Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Related to Fees for Use on Cboe BZX Exchange, Inc., 45149-45152 [2018-19240]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–84002; File No. SR–
CboeBZX–2018–065]
45149
(‘‘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 fee schedule to institute a
new fee for the distribution of data
derived from BZX Top on third-party
websites or other electronic platforms.
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Related to Fees
for Use on Cboe BZX Exchange, Inc.
August 30, 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 August
16, 2018, Cboe BZX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BZX’’) filed with the
Securities and Exchange Commission
1 15
2 17
PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00062
Fmt 4703
The purpose of the proposed rule
change is to introduce a new pricing
model to keep pace with an evolving
practice. Other exchanges have pricing
programs in place that allow
Distributors make ‘‘Derived Data’’
available on a website or other
electronic platform that is branded by a
third party, or co-branded by a
Distributor and a third party.5 The
3 15
U.S.C. 78s(b)(3)(A)(ii).
CFR 240.19b–4(f)(2).
5 The Nasdaq Stock Market LLC (‘‘Nasdaq’’), for
example, operates a program whereby it charges
Distributors that employ a hosted display solution
4 17
Continued
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proposed rule change would implement
a new pricing structure for use of
Derived Data—i.e., the BZX Derived
Data White Label Service Program (the
‘‘Program’’)—that would compete with
similar programs currently offered on
other equities markets.
‘‘Derived Data’’ is pricing data or
other data that (i) is created in whole or
in part from Exchange Data, (ii) is not
an index or financial product, and (iii)
cannot be readily reverse-engineered to
recreate Exchange Data or used to create
other data that is a reasonable facsimile
or substitute for Exchange Data. The
type of Derived Data subject to the
proposed fee is taken from BZX Top,
which is a proprietary data product that
provides top of book quotations and
execution information for all equity
securities traded on the Exchange.6
The Derived Data subject to the
proposed fee is made available to
subscribers within a White Label
Service which is a type of hosted
display solution in which a Distributor
hosts or maintains a website or platform
on behalf of a third-party entity. The
service allows Distributors to make
Derived Data available on a platform
that is branded with a third-party brand,
or co-branded with a third party and a
Distributor. The Distributor maintains
control of the application’s data,
entitlements and display.
The White Label Service may be used
for a number of different purposes, to be
determined by the Distributor. Possible
uses include the display of information
or data, or the creation of derivative
instruments, such as swaps,7
swaptions,8 or contracts for difference.9
The specific use of the data will be
determined by the Distributor, as the
proposed fee will not depend on the
purpose for placing the Derived Data on
a White Label Service.
As proposed, a Distributor that
provides a White Label Service for
Derived Data taken from BZX Top is
liable for the following fees instead of
the fees normally applicable for the
distribution of BZX Top. First, instead
of the regular fee for external
distribution, Distributors would be
to distribute Derived Data taken from its Nasdaq
Basic product. See Securities Exchange Act Release
No. 79228 (November 3, 2016), 81 FR 78890
(November 9, 2016) (SR–NASDAQ–2016–144).
6 See Rule 11.22(d).
7 A swap is a derivative contract in which two
parties agree to exchange financial instruments.
8 A swaption, or swap option, is an option to
enter into a swap at a specified time.
9 A contract for difference is an agreement to
exchange the difference between the current value
of an asset and its future value. If the price
increases, the seller pays the buyer the amount of
the increase. If the price decreases, the buyer pays
the seller the amount of the decrease.
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charged a tiered External Subscriber Fee
based on the number of White Label
Service Platforms (i.e., ‘‘External
Subscribers’’) that receive Derived Data
from the Distributor through a White
Label Service. Specifically, Distributors
would be charged a fee of: (1) $300 per
month for each External Subscriber if
the Distributor makes Derived Data
available to 1–5 External Subscribers;
(2) $250 per month for each External
Subscriber if the Distributor makes
Derived Data available to 6–10 External
Subscribers; and (3) $200 per month for
each External Subscriber if the
Distributor makes Derived Data
available to 11 or more External
Subscribers. The External Subscriber
Fee is non-progressive and, as
mentioned above, is based on the
number of External Subscribers that
receive Derived Data from the
Distributor. For example, a Distributor
providing Derived Data based on BZX
Top to six External Subscribers would
be charged a monthly fee of $1,500 (i.e.,
6 External Subscribers × $250 each).
Second, the Exchange would charge a
monthly Professional User fee of $4 per
month for each Professional User, which
is equivalent to the current Professional
User fee for external distribution of BZX
Top. There would be no monthly NonProfessional User fee for accessing
Derived Data through a White Label
Service.
