Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Market Data Fees, 6290-6294 [2018-02861]
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Federal Register / Vol. 83, No. 30 / Tuesday, February 13, 2018 / Notices
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higher volumes of orders into the price
and volume discovery processes. In
particular, the proposed changes are
intended to further incentivize Members
to send increased order flow to the
Exchange in an effort to qualify for the
enhanced rebates made available by the
tiers, in turn contributing to the growth
of the Exchange. Because ADAV of
particular category of orders (e.g.,
Market Maker, Non-Customer, or
Customer) generally makes up a smaller
range than the previously required ADV
of all orders that add liquidity
submitted by the Member, the Exchange
proposes to amend the percentage of
ADAV necessary to achieve the tier so
that it is substantially identical to the
previously required percentage of OCV.
The Exchange believes that those
changes are equitable and reasonable
because they will keep the difficulty to
achieve each tier’s criteria relatively
unchanged from its current
requirements. Also, limiting the ADAV
requirement to a category of orders is
designed to align the tier with the fee
code it is associated with so that a
rebate provide to a certain type of
liquidity adding order is based on
meeting criteria reasonably related to
that type of order flow the tier is
designed to attract.
Lastly, the Exchange believes that
eliminating tiers are proposed herein is
reasonable, fair, and equitable because
this tier was not providing the desired
result of incentivizing Members to
increase their participation on the
Exchange. As such, the Exchange also
believes that the proposed elimination
of this tier would be non-discriminatory
in that it currently applies equally to all
Members and, upon elimination, would
no longer be available to any Members.
Further, its elimination could allow the
Exchange to explore other pricing
mechanisms such as those described
herein, in which it may enhance market
quality for all Members.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes the proposed
amendment to its fee schedule would
not impose any burden on competition
that is not necessary or appropriate in
furtherance of the purposes of the Act.
The Exchange does not believe that the
proposed changes represent a significant
departure from previous pricing offered
by the Exchange or pricing offered by
the Exchange’s competitors.
Additionally, Members may opt to
disfavor the Exchange’s pricing if they
believe that alternatives offer them
better value. Accordingly, the Exchange
does not believe that the proposed
changes will impair the ability of
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Members or competing venues to
maintain their competitive standing in
the financial markets. The Exchange
does not believe that the proposed
changes burdens competition, but
instead, enhances competition as it is
intended to increase the
competitiveness of the Exchange.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has not solicited, and
does not intend to solicit, comments on
this proposed rule change. The
Exchange has not received any written
comments from members or other
interested parties.
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 16 and paragraph (f) of Rule
19b–4 thereunder.17 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–
CboeBZX–2018–009 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeBZX–2018–009. 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 such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
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–CboeBZX–2018–009, and
should be submitted on or before March
6, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.18
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–02862 Filed 2–12–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–82650; File No. SR–CBOE–
2018–013]
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Related to Market Data
Fees
February 7, 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 January
30, 2018, Cboe Exchange, Inc. (the
‘‘Exchange’’ or ‘‘Cboe’’) 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
18 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
16 15
U.S.C. 78s(b)(3)(A).
17 17 CFR 240.19b–4(f).
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Federal Register / Vol. 83, No. 30 / Tuesday, February 13, 2018 / Notices
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Cboe Data Services (‘‘CDS’’) fee
schedule to increase the fees for the
BBO, Book Depth, and Complex Order
Book (‘‘COB’’) data feeds.
The text of the proposed rule change
is also available on the Exchange’s
website (https://www.cboe.com/About
CBOE/CBOELegalRegulatory
Home.aspx), at the Exchange’s Office of
the Secretary, 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 aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
The Exchange proposes to amend the
CDS fee schedule to increase the fees for
the BBO, Book Depth, and COB data
feeds.
BBO and Book Depth Data Feed
The BBO Data Feed is a real-time data
feed that includes the following
information: (i) Outstanding quotes and
standing orders at the best available
price level on each side of the market;
(ii) executed trades time, size, and price;
(iii) totals of customer versus noncustomer contracts at the best bid and
offer (‘‘BBO’’); (iv) all-or-none
contingency orders priced better than or
equal to the BBO; (v) expected opening
price and expected opening size; (vi)
end-of-day summaries by product,
including open, high, low, and closing
price during the trading session; (vi)
recap messages any time there is a
change in the open, high, low or last
sale price of a listed option; (vii) COB
information; and (viii) product IDs and
codes for all listed options contracts.
