Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for the EDGX Depth Market Data Product, 2268-2271 [2018-00526]

Download as PDF 2268 Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Notices Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number SR–ISE–2018–03. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s internet website (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 website 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–ISE–2018–03, and should be submitted on or before February 6, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.15 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–00529 Filed 1–12–18; 8:45 am] daltland on DSKBBV9HB2PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION the most significant parts of such statements. [Release No. 34–82469; File No. SR– CboeEDGX–2017–006] A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for the EDGX Depth Market Data Product January 9, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 27, 2017, Cboe EDGX Exchange, Inc. (the ‘‘Exchange’’ or ‘‘EDGX’’) 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 Exchange. The Exchange has designated the proposed rule change as one establishing or changing a member due, fee, or other charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange filed a proposal to amend the Market Data section of its fee schedule to introduce new fees for NonDisplay Usage of EDGX Depth. The text of the proposed rule change is available at the Exchange’s website at www.markets.cboe.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 Exchange 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 these 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 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 2 17 15 17 CFR 200.30–3(a)(12) and (59). VerDate Sep<11>2014 22:48 Jan 12, 2018 Jkt 244001 PO 00000 Frm 00138 Fmt 4703 Sfmt 4703 1. Purpose The Exchange proposes to amend the Market Data section of its fee schedule to introduce new fees for Non-Display Usage 5 of EDGX Depth. EDGX Depth is an uncompressed market data feed that provides depth-of-book quotations and execution information based on equity orders entered into the System.6 The Exchange currently charges subscribers to EDGX Depth a fee of $5,000 per month for Non-Display Usage of EDGX Depth by its Trading Platforms.7 NonDisplay Usage is defined as ‘‘any method of accessing a Market Data product that involves access or use by a machine or automated device without access or use of a display by a natural person or persons.’’ 8 Trading Platforms include registered National Securities Exchanges, Alternative Trading Systems (‘‘ATSs’’), and Electronic Communications Networks (‘‘ECNs’’) as those terms are defined in the Exchange Act and regulations and rules thereunder. Previously, subscribers of EDGX Depth that used the feed for NonDisplay purposes but did not utilize the feed within a Trading Platform were charged the existing Distributors fees. Forms of Non-Display Use include, but are not limited to, algorithmic or automated trading, order routing, surveillance, order management, risk management, clearance and settlement activities, and account maintenance.9 Non-Display Usage does not include any use of EDGX Depth that relates solely to transportation, dissemination, and redistribution of EDGX Depth, or that results in the output of EDGX Depth solely for display. Non-display uses of data for non-trading purposes benefits data recipients by allowing users to automate functions, to achieve greater 5 See the Exchange’s fee schedule available at https://markets.cboe.com/us/equities/membership/ fee_schedule/edgx/. 6 See Exchange Rule 13.8(a). 7 A Trading Platform is defined as ‘‘any execution platform operated as or by a registered National Securities Exchange (as defined in Section 3(a)(1) of the Exchange Act), an Alternative Trading System (as defined in Rule 300(a) of Regulation ATS), or an Electronic Communications Network (as defined in Rule 600(b)(23) of Regulation NMS).’’ See the Exchange’s fee schedule available at https:// markets.cboe.com/us/equities/membership/fee_ schedule/edgx/. 8 See the Exchange’s fee schedule available at https://markets.cboe.com/us/equities/membership/ fee_schedule/edgx/. 