The Program is entirely optional, in
that it applies only to Distributors that
opt to use Derived Data from BZX Top
to create a White Label Service, as
described herein. It does not impact or
raise the cost of any other Exchange
product, nor does it affect the cost of
BZX Top, except in instances where
Derived Data is made available on a
White Label Service. A Distributor that
provides a White Label Service for BZX
Top data that is not Derived Data or
distributes Derived Data through a
platform other than a White Label
Service would be liable for the fees
normally applicable for the distribution
of BZX Top.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
the objectives of Section 6 of the Act,10
in general, and furthers the objectives of
Section 6(b)(4),11 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 non10 15
11 15
PO 00000
U.S.C. 78f.
U.S.C. 78f(b)(4).
Frm 00063
Fmt 4703
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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.
The Exchange also believes that the
proposed rule change is consistent with
Section 11(A) of the Act 12 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,13 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.
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.14
12 15
U.S.C. 78k–1.
17 CFR 242.603.
14 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
13 See
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The Exchange believes that the
introduction of a fee for the use of
Derived Data on White Label Services is
reasonable because: (i) All proprietary
data fees are constrained by the
Exchange’s need to compete for order
flow; and (ii) proprietary data fees are
subject to market competition from
substitute products. The proposed rule
change would provide an alternate fee
structure for providing BZX Top market
data to Distributors that make Derived
Data available to External Subscribers
on White Label Services. The Exchange
believes that this will encourage
additional Distributors to subscribe to
BZX Top market data due to the lower
cost associated with Derived Data
provided under the Program. Nasdaq
already has a similar pricing structure in
place for providing Derived Data
through a hosted display solution.15 The
Exchange believes that Distributors of
BZX Top market data would benefit
from a similar solution. Furthermore,
the proposed fees are lower than those
currently in place on Nasdaq, which
charges a fee of $400 per month for each
hosted display solution under their
program,16 and may be further lowered
for Distributors of BZX Top Derived
Data based on the number of External
Subscribers.
As proposed, if a Distributor uses a
White Label Service to display Derived
Data, the Distributor will be charged a
fee that is tiered based on the number
of External Subscribers that are
provided access to that data instead of
the higher fee normally charged for
external distribution. The Exchange
believes that this fee is equitable and
not unfairly discriminatory because the
Exchange will apply the same fees to all
similarly situated Distributors based on
the number of External Subscribers
provided access to Derived Data through
a White Label Service. Furthermore, the
proposed fees will only apply to
Distributors that elect to participate in
the Program by distributing Derived
Data through a White Label Service.
BZX Top market data is distributed and
purchased on a voluntary basis, in that
neither the Exchange nor market data
distributors are required by any rule or
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).
15 See supra note 5.
16 Id.
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regulation to make this data available.
Distributors of BZX Top are not required
to participate in the proposed Program,
which is merely an alternative option
being proposed by the Exchange to
potentially lower costs for market data
that is Derived Data. Accordingly,
Distributors 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 to the tiered distribution
fee described above, the Exchange will
continue to charge a small fee for
Professional Users but would eliminate
Non-Professional User fees for data
provided under the Program. The
Exchange believes that it is equitable
and not unfairly discriminatory to
charge a fee for Professional Users but
no fee for Non-Professional Users. NonProfessional Users are already subject to
a heavily discounted fee for BZX Top
market data relative to Professional
Users. Differential fees for Professional
and Non-Professional Users are widely
used by the Exchange and other
exchanges for their proprietary market
data as this reduces costs for retail
investors and makes market data more
broadly available.
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 proposed program
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 for a similar product than the
Exchange charges under the proposed
fee structure, prospective subscribers
likely would not subscribe to, or would
cease subscribing to, the Program.
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 this data
PO 00000
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45151
product 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.
The proposed fees apply to data
derived from BZX Top, which is subject
to competition from the Nasdaq, NYSE,
and other exchanges that offer similar
products, including exchanges that
provide similar pricing options for
Derived Data made available on a White
Label Service. 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
subscribers. The existence of
alternatives to BZX Top, 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
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Federal Register / Vol. 83, No. 172 / Wednesday, September 5, 2018 / Notices
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
No written comments were either
solicited or received.
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 17 and paragraph (f) of Rule
19b–4 thereunder.18 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:
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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–2018–065 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–2018–065. 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
17 15
18 17
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f).
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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 this
filing will also 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–2018–065 and
should be submitted on or before
September 26, 2018.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018–19240 Filed 9–4–18; 8:45 am]
BILLING CODE 8011–01–P
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[Release No. 34–84000; File No. SR–
CboeEDGX–2018–036]
Self-Regulatory Organizations; Cboe
EDGX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change Related to Fees
for Use on Cboe EDGX Exchange, Inc.
August 30, 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 August
16, 2018, Cboe EDGX Exchange, Inc.
(the ‘‘Exchange’’ or ‘‘EDGX’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II and III below, which Items
have been prepared by the 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
19 17
CFR 200.30–3(a)(12).
