastructure, but also the
costs of designing, maintaining, and
operating the exchange’s platform for
posting quotes, accepting orders, and
executing transactions and the cost of
regulating the exchange to ensure its fair
operation and maintain investor
confidence. The total return that a
trading platform earns reflects the
revenues it receives from both products
and the joint costs it incurs.
Moreover, an exchange’s brokerdealer customers generally view the
costs of transaction executions and
market data as a unified cost of doing
business with the exchange. A brokerdealer will only choose to direct orders
to an exchange if the revenue from the
transaction exceeds its cost, including
the cost of any market data that the
broker-dealer chooses to buy in support
of its order routing and trading
decisions. If the costs of the transaction
are not offset by its value, then the
broker-dealer may choose instead not to
purchase the product and trade away
from that exchange. There is substantial
evidence of the strong correlation
between order flow and market data
purchases. For example, in September
2015, more than 80% of the transaction
volume on each of the Exchange and the
Exchange’s affiliates, NYSE and NYSE
American LLC (‘‘NYSE American’’), was
executed by market participants that
purchased one or more proprietary
market data products (the 20 firms were
not the same for each market). A supracompetitive increase in the fees for
either executions or market data would
create a risk of reducing an exchange’s
revenues from both products.
Other market participants have noted
that proprietary market data and trade
executions are joint products of a joint
27 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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platform and have common costs.28 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.29
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.
28 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).
29 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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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, Cboe Global Markets f/k/a 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.30 More recently, Investors
Exchange (‘‘IEX’’), which began to
operate as an ATS in 2013 and later
obtained exchange status in 2016,
currently provides market data at no
charge in order to attract order flow and
build market share. 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.
30 This is simply a securities market-specific
example of the well-established principle that in
certain circumstances more sales at lower margins
can be more profitable than fewer sales at higher
margins; this example is additional evidence that
market data is an inherent part of a market’s joint
platform.
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Existence of Alternatives
The large number of SROs, ATSs, and
internalizing broker-dealers that
currently produce proprietary data or
are currently capable of producing it
provides further pricing discipline for
proprietary data products. Each SRO,
ATS, and broker-dealer is currently
permitted to produce and sell
proprietary data products, and many
currently do, including but not limited
to the Exchange, NYSE, NYSE
American, Nasdaq, and Bats.
The fact that proprietary data from
ATSs, internalizing broker-dealers, and
vendors can bypass SROs is significant
in two respects. First, non-SROs can
compete directly with SROs for the
production and sale of proprietary data
products. By way of example, Bats and
NYSE Arca both published proprietary
data on the Internet before registering as
exchanges. Second, because a single
order or transaction report can appear in
an SRO proprietary product, a non-SRO
proprietary product, or both, the amount
of data available via proprietary
products is greater in size than the
actual number of orders and transaction
reports that exist in the marketplace.
With respect to NYSE ArcaBook and
NYSE Arca Integrated Feed, competitors
offer close substitute products.31
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 and Direct Edge. As
noted above, Bats launched as an ATS
in 2006 and became an exchange in
2008, while Direct Edge began
operations in 2007 and obtained
exchange status in 2010. And more
recently, IEX, which started operating as
an ATS in 2013 has accumulated more
than 2% market share since it obtained
exchange status in 2016.
In determining the proposed changes
to the fees for NYSE ArcaBook and
NYSE Arca Integrated Feed, 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) 32 of the Act and
subparagraph (f)(2) of Rule 19b–4 33
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) 34 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.
32 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(2).
34 15 U.S.C. 78s(b)(2)(B).
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–2017–130 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–2017–130.
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–2017–130 and
should be submitted on or before
December 13, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–25231 Filed 11–21–17; 8:45 am]
BILLING CODE 8011–01–P
33 17
31 See
supra note 20.