9 See e.g., Nasdaq Rule IM–7023–1(c), U.S. NonDisplay Information. E:\FR\FM\16JAN1.SGM 16JAN1 Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Notices daltland on DSKBBV9HB2PROD with NOTICES speed and accuracy, and to reduce costs of labor. While some non-trading uses do not directly generate revenues, they can substantially reduce a data recipient’s costs by automating many functions. Those functions can be carried out in a more efficient and accurate manner, with reduced errors and labor costs. The Exchange now proposes to adopt a separate fee of $2,000 per month to cover other forms of Non-Display Usage other than through a Trading Platform. The proposed fee would be assessed in addition to existing Distributor 10 fees and would supplement the existing Non-Display Usage fee for Trading Platforms. Specifically, subscribers who are subject to the Non-Display Usage by Trading Platform fee but also utilize EDGX Depth for other Non-Display purposes would be subject to both fees. However, subscribers who utilize EDGX Depth for other Non-Display purposes and not within a Trading Platform would be subject only to the proposed fee for Non-Display Use. Certain subscribers that use an Exchange approved Managed NonDisplay Service Provider would be exempt from proposed Non-Display Usage Fee. To be approved as Managed Non-Display Service Provider, the Distributor must host subscriber’s applications that utilize EDGX Depth must within the Managed Non-Display Service Provider’s space/cage; fully manage and control access to EDGX Depth, and not permit further redistribution of the Exchange Data internally or externally.11 In order to qualify for the exemption, the subscriber must meet the following requirements: • Any subscriber applications that utilize EDGX Depth must be hosted within the Managed Non-Display Service Provider’s space/cage; • the subscriber’s access to EDGX Depth is fully managed and controlled by the Managed Non-Display Service Provider, and no further redistribution of the Exchange Data internally or externally is permitted; and • the subscriber is supported solely by one Managed Non-Display Service Provider, is not hosted by multiple Managed Non-Display Service Providers, and does not have their own 10 A ‘‘Distributor’’ is defined as ‘‘any entity that receives the Exchange Market Data product directly from the Exchange or indirectly through another entity and then distributes it internally or externally to a third party.’’ See the Exchange’s fee schedule available at https://markets.cboe.com/us/equities/ membership/fee_schedule/edgx/. 11 See e.g., Securities Exchange Act Release No. 76900 at fn. 8 (January 14, 2016), 81 FR 3506 (January 21, 2016) (SR–NYSE–2016–02). In this filing, the NYSE discontinued fees related to managed non-display for NYSE OpenBook. Id. VerDate Sep<11>2014 22:48 Jan 12, 2018 Jkt 244001 data center-hosted environment that also receives EDGX Depth. The Exchange intends to implement the proposed fee changes on January 2, 2018. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the objectives of Section 6 of the Act,12 in general, and furthers the objectives of Section 6(b)(4),13 in particular, as it is designed to provide for the equitable allocation of reasonable dues, fees and other charges among its members and other recipients of Exchange data. The Exchange believes that the proposed rates are equitable and nondiscriminatory in that they apply uniformly to all recipients of Exchange data. The Exchange believes the proposed fees are competitive with those charged by other venues and, therefore, reasonable and equitably allocated to recipients. The Exchange also believes that the proposed rule change is consistent with Section 11(A) of the Act 14 in that it supports (i) fair competition among brokers and dealers, among exchange markets, and between exchange markets and markets other than exchange markets and (ii) the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities. Furthermore, the proposed rule change is consistent with Rule 603 of Regulation NMS,15 which provides that any national securities exchange that distributes information with respect to quotations for or transactions in an NMS stock do so on terms that are not unreasonably discriminatory. In adopting Regulation NMS, the Commission granted self-regulatory organizations and broker-dealers increased authority and flexibility to offer new and unique market data to the public. It was believed that this authority would expand the amount of data available to consumers, and also spur innovation and competition for the provision of market data. In addition, the proposed fees would not permit unfair discrimination because all of the Exchange’s subscribers will be subject to the proposed fees on an equivalent basis. EDGX Depth is distributed and purchased on a voluntary basis, in that neither the Exchange nor market data distributors are required by any rule or regulation to make this data available. 12 15 U.S.C. 78f. U.S.C. 78f(b)(4). 14 15 U.S.C. 78k–1. 15 See 17 CFR 242.603. 