The quote and last sale data contained
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in the BBO data feed is identical to the
data sent to the Options Price Reporting
Authority (‘‘OPRA’’) for redistribution
to the public.
The Book Depth Data Feed is a realtime, low latency data feed that includes
all data contained in the BBO Data Feed
described above plus outstanding quotes
and standing orders up to the first four
price levels on each side of the market,
with aggregate size (‘‘Book Depth’’).
CDS currently charges a Data Fee,
payable by a Customer, of $7,000 per
month for internal use and external
redistribution of the BBO and/or Book
Depth data feeds.3 The Data Fee entitles
a Customer to provide the BBO and/or
the Book Depth data feed to an
unlimited number of internal users and
Devices 4 within the Customer. A
Customer receiving the BBO and/or
Book Depth data feeds from another
Customer is assessed the Data Fee by
CDS pursuant to its own market data
agreement with CDS, and is entitled to
use the Data internally and/or distribute
it externally.5 All Customers have the
same rights to utilize the data internally
and/or distribute it externally as long as
the Customer has entered into a written
agreement with CDS for the data and
pays the Data Fee.
The Exchange proposes to increase
the Data Fee for both the BBO and Book
Depth data feeds from $7,000 per month
to $9,000 per month.6 The Exchange is
not proposing to amend the User Fee for
either the BBO or Book Depth data
feeds. The Data Fee for the Book Depth
data feed will continue to be waived for
Customers who also purchase the
companion BBO data feed.7
COB Data Feed
The COB Data Feed is a real-time data
feed that includes data regarding the
3 A BBO Data Feed ‘‘Customer’’ is any person,
company or other entity that, pursuant to a market
data agreement with CDS, is entitled to receive data,
either directly from CDS or through an authorized
redistributor (i.e., a Customer or an extranet service
provider), whether that data is distributed
externally or used internally. The CDS fee schedule
for Exchange data is located at https://
www.cboe.org/general-info/pdfframed?content=/
publish/mdxfees/cboe-cds-fees-schedule-for-cboedatafeeds.pdf§ion=SEC_MDX_CSM&title=
Cboe%20CDS%20Fees%20Schedule.
4 A ‘‘Device’’ means any computer, workstation or
other item of equipment, fixed or portable, that
receives, accesses and/or displays data in visual,
audible or other form.
5 A Customer may choose to receive the data from
another Customer rather than directly from CDS’s
system because it does not want to or is not
equipped to manage the technology necessary to
establish a direct connection to CDS.
6 The Exchange also proposes to amend the first
column of the BBO Data Feed fees to identify Cboe
as ‘‘Cboe Options’’ to be consistent with the Depth
Book and COB data feed fee descriptions.
7 Such COB Data Feed Customers are still subject
to User Fees.
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6291
Exchange’s Complex Order Book and
related complex order information. The
COB Data Feed contains the following
information for all Exchange-traded
complex order strategies (multi-leg
strategies such as spreads, straddles and
buy-writes): (i) Outstanding quotes and
standing orders on each side of the
market with aggregate size, (ii) data with
respect to executed trades (‘‘last sale
data’’), and (iii) totals of customer
versus non-customer contracts.
CDS currently charges Customers 8 of
the COB Data Feed a Data Fee of $100
per month plus applicable User Fees.
The Exchange now proposes to increase
the Data Fee for the COB data feed from
$100 to $3,000 per month. The
Exchange notes that it had previously
charged a Data Fee of $3,000 per month
for the COB Feed 9 and later reduced
that fee to its current rate to incentive
further redistribution of the data feed.10
The Exchange now proposes to return
the fee for the COB data feed to its
original rate to bring the cost of the data
feed in line with that of similar data
feeds offered by other exchanges. The
Exchange is not proposing to amend the
User Fee for either the COB data feed.
The Data Fee for the COB Data Feed
would continue to be waived for
Customers of the BBO and/or Book
Depth data feeds.11
Implementation Date
The Exchange intends to implement
the proposed fees on February 1, 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
8 A Customer is any person, company or other
entity that, pursuant to a market data agreement
with CDS, is entitled to receive data, either directly
from CDS or through an authorized redistributor
(i.e., a Customer or an extranet service provider),
whether that data is distributed externally or used
internally. The CDS fee schedule for Exchange data
is located at https://www.cboe.org/general-info/
pdfframed?content=/publish/mdxfees/cboe-cdsfees-schedule-for-cboe-datafeeds.pdf§ion=SEC_
MDX_CSM&title=Cboe%20CDS%20Fees%20
Schedule.