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]]>Agencies
[Federal Register Volume 82, Number 224 (Wednesday, November 22, 2017)]
[Notices]
[Pages 55660-55666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25231]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82100; File No. SR-NYSEARCA-2017-130]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Changes to the NYSE Arca
Equities Proprietary Market Data Fees
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 changes to the NYSE Arca Equities Proprietary
Market Data Fees (``Fee Schedule'') to: (1) Modify the Redistribution
Fee for NYSE ArcaBook and NYSE Arca Integrated Feed; (2) modify the
Non-Display Fee for NYSE ArcaBook and NYSE Arca Integrated Feed; and
(3) modify Professional User Fees for NYSE ArcaBook and NYSE Arca
Integrated Feeds and establish tiered Professional User Fees and a
Professional User Fee Cap for Broker-Dealers subscribers of NYSE
ArcaBook. The proposed rule change is available on the Exchange's Web
site at www.nyse.com, at the principal office of the Exchange, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes changes to the Fee Schedule to: (1) Modify
the Redistribution Fee for NYSE ArcaBook \4\ and NYSE Arca Integrated
Feed; \5\ (2)
[[Page 55661]]
modify the Non-Display Fee for NYSE ArcaBook and NYSE Arca Integrated
Feed; and (3) modify Professional User Fees for NYSE ArcaBook and NYSE
Arca Integrated Feeds and establish tiered Professional User Fees and a
Professional User Fee Cap for Broker-Dealer subscribers of NYSE
ArcaBook. The Exchange proposes to make these fee changes operative on
January 1, 2018.
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\4\ See Securities Exchange Act Release Nos. 53592 (June 7,
2006), 71 FR 33496 (June 9, 2006) (SR-NYSEArca-2006-21) (``2006
ArcaBook Notice''); 59039 (December 2, 2008), 73 FR 74770 (December
9, 2008) (SR-NYSEArca-2006-21); 69315 (April 5, 2013), 78 FR 21668
(April 11, 2013) (SR-NYSEArca-2013-37) (``2013 Non-Display
Filing''); 72560 (July 8, 2014), 79 FR 40801 (July 14, 2014) (SR-
NYSEArca-2014-72)(``2014 ArcaBook Filing''); 73011 (September 5,
2014), 79 FR 54315 (September 11, 2014) (SR-NYSEARCA-2014-93)
(``2014 Non-Display Filing''); 74011 (January 7, 2015), 80 FR 1681
(January 13, 2015) (SR-NYSEArca-2014-149) (``2015 ArcaBook
Filing''); and 76903 (January 14, 2016), 81 FR 3547 (January 21,
2016) (SR-NYSEArca-2016-01).
\5\ See Securities Exchange Act Release Nos. 66128 (Jan. 10,
2012), 77 FR 2331 (Jan. 17, 2012) (SR-NYSEArca-2011-96); 69315
(April 5, 2013), 78 FR 21668 (April 11, 2013) (SR-NYSEArca-2013-37)
(``2013 Non-Display Filing''); 73011 (Sept. 5, 2014), 79 FR 54315
(Sept. 11, 2014) (SR-NYSEArca-2014-93) (``2014 Non-Display
Filing''); 73993 (Jan. 6, 2015), 80 FR 1527 (Jan. 12, 2015) (SR-
NYSEArca-2014-147); and 76914 (January 14, 2016), 81 FR 3484
(January 21, 2016) (SR-NYSEArca-2016-03).
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Redistribution Fee
A Redistributor is any person approved by the Exchange that
provides an NYSE Arca data product to an external data recipient or to
any external system that a data recipient uses, irrespective of the
means of transmission or access. The Exchange currently charges a
redistribution fee of $1,500 per month for NYSE ArcaBook and $3,000 per
month for NYSE Arca Integrated Feed. The Exchange proposes to increase
the redistribution fee to $2,000 per month for NYSE ArcaBook and to
$3,750 per month for NYSE Arca Integrated Feed.
Non-Display Fee
Non-Display Use of NYSE Arca market data means accessing,
processing, or consuming NYSE Arca market data delivered via direct
and/or Redistributor data distribution for a purpose other than in
support of a data recipient's display usage or further internal or
external redistribution.\6\
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\6\ See e.g. 2015 ArcaBook Filing, supra note 4.
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There are currently three categories of, and fees applicable to,
data recipients for non-display use that are listed on the Fee
Schedule:
Category 1 Fees apply when a data recipient's non-display
use of real-time market data is on its own behalf as opposed to use on
behalf of its clients;
Category 2 Fees apply when a data recipient's non-display
use of real-time market data is on behalf of its clients as opposed to
use on its own behalf; and
Category 3 Fees apply when a data recipient's non-display
use of real-time market data is for the purpose of internally matching
buy and sell orders within an organization, including matching customer
orders on a data recipient's own behalf and/or on behalf of its
clients.