13 15 PO 00000 Frm 00139 Fmt 4703 2269 Accordingly, Distributors and Users can discontinue use at any time and for any reason, including due to an assessment of the reasonableness of fees charged. Firms have a wide variety of alternative market data products from which to choose, such as similar proprietary data products offered by other exchanges and consolidated data. Moreover, the Exchange is not required to make any proprietary data products available or to offer any specific pricing alternatives to any customers. In addition, the fees that are the subject of this rule filing are constrained by competition. As explained below in the Exchange’s Statement on Burden on Competition, the existence of alternatives to EDGX Depth further ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when subscribers can elect such alternatives. That is, the Exchange competes with other exchanges (and their affiliates) that provide similar market data products. If another exchange (or its affiliate) were to charge less to consolidate and distribute its similar product than the Exchange charges to consolidate and distribute EDGX Depth, prospective Users likely would not subscribe to, or would cease subscribing to, EDGX Depth. The Exchange notes that 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 non-core market data would be so complicated that it could not be done practically.16 16 The Exchange believes that cost-based pricing would be impractical because it would create enormous administrative burdens for all parties, including the Commission, to cost-regulate a large number of participants and standardize and analyze extraordinary amounts of information, accounts, and reports. In addition, 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 website at https:// Continued Sfmt 4703 E:\FR\FM\16JAN1.SGM 16JAN1 2270 Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Notices The proposed Non-Display fee for usage other than through a Trading Platform for EDGX Depth is equitable and reasonable as the Exchange believes the proposed fee represents the value of the data provided by the feed and its use by market participants. The proposed fee changes reflects changing trends in the ways in which the industry uses market data. The proposed fee comport with the proliferation of the use of data for various non-display purposes and by non-display trading applications. It recognizes industry changes that have evolved as a result of numerous technological advances, the advent of trading algorithms and automated trading, different investment patterns, a plethora of new securities products, unprecedented levels of trading, decimalization, internationalization and developments in portfolio analysis and securities research. The Exchange believes the proposed fee reflects the value of the data provided. The Exchange notes that fees for nondisplay use have become commonplace in the industry. Several exchanges impose them as does the UTP, CTA/CQ, and OPRA Plans. In addition, the fee proposed is less than similar fees currently charged by other exchanges for their depth-of-book data products. For example, NYSE Arca, Inc. (‘‘NYSE Arca’’) and the New York Stock Exchange, Inc. (‘‘NYSE’’) charge $5,000 and $6,000 per month, respectively, for its depth-of-book data used for nondisplay purposes.17 The proposed fee is also equitable and reasonable in that it ensures that heavy users of the EDGX Depth pay an equitable share of the total fees. Currently, External Distributors pay higher fees than Internal Distributors based upon their assumed higher usage levels. The Exchange believes that nondisplay users are generally high users of the data, using it to power a trading algorithms and other trading relates systems for millions or even billions of trading messages per day. daltland on DSKBBV9HB2PROD with NOTICES B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not www.sec.gov/rules/concept/s72899/buck1.htm. See also Securities Exchange Act Release No. 73816 (December 11, 2014), 79 FR 75200 (December 17, 2014) (SR–NYSE–2014–64) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Establish an Access Fee for the NYSE Best Quote and Trades Data Feed, Operative December 1, 2014). 17 See the non-display fees for NYSE OpenBook and NYSE ArcaBook in the NYSE and NYSE Arca fee schedules available at https://www.nyxdata.com/ nysedata/default.aspx?tabid=518&folder=207656. VerDate Sep<11>2014 22:48 Jan 12, 2018 Jkt 244001 necessary or appropriate in furtherance of the purposes of the Act, as amended. The Exchange’s ability to price EDGX Depth is constrained by: (i) Competition among exchanges, other trading platforms, and Trade Reporting Facilities (‘‘TRF’’) that compete with each other in a variety of dimensions; (ii) the existence of inexpensive realtime consolidated data and marketspecific data and free delayed data; and (iii) the inherent contestability of the market for proprietary data. The Exchange and its market data products are subject to significant competitive forces and the proposed fees represent responses to that competition. To start, the Exchange competes intensely for order flow. It competes with the other national securities exchanges that currently trade equities, with electronic communication networks, with quotes posted in FINRA’s Alternative Display Facility, with alternative trading systems, and with securities firms that primarily trade as principal with their customer order flow. In