Self-Regulatory Organizations; NYSE National, Inc.; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Establish Fees for the NYSE National Integrated Feed, 6982-6986 [2020-02280]

Download as PDF 6982 Federal Register / Vol. 85, No. 25 / Thursday, February 6, 2020 / Notices FOR FURTHER INFORMATION CONTACT: SECURITIES AND EXCHANGE COMMISSION Sean Robinson, 202–268–8405. The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on January 31, 2020, it filed with the Postal Regulatory Commission a USPS Request to Add Priority Mail Contract 589 to Competitive Product List. Documents are available at www.prc.gov, Docket Nos. MC2020–88, CP2020–87. SUPPLEMENTARY INFORMATION: Sean Robinson, Attorney, Corporate and Postal Business Law. [FR Doc. 2020–02308 Filed 2–5–20; 8:45 am] BILLING CODE 7710–12–P POSTAL SERVICE Product Change—Priority Mail Negotiated Service Agreement AGENCY: ACTION: Postal ServiceTM. Notice. The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule’s Competitive Products List. SUMMARY: Date of required notice: February 6, 2020. DATES: FOR FURTHER INFORMATION CONTACT: Sean Robinson, 202–268–8405. The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on January 31, 2020, it filed with the Postal Regulatory Commission a USPS Request to Add Priority Mail Contract 592 to Competitive Product List. Documents are available at www.prc.gov, Docket Nos. MC2020–92, CP2020–91. SUPPLEMENTARY INFORMATION: Sean Robinson, Attorney, Corporate and Postal Business Law. [FR Doc. 2020–02312 Filed 2–5–20; 8:45 am] lotter on DSKBCFDHB2PROD with NOTICES BILLING CODE 7710–12–P VerDate Sep<11>2014 19:54 Feb 05, 2020 Jkt 250001 [Release No. 34–88109; File No. SR– NYSENAT–2019–31] Self-Regulatory Organizations; NYSE National, Inc.; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change To Establish Fees for the NYSE National Integrated Feed January 31, 2020. I. Introduction On December 4, 2019, NYSE National, Inc. (‘‘NYSE National’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to establish fees for the NYSE National Integrated Feed. The proposed rule change was immediately effective upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Act.3 The proposed rule change was published for comment in the Federal Register on December 26, 2019.4 The Commission received two comment letters on the proposal.5 Pursuant to Section 19(b)(3)(C) of the Act,6 the Commission is hereby: (1) Temporarily suspending the proposed rule change; and (2) instituting proceedings to determine whether to approve or disapprove the proposed rule change. II. Description of the Proposed Rule Change The Exchange proposes to establish fees for the NYSE National Integrated Feed and to make these fees operative 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take effect upon filing with the Commission if it is designated by the exchange as ‘‘establishing or changing a due, fee, or other charge imposed by the self-regulatory organization on any person, whether or not the person is a member of the self-regulatory organization.’’ 15 U.S.C. 78s(b)(3)(A)(ii). However, the Commission notes that, by its terms, the proposed rule change would not impose any fees for the NYSE National Integrated Feed until February 3, 2020. See infra note 7 and accompanying text. 4 See Securities Exchange Act Release No. 87797 (December 18, 2019), 84 FR 71025 (December 26, 2019) (‘‘Notice’’). 5 See Letter from Tyler Gellasch, Executive Director, The Healthy Markets Association, to Vanessa Countryman, Office of the Secretary, Commission, dated January 16, 2020 (‘‘Healthy Markets Letter’’); Letter from Robert Toomey, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association (‘‘SIFMA’’), to Vanessa Countryman, Secretary, Commission, dated January 21, 2020 (‘‘SIFMA Letter’’). 6 15 U.S.C. 78s(b)(3)(C). 2 17 PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 on February 3, 2020.7 According to the Exchange, the NYSE National Integrated Feed is a NYSE National-only market data feed that provides vendors and subscribers on a real-time basis with a unified view of events, in sequence, as they appear on the NYSE National matching engine.8 The NYSE National Integrated Feed includes depth-of-book order data, last sale data, security status updates (e.g., trade corrections and trading halts), and stock summary messages.9 It also includes information about the Exchange’s best bid or offer at any given time.10 The Exchange proposes the following fees for the NYSE National Integrated Feed: • $2,500 per month access fee, which would be charged (once per firm) to any data recipient that receives a data feed of the NYSE National Integrated Feed; 11 • $1,500 per month redistribution fee, which would be charged (once per redistributor account) to any redistributor 12 of the NYSE National Integrated Feed; • $10 per month professional per user fee and $1 per month non-professional per user fee, which would apply to each display device that has access to the NYSE National Integrated Feed; 13 • Non-display use 14 fees: 7 The Exchange currently does not charge any fees for the NYSE National Integrated Feed. See Notice, supra note 4, at 71026. 