The Exchange proposes to amend non-display use fees for NYSE
ArcaBook and NYSE Arca Integrated Feed.
The current non-display fee for NYSE ArcaBook is $5,000 per month
for each of Category 1, Category 2 and Category 3. Category 3 fees are
currently capped at $15,000 per month. The Exchange proposes to
increase the non-display fee for NYSE ArcaBook to $6,000 per month for
each of Category 1, Category 2 and Category 3. The Exchange proposes a
corresponding increase in the cap for Category 3 fees for NYSE ArcaBook
to $18,000 per month.
The current non-display fee for NYSE Arca Integrated Feed is $7,000
per month for each of Category 1, Category 2 and Category 3. Category 3
fees are currently capped at $21,000. The Exchange proposes to increase
the non-display fee for NYSE Arca Integrated Feed to $10,500 per month
for each of Category 1, Category 2 and Category 3. The Exchange
proposes a corresponding increase in the cap for Category 3 fees for
NYSE Arca Integrated Feed to $31,500 per month.
Professional User Fee
The Exchange currently charges a flat monthly Professional User Fee
of $40 per user for NYSE ArcaBook. The Exchange proposes to increase
Professional User Fees for NYSE ArcaBook to $60 per month. The Exchange
also proposes to establish tiered Professional User Fees for broker-
dealers that are subscribers of NYSE ArcaBook, as follows:
$60 per month for each of 500 or fewer professional users
reported for a broker-dealer subscriber, and
The current rate of $40 per month for each professional
user over 500 reported for a broker-dealer subscriber.
The Exchange notes that it has not increased NYSE ArcaBook
subscriber fees for display use since 2014.\7\ With this proposed
change, all subscribers would pay more for some of their professional
users than they do today. However, some subscribers that qualify for
the proposed tiered rate, i.e., subscribers with more than 500
professional users, would pay less under the proposed fee change than
they would absent the proposed tiered fees.
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\7\ See Securities Exchange Act Release No. 71483 (February 5,
2014), 79 FR 8217 (February 11, 2014) (SR-NYSEArca-2014-12)
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In addition, the Exchange proposes to cap the Professional User Fee
for broker-dealers that are subscribers of NYSE ArcaBook at $75,000 per
month.
To illustrate the application of the proposed Professional User Fee
increase and the Professional Use Fee cap, a broker-dealer with 2,500
professional users who receive NYSE ArcaBook would currently pay
$100,000 per month in Professional User Fees (2,500 users at $40 per
month). If all 2,500 users are internal users, under the proposed fee
change, this broker-dealer's Professional User Fees would increase to
$110,000 per month (500 users at $60 per month plus 2,000 users at $40
per month). However, the operation of the proposed cap would cause this
broker-dealer's fees to drop to $75,000 per month. Thus, for this
broker-dealer the effect of the proposed changes would be a decrease of
$25,000 per month in Professional User Fees.
Further, the Exchange currently charges a flat monthly Professional
User Fee of $40 per month per user for NYSE Arca Integrated Feed. The
Exchange proposes to increase the monthly Professional User Fees for
NYSE Arca Integrated Feed to $60 per month per user. The proposed fee
change would apply to all professional users of NYSE Arca Integrated
Feed.
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.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4) and (5).
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The Exchange believes that the proposed fee changes are fair and
reasonable in light of market and technology developments. The Exchange
further believes that the proposed fee changes are also equitable and
not unfairly discriminatory because they would apply to all data
recipients that choose to subscribe to NYSE ArcaBook and NYSE Arca
Integrated Feed.
Redistribution Fee
The Exchange believes the proposed changes to the redistribution
fee for NYSE ArcaBook and NYSE Arca Integrated Feed are equitable and
reasonable because they compare favorably to redistribution fees that
are currently charged by other exchanges.\10\ The Exchange believes
that it is reasonable to charge redistribution fees
[[Page 55662]]
because vendors receive value from redistributing the data in their
business products for their customers. The Exchange believes the
proposed change to the redistribution fees also are not unfairly
discriminatory because they would continue to be charged on an equal
basis to any vendor that chooses to redistribute the data.