addition, EDGX Depth competes with a number of alternative products. For instance, EDGX Depth does not provide a complete picture of all trading activity in a security. Rather, the other national securities exchanges, the several TRFs of FINRA, and ECNs that produce proprietary data all produce trades and trade reports. Each is currently permitted to produce depthof-book information products, and many currently do, including Nasdaq, NYSE, and NYSE Arca. In sum, the availability of a variety of alternative sources of information imposes significant competitive pressures on Exchange data products and the Exchange’s compelling need to attract order flow imposes significant competitive pressure on the Exchange to act equitably, fairly, and reasonably in setting the proposed data product fees. The proposed data product fees are, in part, responses to that pressure. The Exchange believes that the proposed fees would reflect an equitable allocation of its overall costs to users of its facilities. In addition, when establishing the proposed fees, 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 alternatives to EDGX Depth, including existing similar PO 00000 Frm 00140 Fmt 4703 Sfmt 4703 feeds by other exchanges, consolidated data, and proprietary data from other sources, ensures that the Exchange cannot set unreasonable fees, or fees that are unreasonably discriminatory, when subscribers can elect these alternatives or choose not to purchase a specific proprietary data product if its cost to purchase is not justified by the returns any particular vendor or subscriber would achieve through the purchase. The Exchange believes the adoption of the fee for Non-Display Usage for EDGX Depth would increase competition amongst the exchanges that offer depth-of-book products. In addition, the proposed Non-Display Usage fee is less than similar fees currently charged by the NYSE and NYSE Arca for their depth-of-book data.18 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 19 and paragraph (f) of Rule 19b–4 thereunder.20 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 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– CboeEDGX–2017–006 on the subject line. 18 See supra note 17. U.S.C. 78s(b)(3)(A). 20 17 CFR 240.19b–4(f). 19 15 E:\FR\FM\16JAN1.SGM 16JAN1 Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Notices Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File Number CboeEDGX–2017–006. 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 website (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 website 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 CboeEDGX–2017–006 and should be submitted on or before February 6, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2018–00526 Filed 1–12–18; 8:45 am] daltland on DSKBBV9HB2PROD with NOTICES BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION II. Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [Release No. 34–82473; File No. SR–OCC– 2017–011] In its filing with the Commission, OCC 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 these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements. Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change Related to The Options Clearing Corporation’s Model Risk Management Policy January 9, 2018. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 28, 2017, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Clearing Agency’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change by OCC would formalize and update OCC’s Model Risk Management Policy (‘‘MRM Policy’’ or ‘‘Policy’’) in connection with multiple requirements applicable to OCC under Rule 17Ad–22, including Rules 17Ad–22(b)(2) concerning margin requirements and (b)(4) concerning model validation as well as Rules 17Ad–22(e)(2) concerning governance, (e)(3) concerning frameworks for the comprehensive management of risks, and (e)(4)(vii), (e)(6)(vii) and (e)(7)(vii) concerning model validation.3 The MRM Policy is included as confidential Exhibit 5 of the filing. The Policy is being is submitted without marking to improve readability as it is being submitted in its entirety as new rule text. The proposed rule change does not require any changes to the text of OCC’s By-Laws or Rules. All terms with initial capitalization that are not otherwise defined herein have the same meaning as set forth in the OCC By-Laws and Rules.4 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 17 CFR 240.17Ad–22(b)(2), (b)(4), (e)(2)–(4), and (e)(6)–(7). 