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).
PO 00000
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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 fee schedule to institute a new
fee for the distribution of data derived
from EDGX Top on third-party websites
or other electronic platforms.
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to introduce a new pricing
model to keep pace with an evolving
practice. Other exchanges have pricing
programs in place that allow
Distributors make ‘‘Derived Data’’
available on a website or other
electronic platform that is branded by a
third party, or co-branded by a
Distributor and a third party.5 The
proposed rule change would implement
a new pricing structure for use of
Derived Data—i.e., the EDGX Derived
Data White Label Service Program (the
‘‘Program’’)—that would compete with
similar programs currently offered on
other equities markets.
‘‘Derived Data’’ is pricing data or
other data that (i) is created in whole or
in part from Exchange Data, (ii) is not
5 The Nasdaq Stock Market LLC (‘‘Nasdaq’’), for
example, operates a program whereby it charges
Distributors that employ a hosted display solution
to distribute Derived Data taken from its Nasdaq
Basic product. See Securities Exchange Act Release
No. 79228 (November 3, 2016), 81 FR 78890
(November 9, 2016) (SR–NASDAQ–2016–144).
E:\FR\FM\05SEN1.SGM
05SEN1
]]>Agencies
[Federal Register Volume 83, Number 172 (Wednesday, September 5, 2018)]
[Notices]
[Pages 45149-45152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19240]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84002; File No. SR-CboeBZX-2018-065]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Related to
Fees for Use on Cboe BZX Exchange, Inc.
August 30, 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 August 16, 2018, Cboe BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the 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.
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\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 fee schedule to
institute a new fee for the distribution of data derived from BZX Top
on third-party websites or other electronic platforms.
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to introduce a new
pricing model to keep pace with an evolving practice. Other exchanges
have pricing programs in place that allow Distributors make ``Derived
Data'' available on a website or other electronic platform that is
branded by a third party, or co-branded by a Distributor and a third
party.\5\ The
[[Page 45150]]
proposed rule change would implement a new pricing structure for use of
Derived Data--i.e., the BZX Derived Data White Label Service Program
(the ``Program'')--that would compete with similar programs currently
offered on other equities markets.
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\5\ The Nasdaq Stock Market LLC (``Nasdaq''), for example,
operates a program whereby it charges Distributors that employ a
hosted display solution to distribute Derived Data taken from its
Nasdaq Basic product. See Securities Exchange Act Release No. 79228
(November 3, 2016), 81 FR 78890 (November 9, 2016) (SR-NASDAQ-2016-
144).
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``Derived Data'' is pricing data or other data that (i) is created
in whole or in part from Exchange Data, (ii) is not an index or
financial product, and (iii) cannot be readily
reverse[hyphen]engineered to recreate Exchange Data or used to create
other data that is a reasonable facsimile or substitute for Exchange
Data. The type of Derived Data subject to the proposed fee is taken
from BZX Top, which is a proprietary data product that provides top of
book quotations and execution information for all equity securities
traded on the Exchange.\6\
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\6\ See Rule 11.22(d).
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The Derived Data subject to the proposed fee is made available to
subscribers within a White Label Service which is a type of hosted
display solution in which a Distributor hosts or maintains a website or
platform on behalf of a third-party entity. The service allows
Distributors to make Derived Data available on a platform that is
branded with a third-party brand, or co-branded with a third party and
a Distributor. The Distributor maintains control of the application's
data, entitlements and display.
The White Label Service may be used for a number of different
purposes, to be determined by the Distributor. Possible uses include
the display of information or data, or the creation of derivative
instruments, such as swaps,\7\ swaptions,\8\ or contracts for
difference.\9\ The specific use of the data will be determined by the
Distributor, as the proposed fee will not depend on the purpose for
placing the Derived Data on a White Label Service.
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\7\ A swap is a derivative contract in which two parties agree
to exchange financial instruments.
\8\ A swaption, or swap option, is an option to enter into a
swap at a specified time.
\9\ A contract for difference is an agreement to exchange the
difference between the current value of an asset and its future
value. If the price increases, the seller pays the buyer the amount
of the increase. If the price decreases, the buyer pays the seller
the amount of the decrease.
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As proposed, a Distributor that provides a White Label Service for
Derived Data taken from BZX Top is liable for the following fees
instead of the fees normally applicable for the distribution of BZX
Top. First, instead of the regular fee for external distribution,
Distributors would be charged a tiered External Subscriber Fee based on
the number of White Label Service Platforms (i.e., ``External
Subscribers'') that receive Derived Data from the Distributor through a
White Label Service. Specifically, Distributors would be charged a fee
of: (1) $300 per month for each External Subscriber if the Distributor
makes Derived Data available to 1-5 External Subscribers; (2) $250 per
month for each External Subscriber if the Distributor makes Derived
Data available to 6-10 External Subscribers; and (3) $200 per month for
each External Subscriber if the Distributor makes Derived Data
available to 11 or more External Subscribers. The External Subscriber
Fee is non-progressive and, as mentioned above, is based on the number
of External Subscribers that receive Derived Data from the Distributor.