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\10\ Cboe BZX U.S. Equities Exchange (``BZX Equities'') charges
$5,000 per month for external distribution of the BZX Depth market
data product. See https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/. In addition, the Nasdaq Stock Market (``Nasdaq'')
charges $3,750 per month for external distribution of the NASDAQ
TotalView market data product. See https://www.nasdaqtrader.com/Trader.aspx?id=DPUSdata#tv.
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Non-Display Fee
The Exchange believes that the proposed fee increases for each of
Categories 1, 2, and 3 for NYSE ArcaBook and NYSE Arca Integrated Feed
are equitable and reasonable. In establishing the non-display fees in
April 2013, the Exchange set its fees at levels that were below or
comparable to similar fees charged by certain of its competitors.\11\
The Exchange then modestly increased such fees in 2014 after gaining
further experience with its non-display fee structure. The Exchange
believes the proposed fees better reflect the significant value of the
non-display data to data recipients, which purchase data on an entirely
voluntary basis. Non-display data continues to be used by data
recipients for a wide variety of profit-generating purposes, including
proprietary and agency trading and smart order routing, as well as by
data recipients that operate order matching and execution platforms
that compete directly with the Exchange for order flow. Non-display
data also continues to be used for a variety of non-trading purposes
that indirectly support trading, such as risk management and
compliance. While some of these non-trading uses do not directly
generate profits, they can nonetheless substantially reduce the
recipient's costs by automating such functions so that they can be
carried out in a more efficient and accurate manner and reduce errors
and labor costs, thereby benefitting end users. The Exchange believes
that the proposed fees directly and appropriately reflect the
significant value of using non-display data in a wide range of
computer-automated functions relating to both trading and non-trading
activities and that the number and range of these functions continue to
grow through innovation and technology developments.\12\
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\11\ See Securities Exchange Act Release No. 69315 (April 5,
2013), 78 FR 21668 (April 11, 2013) (SR-NYSEArca-2013-37).
\12\ See also Exchange Act Release No. 69157, March 18, 2013, 78
FR 17946, 17949 (March 25, 2013) (SR-CTA/CQ-2013-01) (``[D]ata feeds
have become more valuable, as recipients now use them to perform a
far larger array of non-display functions. Some firms even base
their business models on the incorporation of data feeds into black
boxes and application programming interfaces that apply trading
algorithms to the data, but that do not require widespread data
access by the firm's employees. As a result, these firms pay little
for data usage beyond access fees, yet their data access and usage
is critical to their businesses.'').
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The Exchange believes the proposed fee increases are also
reasonable in that they support the Exchange's efforts to regularly
upgrade systems to support more modern data distribution formats and
protocols as technology evolves. For example, the Exchange's extensive
improvements to its trading platform and feed technology has
significantly lowered the latency of its proprietary data products
available over the XDP protocol, which transmits data faster and more
efficiently than the Exchange's previous data distribution channel. For
example, the average latency of NYSE ArcaBook and NYSE Arca Integrated
Feed is approximately one-third of what it was in 2014.
The Exchange believes the proposed fees are competitive with
offerings by other exchanges, which structure and set their fees
comparably. For example, Nasdaq charges professional subscribers
monthly fees for non-display usage based upon direct access to NASDAQ
level 2, NASDAQ TotalView, or NASDAQ OpenView, which range from $375
per month for customers with one to 39 subscribers to $75,000 per month
for customers with 250 or more subscribers.\13\ In addition, Nasdaq
PHLX (``PHLX'') offers an alternative $10,000 per month ``Non-Display
Enterprise License'' fee that permits distribution to an unlimited
number of internal non-display subscribers without incurring additional
fees for each internal subscriber.\14\ The Non-Display Enterprise
License covers non-display subscriber fees for all PHLX proprietary
direct data feed products and is in addition to any other associated
distributor fees for PHLX proprietary direct data fee products.
---------------------------------------------------------------------------
\13\ See Nasdaq Rule 7023(b)(4).
\14\ See Section IX of the PHLX Pricing Schedule.
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Professional User Fee
The Exchange believes that the proposed subscriber fees are
reasonable, equitable and not unfairly discriminatory because the fee
structure of differentiated professional and non-professional fees has
long been used by the Exchange for other products, by other exchanges
for their products, and by the CTA and CQ Plans in order to make data
more broadly available.