4 OCC’s By-Laws and Rules can be found on OCC’s public website: https://optionsclearing.com/ about/publications/bylaws.jsp. 2 17 21 17 CFR 200.30–3(a)(12). VerDate Sep<11>2014 22:48 Jan 12, 2018 Jkt 244001 2271 PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 (A) Clearing Agency’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change (1) Purpose Background OCC’s use of models inherently exposes OCC to model risk.5 To help manage this risk, OCC is proposing to formalize and update its MRM Policy, which sets forth the general framework for OCC’s model risk management practices. The MRM Policy would apply to all Risk Models 6 used by OCC to determine, quantify or measure actual or potential risk exposures or risk mitigating actions. The purpose of the MRM Policy is to ensure that OCC appropriately manages its model risks by clearly outlining the roles and responsibilities of OCC’s (1) Quantitative Risk Management department (‘‘QRM’’), (2) Model Validation Group (‘‘MVG’’), and (3) Model Risk Working Group (‘‘MRWG’’) in model development, implementation, use, monitoring, and validation. The provisions of the MRM Policy addressing these core elements are described in greater detail below and are designed to ensure that OCC uses an appropriate approach to managing model risk. OCC notes that the MRM Policy is part of a broader framework regarding model risk management that is designed to further the appropriate 5 Under the proposed Policy, ‘‘Model Risk’’ would be defined as the potential for adverse consequences from decisions based on incorrect or misused model outputs. 6 Under the proposed Policy, ‘‘Risk Models’’ would be defined as any quantitative method or approach that applies statistical, economic, financial, or mathematical theories, techniques, and/or assumptions to process inputs into quantitative estimates, forecasts, or projections. A Risk Model may also be a quantitative method with inputs that are qualitative or based on business judgment. Under the Policy, the term Risk Models would be used specifically in the context of credit risk models, margin system and related models, and liquidity risk models. E:\FR\FM\16JAN1.SGM 16JAN1

Agencies

[Federal Register Volume 83, Number 10 (Tuesday, January 16, 2018)]
[Notices]
[Pages 2268-2271]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00526]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82469; File No. SR-CboeEDGX-2017-006]


Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice 
of Filing and Immediate Effectiveness of a Proposed Rule Change Related 
to Fees for the EDGX Depth Market Data Product

January 9, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 27, 2017, Cboe EDGX Exchange, Inc. (the ``Exchange'' 
or ``EDGX'') 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 Exchange. The 
Exchange has designated the proposed rule change as one establishing or 
changing a member due, fee, or other charge imposed by the Exchange 
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2) 
thereunder,\4\ which renders the proposed rule change effective upon 
filing with the Commission. 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\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange filed a proposal to amend the Market Data section of 
its fee schedule to introduce new fees for Non-Display Usage of EDGX 
Depth.
    The text of the proposed rule change is available at the Exchange's 
website at www.markets.cboe.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 Exchange 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 these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Market Data section of its fee 
schedule to introduce new fees for Non-Display Usage \5\ of EDGX Depth. 
EDGX Depth is an uncompressed market data feed that provides depth-of-
book quotations and execution information based on equity orders 
entered into the System.\6\ The Exchange currently charges subscribers 
to EDGX Depth a fee of $5,000 per month for Non-Display Usage of EDGX 
Depth by its Trading Platforms.\7\ Non-Display Usage is defined as 
``any method of accessing a Market Data product that involves access or 
use by a machine or automated device without access or use of a display 
by a natural person or persons.'' \8\ Trading Platforms include 
registered National Securities Exchanges, Alternative Trading Systems 
(``ATSs''), and Electronic Communications Networks (``ECNs'') as those 
terms are defined in the Exchange Act and regulations and rules 
thereunder. Previously, subscribers of EDGX Depth that used the feed 
for Non-Display purposes but did not utilize the feed within a Trading 
Platform were charged the existing Distributors fees.
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    \5\ See the Exchange's fee schedule available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/.
    \6\ See Exchange Rule 13.8(a).
    \7\ A Trading Platform is defined as ``any execution platform 
operated as or by a registered National Securities Exchange (as 
defined in Section 3(a)(1) of the Exchange Act), an Alternative 
Trading System (as defined in Rule 300(a) of Regulation ATS), or an 
Electronic Communications Network (as defined in Rule 600(b)(23) of 
Regulation NMS).'' See the Exchange's fee schedule available at 
https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/.