For example, a Distributor providing Derived Data based on BZX Top to
six External Subscribers would be charged a monthly fee of $1,500
(i.e., 6 External Subscribers x $250 each). Second, the Exchange would
charge a monthly Professional User fee of $4 per month for each
Professional User, which is equivalent to the current Professional User
fee for external distribution of BZX Top. There would be no monthly
Non-Professional User fee for accessing Derived Data through a White
Label Service.
The Program is entirely optional, in that it applies only to
Distributors that opt to use Derived Data from BZX Top to create a
White Label Service, as described herein. It does not impact or raise
the cost of any other Exchange product, nor does it affect the cost of
BZX Top, except in instances where Derived Data is made available on a
White Label Service. A Distributor that provides a White Label Service
for BZX Top data that is not Derived Data or distributes Derived Data
through a platform other than a White Label Service would be liable for
the fees normally applicable for the distribution of BZX Top.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\10\ in general, and
furthers the objectives of Section 6(b)(4),\11\ 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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\10\ 15 U.S.C. 78f.
\11\ 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 \12\ 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,\13\ 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.
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\12\ 15 U.S.C. 78k-1.
\13\ See 17 CFR 242.603.
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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.\14\
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\14\ 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 45151]]
The Exchange believes that the introduction of a fee for the use of
Derived Data on White Label Services is reasonable because: (i) All
proprietary data fees are constrained by the Exchange's need to compete
for order flow; and (ii) proprietary data fees are subject to market
competition from substitute products. The proposed rule change would
provide an alternate fee structure for providing BZX Top market data to
Distributors that make Derived Data available to External Subscribers
on White Label Services. The Exchange believes that this will encourage
additional Distributors to subscribe to BZX Top market data due to the
lower cost associated with Derived Data provided under the Program.
Nasdaq already has a similar pricing structure in place for providing
Derived Data through a hosted display solution.\15\ The Exchange
believes that Distributors of BZX Top market data would benefit from a
similar solution. Furthermore, the proposed fees are lower than those
currently in place on Nasdaq, which charges a fee of $400 per month for
each hosted display solution under their program,\16\ and may be
further lowered for Distributors of BZX Top Derived Data based on the
number of External Subscribers.
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\15\ See supra note 5.
\16\ Id.
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As proposed, if a Distributor uses a White Label Service to display
Derived Data, the Distributor will be charged a fee that is tiered
based on the number of External Subscribers that are provided access to
that data instead of the higher fee normally charged for external
distribution. The Exchange believes that this fee is equitable and not
unfairly discriminatory because the Exchange will apply the same fees
to all similarly situated Distributors based on the number of External
Subscribers provided access to Derived Data through a White Label
Service. Furthermore, the proposed fees will only apply to Distributors
that elect to participate in the Program by distributing Derived Data
through a White Label Service. BZX Top market data 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. Distributors of BZX Top are not required to participate
in the proposed Program, which is merely an alternative option being
proposed by the Exchange to potentially lower costs for market data
that is Derived Data. Accordingly, Distributors 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 to the tiered distribution fee described above, the
Exchange will continue to charge a small fee for Professional Users but
would eliminate Non-Professional User fees for data provided under the
Program. The Exchange believes that it is equitable and not unfairly
discriminatory to charge a fee for Professional Users but no fee for
Non-Professional Users. Non-Professional Users are already subject to a
heavily discounted fee for BZX Top market data relative to Professional
Users. Differential fees for Professional and Non-Professional Users
are widely used by the Exchange and other exchanges for their
proprietary market data as this reduces costs for retail investors and
makes market data more broadly available.
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 proposed program 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
for a similar product than the Exchange charges under the proposed fee
structure, prospective subscribers likely would not subscribe to, or
would cease subscribing to, the Program.
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 this data product 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.
The proposed fees apply to data derived from BZX Top, which is
subject to competition from the Nasdaq, NYSE, and other exchanges that
offer similar products, including exchanges that provide similar
pricing options for Derived Data made available on a White Label
Service. 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 subscribers. The existence of alternatives to BZX Top,
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
[[Page 45152]]
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
No written comments were either solicited or received.
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 \17\ and paragraph (f) of Rule 19b-4
thereunder.\18\ 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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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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-CboeBZX-2018-065 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-2018-065. 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 this filing will also 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-2018-065 and should be submitted
on or before September 26, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-19240 Filed 9-4-18; 8:45 am]
BILLING CODE 8011-01-P