The Exchange believes that the tiered structure with decreasing
fees as the number of professional subscribers increase is equitable
and not unfairly discriminatory because it is similar to the tiered
structure used for professional subscribers by the CTA and CQ for
Network A data \15\ Broker-dealers that purchase NYSE ArcaBook
typically have more than 500 professional users and would therefore be
impacted by the change in fees for up to the first 500 such users. The
fees for such broker-dealers for users above that level will remain at
the current level. Additionally, as proposed, professional user fees
will be based on a tiered fee structure that depends on the number of
users, with a reduced per user rate for those professional users that
exceed 500. Subscribers would pay $60 per user per month for 500 and
fewer users, and would pay the current rate of $40 per user per month
for those users that exceed 500. This tiered structure is an equitable
allocation of reasonable dues, fees and other charges because the
proposed fees are commensurate with the value of the data feed.
---------------------------------------------------------------------------
\15\ Those monthly fees are $50 for 1-2 devices, $30 for 3-999
devices, $25 for 1,000-9,999 devices, and $20 for 10,000 or more
devices. See CTA Network A Rate Schedule, available at https://www.nyxdata.com/nysedata/default.aspx?tabid=518.
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The Exchange further believes the proposed monthly Professional
User Fee of $60 for NYSE ArcaBook and NYSE Arca Integrated Feed is
reasonable because the proposed fee is comparable to the $60 per month
fee currently charged by the New York Stock Exchange LLC (``NYSE'') to
professional users of the NYSE OpenBook market data product,\16\ and is
lower than the $76 per month fee currently charged by Nasdaq to
professional users of the Nasdaq TotalView market data product.\17\ And
as noted above, the Exchange has not raised the subscriber fees for
display use of NYSE ArcaBook since 2014 and for NYSE Arca Integrated
Feed since 2013 when fees for NYSE Arca Integrated Feed were first
adopted. Since then, the Exchange has continually enhanced its market
data products through technology upgrades to meet industry and customer
demands. The Exchange believes that the proposed fees are fair and
reasonable in light of the Exchange's ongoing effort to improve the
delivery technology for market data.
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\16\ See NYSE Proprietary Market Data Fees at https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Fee_Schedule.pdf.
\17\ See Nasdaq Price List--U.S. Equities at https://www.nasdaqtrader.com/Trader.aspx?id=DPUSdata#tv.
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The Exchange believes that it is reasonable to establish the
Professional Fee Cap. The purpose of the Professional User Fee is to
charge for each use of NYSE ArcaBook data feed. The Exchange believes
it is appropriate to charge user fees for employees that work on
different trading desks or who
[[Page 55663]]
provide advisory services. These internal uses are intended to provide
value to customers of the broker-dealer, whether in the execution of
trades, or with designing an investment portfolio, and are therefore an
integral part of a broker-dealer's business model. While the Exchange
anticipates that only the largest broker-dealers would avail themselves
to the proposed fee cap, in the Exchange's view, limiting the fee
exposure of a subset of its customers, i.e., large broker-dealers, does
not unreasonably discriminate against other customers under Section
603(a)(2) of Regulation NMS. Additionally, the Exchange notes that fee
caps have long been accepted as an economically efficient form of
volume discount for the heaviest users of market data and would allow
for a broad dissemination of the Exchange's market data product.\18\
The concept of adopting a fee cap applicable to broker-dealer
subscribers is not novel. The Exchange currently has a Non-Professional
Fee Cap applicable to Broker-Dealers only that subscribe to NYSE
ArcaBook.\19\
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\18\ See e.g., Nasdaq Rule 7023(c), Enterprise License Fees at
https://nasdaq.cchwallstreet.com/NASDAQTools/PlatformViewer.asp?selectednode=chp_1_1_4_6&manual=%2Fnasdaq%2Fmain%2Fnasdaq-equityrules%2F.
\19\ See NYSE Arca Equities Proprietary Market Data Fees at
https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Equities_Fee_Schedule.pdf. See also Securities Exchange
Act Release Nos. 59039 (December 2, 2008), 73 FR 74770 (December 9,
2008) (SR-NYSEArca-2006-21); 72560 (July 8, 2014), 79 FR 40801 (July
14, 2014) (SR-NYSEArca-2014-72); and 76903 (January 14, 2016), 81 FR
3547 (January 21, 2016) (SR-NYSEArca-2016-01).