9 See Securities Exchange Act Release No. 70683
(October 15, 2013), 78 FR 62798 (October 22, 2013)
(SR–CBOE–2013–087).
10 See Securities Exchange Act Release No. 73955
(December 30, 2014), 80 FR 598 (January 6, 2015)
(SR–CBOE–2014–094).
11 Such COB Data Feed Customers are still subject
to User Fees.
12 15 U.S.C. 78f.
13 15 U.S.C. 78f(b)(4).
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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 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 customers
and market data vendors who subscribe
to the above data feeds will be subject
to the proposed fees. The above data
feeds are distributed and purchased on
a voluntary basis, in that neither the
Exchange nor market data distributors
are required by any rule or regulation
purchase this data or 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
14 15
15 17
U.S.C. 78k–1.
CFR 242.603.
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alternatives to the above data feeds
further ensure that the Exchange cannot
set unreasonable fees, or fees that are
unreasonably discriminatory, when
vendors and subscribers can elect such
alternatives. That is, the Exchange
competes with other exchanges (and
their affiliates) that provide similar
market data products. For example, the
above data feeds provide investors with
alternative market data and competes
with similar market data product
currently offered by other exchanges. If
another exchange (or its affiliate) were
to charge less to distribute its similar
product than the Exchange charges for
the above data feeds, prospective users
likely would not subscribe to, or would
cease subscribing to either market data
product.
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
BBO Data Feed
The Exchange believes the proposed
increase in the Data Fee for BBO data is
equitable and not unfairly
discriminatory because it would apply
equally to all Customers. The Exchange
believes the proposed Data Fee is
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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reasonable because it compares
favorably to fees that other markets
charge for similar products. For
example, Nasdaq PHLX LLC (‘‘PHLX’’)
charges Internal Distributors a monthly
fee of $4,500 per organization and
External Distributors a monthly fee of
$5,000 per organization for its ‘‘TOPO
Plus Orders’’ data feed, which like the
BBO Data Feed includes top-of-book
data (including orders, quotes and
trades) and other market data.17 Nasdaq
ISE, LLC (‘‘ISE’’) offers a ‘‘Top Quote
Feed’’, which includes top-of-book data,
and a separate ‘‘Spread Feed’’, which
like the BBO Data Feed includes order
and quote data for complex strategies.
ISE charges distributors of its Top Quote
Feed a base monthly fee of $3,000 and
distributors of its Spread Feed a base
monthly fee of $3,000 18 (totally $6,000
in the aggregate to receive the same data
as offered by the BBO feed). The
Exchange believes the proposed rate is
reasonable based on the value of the
market data included in the BBO feed
and the market share that the data
represents. The Exchange also notes that
Customers who receive the BBO feed
may also receive the Book Depth and
COB data feeds at no extra charge.
Book Depth Data Feed
The Exchange believes the proposed
Data Fee for the Book Depth Data Feed
is equitable and not unfairly
discriminatory because it would apply
equally to all Customers. The Exchange
believes the proposed Data Fee is
reasonable because it compares
favorably to fees that other markets
charge for similar products. For
example, PHLX charges Internal
Distributors a monthly fee of $4,000 and
External Distributors a monthly fee of a
$4,500 for its Depth data feed that
includes full depth of quotes and orders
and last sale data for options listed on
PHLX.19 In addition, ISE charges a
$5,000 per month distributor fee for its
Real-time Depth of Market data feed.20
The Exchange also notes that Customers
who receive the Book Depth feed may
also receive the BBO and COB data
feeds at no extra charge. The Exchange
believes the proposed rate is reasonable
based on the value of the market data
included in the BBO feed and the
market share that the data represents.
17 See Section IX of the PHLX Pricing Schedule
(setting forth the fees for proprietary market data).
18 See Sections VIII(h) and (I) of the Nasdaq ISE
Schedule of Fees.
19 See supra note 17.
20 See Section VIII(f) of the Nasdaq ISE Schedule
of Fees.