    \8\ See the Exchange's fee schedule available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/.
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    Forms of Non-Display Use include, but are not limited to, 
algorithmic or automated trading, order routing, surveillance, order 
management, risk management, clearance and settlement activities, and 
account maintenance.\9\ Non-Display Usage does not include any use of 
EDGX Depth that relates solely to transportation, dissemination, and 
redistribution of EDGX Depth, or that results in the output of EDGX 
Depth solely for display. Non-display uses of data for non-trading 
purposes benefits data recipients by allowing users to automate 
functions, to achieve greater

[[Page 2269]]

speed and accuracy, and to reduce costs of labor. While some non-
trading uses do not directly generate revenues, they can substantially 
reduce a data recipient's costs by automating many functions. Those 
functions can be carried out in a more efficient and accurate manner, 
with reduced errors and labor costs.
---------------------------------------------------------------------------

    \9\ See e.g., Nasdaq Rule IM-7023-1(c), U.S. Non-Display 
Information.
---------------------------------------------------------------------------

    The Exchange now proposes to adopt a separate fee of $2,000 per 
month to cover other forms of Non-Display Usage other than through a 
Trading Platform. The proposed fee would be assessed in addition to 
existing Distributor \10\ fees and would supplement the existing Non-
Display Usage fee for Trading Platforms. Specifically, subscribers who 
are subject to the Non-Display Usage by Trading Platform fee but also 
utilize EDGX Depth for other Non-Display purposes would be subject to 
both fees. However, subscribers who utilize EDGX Depth for other Non-
Display purposes and not within a Trading Platform would be subject 
only to the proposed fee for Non-Display Use.
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    \10\ A ``Distributor'' is defined as ``any entity that receives 
the Exchange Market Data product directly from the Exchange or 
indirectly through another entity and then distributes it internally 
or externally to a third party.'' See the Exchange's fee schedule 
available at https://markets.cboe.com/us/equities/membership/fee_schedule/edgx/.
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    Certain subscribers that use an Exchange approved Managed Non-
Display Service Provider would be exempt from proposed Non-Display 
Usage Fee. To be approved as Managed Non-Display Service Provider, the 
Distributor must host subscriber's applications that utilize EDGX Depth 
must within the Managed Non-Display Service Provider's space/cage; 
fully manage and control access to EDGX Depth, and not permit further 
redistribution of the Exchange Data internally or externally.\11\ In 
order to qualify for the exemption, the subscriber must meet the 
following requirements:
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    \11\ See e.g., Securities Exchange Act Release No. 76900 at fn. 
8 (January 14, 2016), 81 FR 3506 (January 21, 2016) (SR-NYSE-2016-
02). In this filing, the NYSE discontinued fees related to managed 
non-display for NYSE OpenBook. Id.
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     Any subscriber applications that utilize EDGX Depth must 
be hosted within the Managed Non-Display Service Provider's space/cage;
     the subscriber's access to EDGX Depth is fully managed and 
controlled by the Managed Non-Display Service Provider, and no further 
redistribution of the Exchange Data internally or externally is 
permitted; and
     the subscriber is supported solely by one Managed Non-
Display Service Provider, is not hosted by multiple Managed Non-Display 
Service Providers, and does not have their own data center-hosted 
environment that also receives EDGX Depth.
    The Exchange intends to implement the proposed fee changes on 
January 2, 2018.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the objectives of Section 6 of the Act,\12\ in general, and 
furthers the objectives of Section 6(b)(4),\13\ in particular, as it is 
designed to provide for the equitable allocation of reasonable dues, 
fees and other charges among its members and other recipients of 
Exchange data. The Exchange believes that the proposed rates are 
equitable and non-discriminatory in that they apply uniformly to all 
recipients of Exchange data. The Exchange believes the proposed fees 
are competitive with those charged by other venues and, therefore, 
reasonable and equitably allocated to recipients.
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    \12\ 15 U.S.C. 78f.
    \13\ 15 U.S.C. 78f(b)(4).