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The Exchange proposes these higher fees in light of the fact that
since 2014, the value of NYSE ArcaBook and NYSE Arca Integrated Feed
data feeds has increased significantly while fees for these products
have not increased. The Exchange notes that in that time, the Exchange
has continually upgraded its technology to keep pace with changes in
the industry and evolving customer needs. Further, the standardization
of the market data specifications recently implemented by the Exchange
may provide value to subscribers that utilize data feeds from more than
one NYSE market. This standardization enables greatly increased
efficiency for firms by allowing them to leverage their development
work on one market across multiple markets and reduces the overall
impact of the price increases.
The Exchange notes that NYSE ArcaBook and NYSE Arca Integrated Feed
are entirely optional. Firms are not required to purchase NYSE ArcaBook
and NYSE Arca Integrated Feed. Firms that do purchase NYSE ArcaBook and
NYSE Arca Integrated Feed do so for the primary goals of using the data
feeds to increase profits, reduce expenses, and in some instances
compete directly with the Exchange (including for order flow); those
firms are able to determine for themselves whether NYSE ArcaBook and
NYSE Arca Integrated Feed or any other similar products are
attractively priced or not.
Firms that do not wish to purchase NYSE ArcaBook and NYSE Arca
Integrated Feed at the new prices have a variety of alternative market
data products from which to choose,\20\ or if NYSE ArcaBook and NYSE
Arca Integrated Feed does not provide sufficient value to firms as
offered based on the uses those firms have or planned to make of it,
such firms may simply choose to conduct their business operations in
ways that do not use NYSE ArcaBook and NYSE Arca Integrated Feed 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.\21\
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\20\ See Nasdaq Rule 7023 (Nasdaq TotalView) and BZX Equities
Rule 11.22(a) and (c) (TCP Depth and Multicast Depth).
\21\ See FINRA Regulatory Notice 15-46, ``Best Execution,''
November 2015.
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The decision of the United States Court of Appeals for the District
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir.
2010), upheld reliance by the Securities and Exchange Commission
(``Commission'') upon the existence of competitive market mechanisms to
set reasonable and equitably allocated fees for proprietary market
data:
In fact, the legislative history indicates that the Congress
intended that the market system `evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed' and that the SEC wield its regulatory power `in those
situations where competition may not be sufficient,' such as in the
creation of a `consolidated transactional reporting system.'
Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted
in 1975 U.S.C.C.A.N. 323). The court agreed with the Commission's
conclusion that ``Congress intended that `competitive forces should
dictate the services and practices that constitute the U.S. national
market system for trading equity securities.' '' \22\
---------------------------------------------------------------------------
\22\ NetCoalition, 615 F.3d at 535.
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As explained below in the Exchange's Statement on Burden on
Competition, the Exchange believes that there is substantial evidence
of competition in the marketplace for proprietary market data and that
the Commission can rely upon such evidence in concluding that the fees
established in this filing are the product of competition and therefore
satisfy the relevant statutory standards. In addition, the existence of
alternatives to these data products, such as consolidated data and
proprietary data from other sources, as described below, further
ensures that the Exchange cannot set unreasonable fees, or fees that
are unreasonably discriminatory, when vendors and subscribers can
select such alternatives.
As the NetCoalition decision noted, the Commission is not required
to undertake a cost-of-service or ratemaking approach. The Exchange
believes that, even if it were possible as a matter of economic theory,
cost-based pricing for proprietary market data would be so complicated
that it could not be done practically or offer any significant
benefits.\23\
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\23\ The Exchange believes that cost-based pricing would be
impractical because it would create enormous administrative burdens
for all parties and the Commission to cost-regulate a large number
of participants and standardize and analyze extraordinary amounts of
information, accounts, and reports. In addition, and as described
below, it is impossible to regulate market data prices in isolation
from prices charged by markets for other services that are joint
products. Cost-based rate regulation would also lead to litigation
and may distort incentives, including those to minimize costs and to
innovate, leading to further waste. Under cost-based pricing, the
Commission would be burdened with determining a fair rate of return,
and the industry could experience frequent rate increases based on
escalating expense levels. Even in industries historically subject
to utility regulation, cost-based ratemaking has been discredited.