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COB Data Feed
The Exchange believes the proposed
Data Fee for the COB Data Feed is
equitable, reasonable, and not unfairly
discriminatory because they would
apply equally to all Customers of the
COB Data Feed. The Exchange notes
that it had previously charged a Data
Fee of $3,000 per month for the COB
Feed 21 and later reduced that fee to its
current rate to incentive further
redistribution of the data feed.22 The
Exchange now proposes to return the fee
for the COB data feed to its original rate
to bring the cost of the data feed in line
with that of similar data feeds offered by
other exchanges. For example, ISE
charges distributors of its Spread Feed
a base monthly fee of $3,000,23 equal to
what the Exchange proposes to charge
for the COB data feed. The Exchange
also notes that Customers who receive
the BBO and Book Depth feeds may also
receive the COB data feed at no extra
charge. The Exchange believes the
proposed rate is reasonable based on the
value of the market data included in the
COB feed and the market share that the
data represents.
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 the BBO,
Book Depth, ad COB data feeds is
constrained by: (i) Competition among
exchanges 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.
An exchange’s ability to price its
proprietary data feed products is
constrained by (1) the existence of
actual competition for the sale of such
data, (2) the joint product nature of
exchange platforms, and (3) the
existence of alternatives to proprietary
data.
The Existence of Actual Competition.
The Exchange believes competition
provides an effective constraint on the
market data fees that the Exchange,
through CDS, has the ability and the
incentive to charge. The Exchange has a
21 See Securities Exchange Act Release No. 70683
(October 15, 2013), 78 FR 62798 (October 22, 2013)
(SR–CBOE–2013–087).
22 See Securities Exchange Act Release No. 73955
(December 30, 2014), 80 FR 598 (January 6, 2015)
(SR–CBOE–2014–094).
23 See Sections VIII(I) of the Nasdaq ISE Schedule
of Fees.
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compelling need to attract order flow
from market participants in order to
maintain its share of trading volume.
This compelling need to attract order
flow imposes significant pressure on the
Exchange to act reasonably in setting its
fees for market data, particularly given
that the market participants that will
pay such fees often will be the same
market participants from whom the
Exchange must attract order flow. These
market participants include brokerdealers that control the handling of a
large volume of customer and
proprietary order flow. Given the
portability of order flow from one
exchange to another, any exchange that
sought to charge unreasonably high data
fees would risk alienating many of the
same customers on whose orders it
depends for competitive survival. The
Exchange currently competes with
fourteen options exchanges (including
its affiliate, C2) for order flow.24
In addition, in the case of products
that are distributed through market data
vendors, the market data 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. Internet
portals, such as Google, impose price
discipline by providing only data that
they believe will enable them to attract
‘‘eyeballs’’ that contribute to their
advertising revenue. Similarly,
Customers will not offer the BBO, Book
Depth or COB Data Feeds unless these
products will help them maintain
current users or attract new ones. For
example, a broker-dealer will not choose
to offer the BBO, Book Depth or COB
Data Feeds to its retail customers unless
the broker-dealer believes that the retail
customers will use and value the data
and the provision of such data will help
the broker-dealer maintain the customer
relationship, which allows the brokerdealer to generate profits for itself.
Professional users will not request any
of these feeds from Customers unless
they can use the data for profitgenerating purposes in their businesses.
All of these operate as constraints on
pricing proprietary data products.
24 The Commission has previously made a finding
that the options industry is subject to significant
competitive forces. See e.g., Securities Exchange
Act Release No. 59949 (May 20, 2009), 74 FR 25593
(May 28, 2009) (SR–ISE–2009–97) (order approving
ISE’s proposal to establish fees for a real-time depth
of market data offering).
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6293
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, market data
and trade executions are a paradigmatic
example of joint products with joint
costs. The decision 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 quality, and price and distribution
of their data products. The more trade
executions a platform does, the more
valuable its market data products
become. 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 transaction
execution platform 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
view the costs of transaction executions
and market data as a unified cost of
doing business with the exchange.
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. Thus, because it
is impossible to obtain the data inputs
to create market data products without
a fast, technologically robust, and wellregulated execution system, system
costs 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.
The level of competition and
contestability in the market is evident in
the numerous alternative venues that
compete for order flow, including 15
options self-regulatory organization
(‘‘SRO’’) markets, as well as
internalizing broker-dealers (‘‘BDs’’) and
various forms of alternative trading
systems (‘‘ATSs’’), including dark pools
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6294
Federal Register / Vol. 83, No. 30 / Tuesday, February 13, 2018 / Notices
and electronic communication networks
(‘‘ECNs’’). 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 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. 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.