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    The Exchange also believes that the proposed rule change is 
consistent with Section 11(A) of the Act \14\ in that it supports (i) 
fair competition among brokers and dealers, among exchange markets, and 
between exchange markets and markets other than exchange markets and 
(ii) the availability to brokers, dealers, and investors of information 
with respect to quotations for and transactions in securities. 
Furthermore, the proposed rule change is consistent with Rule 603 of 
Regulation NMS,\15\ which provides that any national securities 
exchange that distributes information with respect to quotations for or 
transactions in an NMS stock do so on terms that are not unreasonably 
discriminatory. In adopting Regulation NMS, the Commission granted 
self-regulatory organizations and broker-dealers increased authority 
and flexibility to offer new and unique market data to the public. It 
was believed that this authority would expand the amount of data 
available to consumers, and also spur innovation and competition for 
the provision of market data.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78k-1.
    \15\ See 17 CFR 242.603.
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    In addition, the proposed fees would not permit unfair 
discrimination because all of the Exchange's subscribers will be 
subject to the proposed fees on an equivalent basis. EDGX Depth is 
distributed and purchased on a voluntary basis, in that neither the 
Exchange nor market data distributors are required by any rule or 
regulation to make this data available. Accordingly, Distributors and 
Users can discontinue use at any time and for any reason, including due 
to an assessment of the reasonableness of fees charged. Firms have a 
wide variety of alternative market data products from which to choose, 
such as similar proprietary data products offered by other exchanges 
and consolidated data. Moreover, the Exchange is not required to make 
any proprietary data products available or to offer any specific 
pricing alternatives to any customers.
    In addition, the fees that are the subject of this rule filing are 
constrained by competition. As explained below in the Exchange's 
Statement on Burden on Competition, the existence of alternatives to 
EDGX Depth further ensures that the Exchange cannot set unreasonable 
fees, or fees that are unreasonably discriminatory, when subscribers 
can elect such alternatives. That is, the Exchange competes with other 
exchanges (and their affiliates) that provide similar market data 
products. If another exchange (or its affiliate) were to charge less to 
consolidate and distribute its similar product than the Exchange 
charges to consolidate and distribute EDGX Depth, prospective Users 
likely would not subscribe to, or would cease subscribing to, EDGX 
Depth.
    The Exchange notes that the Commission is not required to undertake 
a cost-of-service or rate-making approach. The Exchange believes that, 
even if it were possible as a matter of economic theory, cost-based 
pricing for non-core market data would be so complicated that it could 
not be done practically.\16\
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    \16\ The Exchange believes that cost-based pricing would be 
impractical because it would create enormous administrative burdens 
for all parties, including the Commission, to cost-regulate a large 
number of participants and standardize and analyze extraordinary 
amounts of information, accounts, and reports. In addition, 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 website at https://www.sec.gov/rules/concept/s72899/buck1.htm. See also Securities 
Exchange Act Release No. 73816 (December 11, 2014), 79 FR 75200 
(December 17, 2014) (SR-NYSE-2014-64) (Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change to Establish an 
Access Fee for the NYSE Best Quote and Trades Data Feed, Operative 
December 1, 2014).

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[[Page 2270]]

    The proposed Non-Display fee for usage other than through a Trading 
Platform for EDGX Depth is equitable and reasonable as the Exchange 
believes the proposed fee represents the value of the data provided by 
the feed and its use by market participants. The proposed fee changes 
reflects changing trends in the ways in which the industry uses market 
data. The proposed fee comport with the proliferation of the use of 
data for various non-display purposes and by non-display trading 
applications. It recognizes industry changes that have evolved as a 
result of numerous technological advances, the advent of trading 
algorithms and automated trading, different investment patterns, a 
plethora of new securities products, unprecedented levels of trading, 
decimalization, internationalization and developments in portfolio 
analysis and securities research. The Exchange believes the proposed 
fee reflects the value of the data provided.