As such, the Exchange believes that cost-based ratemaking would be
inappropriate for proprietary market data and inconsistent with
Congress's direction that the Commission use its authority to foster
the development of the national market system, and that market
forces will continue to provide appropriate pricing discipline. See
Appendix C to NYSE's comments to the Commission's 2000 Concept
Release on the Regulation of Market Information Fees and Revenues,
which can be found on the Commission's Web site at https://www.sec.gov/rules/concept/s72899/buck1.htm.
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For the reasons stated above, the Exchange believes that the
proposed fees are fair and equitable, and not unreasonably
discriminatory. As described above, the proposed fees are based on
pricing conventions and distinctions that exist in the Exchange's
current fee schedule, and the fee schedules of other exchanges. These
distinctions are each based on principles of fairness and equity that
have helped for many years to maintain fair, equitable, and not
unreasonably discriminatory fees, and that apply with equal or greater
force to the current proposal. Thus, although the proposal results in a
fee increase, these increases are based on careful analysis of
empirical data and the application of
[[Page 55664]]
time-tested pricing principles accepted and applied by the Commission
for many years.
As described in greater detail below, if the market deems the NYSE
ArcaBook and NYSE Integrated Feeds not to provide fair value at the
prices to be charged, firms can discontinue or change the ways they use
these products because the products are optional to all parties. The
Exchange continually reviews pricing policies aimed at increasing
fairness and equitable allocation of fees among subscribers. NYSE Arca
believes that periodically it must adjust the subscriber fees to
reflect market forces and the Exchange believes it is an appropriate
time to adjust the fees that are the subject of this proposed rule
change to more accurately reflect the investments made to enhance these
products through technology upgrades.
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 competitive and
inherently contestable because there is fierce competition for the
inputs necessary for the creation of proprietary data and strict
pricing discipline for the proprietary products themselves. Numerous
exchanges compete with one another for listings and order flow and
sales of market data itself, providing ample opportunities for
entrepreneurs who wish to compete in any or all of those areas,
including producing and distributing their own market data. Proprietary
data products are produced and distributed by each individual exchange,
as well as other entities, in a vigorously competitive market. Indeed,
the U.S. Department of Justice (``DOJ'') (the primary antitrust
regulator) has expressly acknowledged the aggressive actual competition
among exchanges, including for the sale of proprietary market data. In
2011, the DOJ stated that exchanges ``compete head to head to offer
real-time equity data products. These data products include the best
bid and offer of every exchange and information on each equity trade,
including the last sale.'' \24\
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\24\ Press Release, U.S. Department of Justice, Assistant
Attorney General Christine Varney Holds Conference Call Regarding
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011), available at https://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html; see
also Complaint in U.S. v. Deutsche Borse AG and NYSE Euronext, Case
No. 11-cv-2280 (DC Dist.) ] 24 (``NYSE and Direct Edge compete head-
to-head . . . in the provision of real-time proprietary equity data
products.'').
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Moreover, competitive markets for listings, order flow, executions,
and transaction reports impose pricing discipline for the inputs of
proprietary data products and therefore constrain markets from
overpricing proprietary market data. Broker-dealers send their order
flow and transaction reports to multiple venues, rather than providing
them all to a single venue, which in turn reinforces this competitive
constraint. As a 2010 Commission Concept Release noted, the ``current
market structure can be described as dispersed and complex'' with
``trading volume . . . dispersed among many highly automated trading
centers that compete for order flow in the same stocks'' and ``trading
centers offer[ing] a wide range of services that are designed to
attract different types of market participants with varying trading
needs.'' \25\ More recently, former SEC Chair Mary Jo White reported
that competition for order flow in exchange-listed equities is
``intense'' and divided among many trading venues, including exchanges,
more than 40 alternative trading systems, and more than 250 broker-
dealers.\26\ And as the Commission's own Chief Administrative Law Judge
found after considering extensive fact and expert testimony and
documentary evidence on the subject, ``there is fierce competition for
trading services (or `order flow')'' among exchanges, and ``the record
evidence shows that competition plays a significant role in restraining
exchange pricing of depth-of-book products.'' In the Matter of the
Application of Securities Industry And Financial Markets Association
For Review of Actions Taken By Self-Regulatory Organizations, Initial
Decision Release No. 1015, Administrative Proceeding File No. 3-15350
(June 1, 2016), at pp. 8 and 33.