The Existence of Alternatives. The
Exchange is constrained in pricing the
BBO, Book Depth and COB Data Feeds
by the availability to market participants
of alternatives to purchasing these
products. The Exchange must consider
the extent to which market participants
would choose one or more alternatives
instead of purchasing the exchange’s
data. Other options exchanges can and
have produced their own top-of-book,
book depth and complex strategies
market data products, and thus are
sources of potential competition for
CDS. For example, as noted above, ISE
and PHLX offer market data products
that compete with the BBO, Book Depth
and COB Data Feeds. The large number
of SROs, BDs, and ATSs that currently
produce proprietary data or are
currently capable of producing it
provides further pricing discipline for
proprietary data products. Each SRO,
ATS, and BD is currently permitted to
produce proprietary data products, and
many currently do. In addition, the
OPRA data feed is a significant
competitive alternative to the BBO and
last sale data included in the BBO and
Book Depth Data Feeds.
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 its cost to purchase is not
justified by the returns any particular
VerDate Sep<11>2014
23:12 Feb 12, 2018
Jkt 244001
vendor or subscriber would achieve
through the purchase.
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 25 and paragraph (f) of Rule
19b–4 26 thereunder. 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. If the
Commission takes such action, the
Commission will institute proceedings
to determine whether the proposed rule
change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
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–CBOE–2018–013 and
should be submitted on or before March
6, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.27
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–02861 Filed 2–12–18; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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–
CBOE–2018–013 on the subject line.
[Release No. 34–82646; File No. SR–CBOE–
2018–010]
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–CBOE–2018–013. 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
February 7, 2018.
Self-Regulatory Organizations; Cboe
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Delete Obsolete Rules
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 January
25, 2018, Cboe Exchange, Inc.
(‘‘Exchange’’ or ‘‘Cboe Options’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of
the Act 3 and Rule 19b–4(f)(6)
27 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
1 15
25 15
26 17
PO 00000
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
Frm 00136
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]]>Agencies
[Federal Register Volume 83, Number 30 (Tuesday, February 13, 2018)]
[Notices]
[Pages 6290-6294]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-02861]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82650; File No. SR-CBOE-2018-013]
Self-Regulatory Organizations; Cboe Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Related to
Market Data Fees
February 7, 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 January 30, 2018, Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe'') 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
[[Page 6291]]
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.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Cboe Data Services (``CDS'') fee
schedule to increase the fees for the BBO, Book Depth, and Complex
Order Book (``COB'') data feeds.
The text of the proposed rule change is also available on the
Exchange's website (https://www.cboe.com/About CBOE/
CBOELegalRegulatoryHome.aspx), at the Exchange's Office of the
Secretary, 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 aspects 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 CDS fee schedule to increase the
fees for the BBO, Book Depth, and COB data feeds.
BBO and Book Depth Data Feed
The BBO Data Feed is a real-time data feed that includes the
following information: (i) Outstanding quotes and standing orders at
the best available price level on each side of the market; (ii)
executed trades time, size, and price; (iii) totals of customer versus
non-customer contracts at the best bid and offer (``BBO''); (iv) all-
or-none contingency orders priced better than or equal to the BBO; (v)
expected opening price and expected opening size; (vi) end-of-day
summaries by product, including open, high, low, and closing price
during the trading session; (vi) recap messages any time there is a
change in the open, high, low or last sale price of a listed option;
(vii) COB information; and (viii) product IDs and codes for all listed
options contracts. The quote and last sale data contained in the BBO
data feed is identical to the data sent to the Options Price Reporting
Authority (``OPRA'') for redistribution to the public.
The Book Depth Data Feed is a real-time, low latency data feed that
includes all data contained in the BBO Data Feed described above plus
outstanding quotes and standing orders up to the first four price
levels on each side of the market, with aggregate size (``Book
Depth'').
CDS currently charges a Data Fee, payable by a Customer, of $7,000
per month for internal use and external redistribution of the BBO and/
or Book Depth data feeds.\3\ The Data Fee entitles a Customer to
provide the BBO and/or the Book Depth data feed to an unlimited number
of internal users and Devices \4\ within the Customer. A Customer
receiving the BBO and/or Book Depth data feeds from another Customer is
assessed the Data Fee by CDS pursuant to its own market data agreement
with CDS, and is entitled to use the Data internally and/or distribute
it externally.\5\ All Customers have the same rights to utilize the
data internally and/or distribute it externally as long as the Customer
has entered into a written agreement with CDS for the data and pays the
Data Fee.