    The Exchange notes that fees for non-display use have become 
commonplace in the industry. Several exchanges impose them as does the 
UTP, CTA/CQ, and OPRA Plans. In addition, the fee proposed is less than 
similar fees currently charged by other exchanges for their depth-of-
book data products. For example, NYSE Arca, Inc. (``NYSE Arca'') and 
the New York Stock Exchange, Inc. (``NYSE'') charge $5,000 and $6,000 
per month, respectively, for its depth-of-book data used for non-
display purposes.\17\
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    \17\ See the non-display fees for NYSE OpenBook and NYSE 
ArcaBook in the NYSE and NYSE Arca fee schedules available at https://www.nyxdata.com/nysedata/default.aspx?tabid=518&folder=207656.
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    The proposed fee is also equitable and reasonable in that it 
ensures that heavy users of the EDGX Depth pay an equitable share of 
the total fees. Currently, External Distributors pay higher fees than 
Internal Distributors based upon their assumed higher usage levels. The 
Exchange believes that non-display users are generally high users of 
the data, using it to power a trading algorithms and other trading 
relates systems for millions or even billions of trading messages per 
day.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. The 
Exchange's ability to price EDGX Depth is constrained by: (i) 
Competition among exchanges, other trading platforms, and Trade 
Reporting Facilities (``TRF'') that compete with each other in a 
variety of dimensions; (ii) the existence of inexpensive real-time 
consolidated data and market-specific data and free delayed data; and 
(iii) the inherent contestability of the market for proprietary data.
    The Exchange and its market data products are subject to 
significant competitive forces and the proposed fees represent 
responses to that competition. To start, the Exchange competes 
intensely for order flow. It competes with the other national 
securities exchanges that currently trade equities, with electronic 
communication networks, with quotes posted in FINRA's Alternative 
Display Facility, with alternative trading systems, and with securities 
firms that primarily trade as principal with their customer order flow.
    In addition, EDGX Depth competes with a number of alternative 
products. For instance, EDGX Depth does not provide a complete picture 
of all trading activity in a security. Rather, the other national 
securities exchanges, the several TRFs of FINRA, and ECNs that produce 
proprietary data all produce trades and trade reports. Each is 
currently permitted to produce depth-of-book information products, and 
many currently do, including Nasdaq, NYSE, and NYSE Arca.
    In sum, the availability of a variety of alternative sources of 
information imposes significant competitive pressures on Exchange data 
products and the Exchange's compelling need to attract order flow 
imposes significant competitive pressure on the Exchange to act 
equitably, fairly, and reasonably in setting the proposed data product 
fees. The proposed data product fees are, in part, responses to that 
pressure. The Exchange believes that the proposed fees would reflect an 
equitable allocation of its overall costs to users of its facilities.
    In addition, when establishing the proposed fees, 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 alternatives to EDGX Depth, including 
existing similar feeds by other exchanges, consolidated data, and 
proprietary data from other sources, ensures that the Exchange cannot 
set unreasonable fees, or fees that are unreasonably discriminatory, 
when subscribers can elect these alternatives or choose not to purchase 
a specific proprietary data product if its cost to purchase is not 
justified by the returns any particular vendor or subscriber would 
achieve through the purchase.
    The Exchange believes the adoption of the fee for Non-Display Usage 
for EDGX Depth would increase competition amongst the exchanges that 
offer depth-of-book products. In addition, the proposed Non-Display 
Usage fee is less than similar fees currently charged by the NYSE and 
NYSE Arca for their depth-of-book data.\18\
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    \18\ See supra note 17.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \19\ and paragraph (f) of Rule 19b-4 
thereunder.\20\ At any time within 60 days of the filing of the 
proposed rule change, the Commission summarily may temporarily suspend 
such rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeEDGX-2017-006 on the subject line.

[[Page 2271]]

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number CboeEDGX-2017-006. 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 website (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 website 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 CboeEDGX-2017-006 and should be submitted 
on or before February 6, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00526 Filed 1-12-18; 8:45 am]
BILLING CODE 8011-01-P
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