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\25\ Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21,
2010) (File No. S7-02-10). This Concept Release included data from
the third quarter of 2009 showing that no market center traded more
than 20% of the volume of listed stocks, further evidencing the
dispersal of and competition for trading activity. Id. at 3598. Data
available on ArcaVision show that from June 30, 2013 to June 30,
2014, no exchange traded more than 12% of the volume of listed
stocks by either trade or dollar volume, further evidencing the
continued dispersal of and fierce competition for trading activity.
See https://www.arcavision.com/Arcavision/arcalogin.jsp.
\26\ Mary Jo White, Enhancing Our Equity Market Structure,
Sandler O'Neill & Partners, L.P. Global Exchange and Brokerage
Conference (June 5, 2014) (available on the Commission Web site),
citing Tuttle, Laura, 2014, ``OTC Trading: Description of Non-ATS
OTC Trading in National Market System Stocks,'' at 7-8.
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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 NYSE ArcaBook and NYSE Arca
Integrated Feed available unless their customers request it, and
customers will not elect to pay the proposed fees unless NYSE ArcaBook
and NYSE Arca Integrated Feed 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
[[Page 55665]]
of joint products with joint costs.\27\ 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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\27\ 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. There is substantial
evidence of the strong correlation between order flow and market data
purchases. For example, in September 2015, more than 80% of the
transaction volume on each of the Exchange and the Exchange's
affiliates, NYSE and NYSE American LLC (``NYSE American''), was
executed by market participants that purchased one or more proprietary
market data products (the 20 firms were not the same for each market).
A supra-competitive increase in the fees for either executions or
market data would create a risk of reducing an exchange's revenues from
both products.
Other market participants have noted that proprietary market data
and trade executions are joint products of a joint platform and have
common costs.\28\ 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.\29\
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\28\ 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).
\29\ 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, Cboe Global Markets f/k/a 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.\30\ More
recently, Investors Exchange (``IEX''), which began to operate as an
ATS in 2013 and later obtained exchange status in 2016, currently
provides market data at no charge in order to attract order flow and
build market share. 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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\30\ 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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[[Page 55666]]
Existence of Alternatives
The large number of SROs, ATSs, and internalizing broker-dealers
that currently produce proprietary data or are currently capable of
producing it provides further pricing discipline for proprietary data
products. Each SRO, ATS, and broker-dealer is currently permitted to
produce and sell proprietary data products, and many currently do,
including but not limited to the Exchange, NYSE, NYSE American, Nasdaq,
and Bats.
The fact that proprietary data from ATSs, internalizing broker-
dealers, and vendors can bypass SROs is significant in two respects.
First, non-SROs can compete directly with SROs for the production and
sale of proprietary data products. By way of example, Bats and NYSE
Arca both published proprietary data on the Internet before registering
as exchanges. Second, because a single order or transaction report can
appear in an SRO proprietary product, a non-SRO proprietary product, or
both, the amount of data available via proprietary products is greater
in size than the actual number of orders and transaction reports that
exist in the marketplace. With respect to NYSE ArcaBook and NYSE Arca
Integrated Feed, competitors offer close substitute products.\31\
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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\31\ See supra note 20.
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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 and Direct Edge. As noted above, Bats
launched as an ATS in 2006 and became an exchange in 2008, while Direct
Edge began operations in 2007 and obtained exchange status in 2010. And
more recently, IEX, which started operating as an ATS in 2013 has
accumulated more than 2% market share since it obtained exchange status
in 2016.
In determining the proposed changes to the fees for NYSE ArcaBook
and NYSE Arca Integrated Feed, 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) \32\ of the Act and subparagraph (f)(2) of Rule
19b-4 \33\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\32\ 15 U.S.C. 78s(b)(3)(A).
\33\ 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) \34\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\34\ 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-2017-130 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-2017-130. 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-2017-130 and should
be submitted on or before December 13, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-25231 Filed 11-21-17; 8:45 am]
BILLING CODE 8011-01-P