---------------------------------------------------------------------------
\3\ A BBO Data Feed ``Customer'' is any person, company or other
entity that, pursuant to a market data agreement with CDS, is
entitled to receive data, either directly from CDS or through an
authorized redistributor (i.e., a Customer or an extranet service
provider), whether that data is distributed externally or used
internally. The CDS fee schedule for Exchange data is located at
https://www.cboe.org/general-info/pdfframed?content=/publish/mdxfees/cboe-cds-fees-schedule-for-cboe-datafeeds.pdf§ion=SEC_MDX_CSM&title=Cboe%20CDS%20Fees%20Schedule.
\4\ A ``Device'' means any computer, workstation or other item
of equipment, fixed or portable, that receives, accesses and/or
displays data in visual, audible or other form.
\5\ A Customer may choose to receive the data from another
Customer rather than directly from CDS's system because it does not
want to or is not equipped to manage the technology necessary to
establish a direct connection to CDS.
---------------------------------------------------------------------------
The Exchange proposes to increase the Data Fee for both the BBO and
Book Depth data feeds from $7,000 per month to $9,000 per month.\6\ The
Exchange is not proposing to amend the User Fee for either the BBO or
Book Depth data feeds. The Data Fee for the Book Depth data feed will
continue to be waived for Customers who also purchase the companion BBO
data feed.\7\
---------------------------------------------------------------------------
\6\ The Exchange also proposes to amend the first column of the
BBO Data Feed fees to identify Cboe as ``Cboe Options'' to be
consistent with the Depth Book and COB data feed fee descriptions.
\7\ Such COB Data Feed Customers are still subject to User Fees.
---------------------------------------------------------------------------
COB Data Feed
The COB Data Feed is a real-time data feed that includes data
regarding the Exchange's Complex Order Book and related complex order
information. The COB Data Feed contains the following information for
all Exchange-traded complex order strategies (multi-leg strategies such
as spreads, straddles and buy-writes): (i) Outstanding quotes and
standing orders on each side of the market with aggregate size, (ii)
data with respect to executed trades (``last sale data''), and (iii)
totals of customer versus non-customer contracts.
CDS currently charges Customers \8\ of the COB Data Feed a Data Fee
of $100 per month plus applicable User Fees. The Exchange now proposes
to increase the Data Fee for the COB data feed from $100 to $3,000 per
month. The Exchange notes that it had previously charged a Data Fee of
$3,000 per month for the COB Feed \9\ and later reduced that fee to its
current rate to incentive further redistribution of the data feed.\10\
The Exchange now proposes to return the fee for the COB data feed to
its original rate to bring the cost of the data feed in line with that
of similar data feeds offered by other exchanges. The Exchange is not
proposing to amend the User Fee for either the COB data feed. The Data
Fee for the COB Data Feed would continue to be waived for Customers of
the BBO and/or Book Depth data feeds.\11\
---------------------------------------------------------------------------
\8\ A Customer is any person, company or other entity that,
pursuant to a market data agreement with CDS, is entitled to receive
data, either directly from CDS or through an authorized
redistributor (i.e., a Customer or an extranet service provider),
whether that data is distributed externally or used internally. The
CDS fee schedule for Exchange data is located at https://www.cboe.org/general-info/pdfframed?content=/publish/mdxfees/cboe-cds-fees-schedule-for-cboe-datafeeds.pdf§ion=SEC_MDX_CSM&title=Cboe%20CDS%20Fees%20
Schedule.
\9\ See Securities Exchange Act Release No. 70683 (October 15,
2013), 78 FR 62798 (October 22, 2013) (SR-CBOE-2013-087).
\10\ See Securities Exchange Act Release No. 73955 (December 30,
2014), 80 FR 598 (January 6, 2015) (SR-CBOE-2014-094).
\11\ Such COB Data Feed Customers are still subject to User
Fees.
---------------------------------------------------------------------------
Implementation Date
The Exchange intends to implement the proposed fees on February 1,
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
[[Page 6292]]
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.
---------------------------------------------------------------------------
\12\ 15 U.S.C. 78f.
\13\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
The Exchange 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\ 17 CFR 242.603.
---------------------------------------------------------------------------
In addition, the proposed fees would not permit unfair
discrimination because all of the Exchange's customers and market data
vendors who subscribe to the above data feeds will be subject to the
proposed fees. The above data feeds are distributed and purchased on a
voluntary basis, in that neither the Exchange nor market data
distributors are required by any rule or regulation purchase this data
or 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
the above data feeds further ensure that the Exchange cannot set
unreasonable fees, or fees that are unreasonably discriminatory, when
vendors and subscribers can elect such alternatives. That is, the
Exchange competes with other exchanges (and their affiliates) that
provide similar market data products. For example, the above data feeds
provide investors with alternative market data and competes with
similar market data product currently offered by other exchanges. If
another exchange (or its affiliate) were to charge less to distribute
its similar product than the Exchange charges for the above data feeds,
prospective users likely would not subscribe to, or would cease
subscribing to either market data product.
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
BBO Data Feed
The Exchange believes the proposed increase in the Data Fee for BBO
data is equitable and not unfairly discriminatory because it would
apply equally to all Customers. The Exchange believes the proposed Data
Fee is reasonable because it compares favorably to fees that other
markets charge for similar products. For example, Nasdaq PHLX LLC
(``PHLX'') charges Internal Distributors a monthly fee of $4,500 per
organization and External Distributors a monthly fee of $5,000 per
organization for its ``TOPO Plus Orders'' data feed, which like the BBO
Data Feed includes top-of-book data (including orders, quotes and
trades) and other market data.\17\ Nasdaq ISE, LLC (``ISE'') offers a
``Top Quote Feed'', which includes top-of-book data, and a separate
``Spread Feed'', which like the BBO Data Feed includes order and quote
data for complex strategies. ISE charges distributors of its Top Quote
Feed a base monthly fee of $3,000 and distributors of its Spread Feed a
base monthly fee of $3,000 \18\ (totally $6,000 in the aggregate to
receive the same data as offered by the BBO feed). The Exchange
believes the proposed rate is reasonable based on the value of the
market data included in the BBO feed and the market share that the data
represents. The Exchange also notes that Customers who receive the BBO
feed may also receive the Book Depth and COB data feeds at no extra
charge.
---------------------------------------------------------------------------
\17\ See Section IX of the PHLX Pricing Schedule (setting forth
the fees for proprietary market data).
\18\ See Sections VIII(h) and (I) of the Nasdaq ISE Schedule of
Fees.
---------------------------------------------------------------------------
Book Depth Data Feed
The Exchange believes the proposed Data Fee for the Book Depth Data
Feed is equitable and not unfairly discriminatory because it would
apply equally to all Customers. The Exchange believes the proposed Data
Fee is reasonable because it compares favorably to fees that other
markets charge for similar products. For example, PHLX charges Internal
Distributors a monthly fee of $4,000 and External Distributors a
monthly fee of a $4,500 for its Depth data feed that includes full
depth of quotes and orders and last sale data for options listed on
PHLX.\19\ In addition, ISE charges a $5,000 per month distributor fee
for its Real-time Depth of Market data feed.\20\ The Exchange also
notes that Customers who receive the Book Depth feed may also receive
the BBO and COB data feeds at no extra charge. The Exchange believes
the proposed rate is reasonable based on the value of the market data
included in the BBO feed and the market share that the data represents.
---------------------------------------------------------------------------
\19\ See supra note 17.
\20\ See Section VIII(f) of the Nasdaq ISE Schedule of Fees.
---------------------------------------------------------------------------
[[Page 6293]]
COB Data Feed
The Exchange believes the proposed Data Fee for the COB Data Feed
is equitable, reasonable, and not unfairly discriminatory because they
would apply equally to all Customers of the COB Data Feed. The Exchange
notes that it had previously charged a Data Fee of $3,000 per month for
the COB Feed \21\ and later reduced that fee to its current rate to
incentive further redistribution of the data feed.\22\ The Exchange now
proposes to return the fee for the COB data feed to its original rate
to bring the cost of the data feed in line with that of similar data
feeds offered by other exchanges. For example, ISE charges distributors
of its Spread Feed a base monthly fee of $3,000,\23\ equal to what the
Exchange proposes to charge for the COB data feed. The Exchange also
notes that Customers who receive the BBO and Book Depth feeds may also
receive the COB data feed at no extra charge. The Exchange believes the
proposed rate is reasonable based on the value of the market data
included in the COB feed and the market share that the data represents.
---------------------------------------------------------------------------
\21\ See Securities Exchange Act Release No. 70683 (October 15,
2013), 78 FR 62798 (October 22, 2013) (SR-CBOE-2013-087).
\22\ See Securities Exchange Act Release No. 73955 (December 30,
2014), 80 FR 598 (January 6, 2015) (SR-CBOE-2014-094).
\23\ See Sections VIII(I) of the Nasdaq ISE Schedule of Fees.
---------------------------------------------------------------------------
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 the BBO, Book Depth, ad COB data feeds is
constrained by: (i) Competition among exchanges 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.
An exchange's ability to price its proprietary data feed products
is constrained by (1) the existence of actual competition for the sale
of such data, (2) the joint product nature of exchange platforms, and
(3) the existence of alternatives to proprietary data.
The Existence of Actual Competition. The Exchange believes
competition provides an effective constraint on the market data fees
that the Exchange, through CDS, has the ability and the incentive to
charge. The Exchange has a compelling need to attract order flow from
market participants in order to maintain its share of trading volume.
This compelling need to attract order flow imposes significant pressure
on the Exchange to act reasonably in setting its fees for market data,
particularly given that the market participants that will pay such fees
often will be the same market participants from whom the Exchange must
attract order flow. These market participants include broker-dealers
that control the handling of a large volume of customer and proprietary
order flow. Given the portability of order flow from one exchange to
another, any exchange that sought to charge unreasonably high data fees
would risk alienating many of the same customers on whose orders it
depends for competitive survival. The Exchange currently competes with
fourteen options exchanges (including its affiliate, C2) for order
flow.\24\
---------------------------------------------------------------------------
\24\ The Commission has previously made a finding that the
options industry is subject to significant competitive forces. See
e.g., Securities Exchange Act Release No. 59949 (May 20, 2009), 74
FR 25593 (May 28, 2009) (SR-ISE-2009-97) (order approving ISE's
proposal to establish fees for a real-time depth of market data
offering).
---------------------------------------------------------------------------
In addition, in the case of products that are distributed through
market data vendors, the market data 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. Internet portals, such as Google,
impose price discipline by providing only data that they believe will
enable them to attract ``eyeballs'' that contribute to their
advertising revenue. Similarly, Customers will not offer the BBO, Book
Depth or COB Data Feeds unless these products will help them maintain
current users or attract new ones. For example, a broker-dealer will
not choose to offer the BBO, Book Depth or COB Data Feeds to its retail
customers unless the broker-dealer believes that the retail customers
will use and value the data and the provision of such data will help
the broker-dealer maintain the customer relationship, which allows the
broker-dealer to generate profits for itself. Professional users will
not request any of these feeds from Customers unless they can use the
data for profit-generating purposes in their businesses. All of these
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, market
data and trade executions are a paradigmatic example of joint products
with joint costs. The decision 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 quality, and price
and distribution of their data products. The more trade executions a
platform does, the more valuable its market data products become. 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 transaction execution
platform 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 view the costs of transaction executions and market
data as a unified cost of doing business with the exchange.
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. Thus, because it
is impossible to obtain the data inputs to create market data products
without a fast, technologically robust, and well-regulated execution
system, system costs 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.
The level of competition and contestability in the market is
evident in the numerous alternative venues that compete for order flow,
including 15 options self-regulatory organization (``SRO'') markets, as
well as internalizing broker-dealers (``BDs'') and various forms of
alternative trading systems (``ATSs''), including dark pools
[[Page 6294]]
and electronic communication networks (``ECNs''). 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 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. 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.
The Existence of Alternatives. The Exchange is constrained in
pricing the BBO, Book Depth and COB Data Feeds by the availability to
market participants of alternatives to purchasing these products. The
Exchange must consider the extent to which market participants would
choose one or more alternatives instead of purchasing the exchange's
data. Other options exchanges can and have produced their own top-of-
book, book depth and complex strategies market data products, and thus
are sources of potential competition for CDS. For example, as noted
above, ISE and PHLX offer market data products that compete with the
BBO, Book Depth and COB Data Feeds. The large number of SROs, BDs, and
ATSs that currently produce proprietary data or are currently capable
of producing it provides further pricing discipline for proprietary
data products. Each SRO, ATS, and BD is currently permitted to produce
proprietary data products, and many currently do. In addition, the OPRA
data feed is a significant competitive alternative to the BBO and last
sale data included in the BBO and Book Depth Data Feeds.
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 its cost to purchase is not justified by the returns any
particular vendor or subscriber would achieve through the purchase.
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 \25\ and paragraph (f) of Rule 19b-4 \26\
thereunder. 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. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
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\25\ 15 U.S.C. 78s(b)(3)(A).
\26\ 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-CBOE-2018-013 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2018-013. 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-CBOE-2018-013 and should be submitted on
or before March 6, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02861 Filed 2-12-18; 8:45 am]
BILLING CODE 8011-01-P