8 See id. 9 See id. 10 See id. 11 Data recipients that only use display devices to view NYSE National Integrated Feed data and do not separately receive a data feed would not be charged an access fee. See id. 12 A redistributor would be a vendor or person that provides a real-time NYSE National market data product externally to a data recipient that is not its affiliate or wholly owned subsidiary, or to any system that an external data recipient uses, irrespective of the means of transmission or access. See id. 13 See id. 14 Non-display use would mean accessing, processing, or consuming the NYSE National Integrated Feed, delivered directly or through a redistributor, for a purpose other than in support of a data recipient’s display or further internal or external redistribution. See id. at 71026–27. As proposed, non-display use would include trading uses such as high frequency or algorithmic trading, as well as any trading in any asset class, automated order or quote generation and order pegging, price referencing for algorithmic trading or smart order routing, operations controls programs, investment analysis, order verification, surveillance programs, risk management, compliance, and portfolio management. See id. at 71027. One, two, or three categories of non-display use may apply to a data recipient. See id. Moreover, data recipients that receive the NYSE National Integrated Feed for nondisplay use would be required to complete and submit a non-display use declaration before they would be authorized to receive the feed. See id. In addition, if a data recipient’s use of the NYSE National Integrated Feed data changes at any time after the data recipient submits a non-display use declaration, the data recipient must inform the E:\FR\FM\06FEN1.SGM 06FEN1 Federal Register / Vol. 85, No. 25 / Thursday, February 6, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES Æ $5,000 per month category 1 nondisplay fee, which would apply when a data recipient’s non-display use of realtime market data is on its own behalf; Æ $5,000 per month category 2 nondisplay fee, which would apply when a data recipient’s non-display use of realtime data is on behalf of its clients; Æ $5,000 per platform per month category 3 non-display fee (capped at $15,000), which would apply when a data recipient’s non-display use of realtime market data is for the purpose of internally matching buy and sell orders within an organization, including matching customer orders on a data recipient’s own behalf and on behalf of its clients; 15 • $1,000 per month non-display use declaration late fee, which would apply to any data recipient that is paying an access fee for the NYSE National Integrated Feed and that fails to complete and submit the annual nondisplay use declaration by December 31 of the year, and would apply beginning January 1 and for each month thereafter until the data recipient has completed and submitted the annual non-display use declaration; 16 and • $200 per month multiple data feed fee, which would apply to any data recipient that takes a data feed for a market data product in more than two locations, and would apply to each location, beyond the first two locations, where the data recipient receives a data feed.17 The access fees, professional user fees, and non-display fees would not apply to Federal agencies 18 that subscribe to the products listed on the proposed fee schedule that includes such fees.19 Exchange of the change by completing and submitting an updated declaration reflecting the change of use at the time of the change. See id. 15 According to the Exchange, category 3 nondisplay fees would apply to non-display use in trading platforms, such as, but not limited to, alternative trading systems (‘‘ATSs’’), broker crossing networks, broker crossing systems not filed as ATSs, dark pools, multilateral trading facilities, exchanges, and systematic internalization systems. See id. 16 See id. 17 See id. 18 The term ‘‘Federal agencies’’ as used in the proposed fee schedule would include all Federal agencies subject to the Federal Acquisition Regulation (‘‘FAR’’), as well as any Federal agency not subject to FAR that has promulgated its own procurement rules. See id. All Federal agencies that subscribe to the NYSE National real-time proprietary market data products would continue to be required to execute the appropriate subscriber agreement, which includes, among other things, provisions against the redistribution of data. See id. at 70128. 19 The proposed fee schedule lists NYSE National BBO, NYSE National Trades, and NYSE National Integrated Feed, and specifies that there would be no fees for NYSE National BBO and NYSE National Trades. VerDate Sep<11>2014 19:54 Feb 05, 2020 Jkt 250001 Finally, first-time subscribers 20 would be eligible for a free trial by contacting the Exchange and would not be charged the access fee, the nondisplay fee, any applicable professional and non-professional user fee, and the redistribution fee for one calendar month for each of the products listed on the proposed fee schedule.21 The free trial would be for the first full calendar month following the date a subscriber is approved to receive trial access to NYSE National market data.22 As proposed, the Exchange would provide the onemonth free trial for a particular product to each subscriber only once. III. Suspension of the Proposed Rule Change Pursuant to Section 19(b)(3)(C) of the Act,23 at any time within 60 days of the date of filing of an immediately effective proposed rule change pursuant to Section 19(b)(1) of the Act,24 the Commission summarily may temporarily suspend the change in the rules of a self-regulatory organization (‘‘SRO’’) 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. As discussed below, the Commission believes a temporary suspension of the proposed rule change is necessary and appropriate to allow for additional analysis of the proposed rule change’s consistency with the Act and the rules thereunder. The Exchange proposes to adopt fees for the NYSE National Integrated Feed and provides various arguments to support the proposal’s consistency with the Act. With respect to whether the proposed fees are reasonable, the Exchange states that exchanges in general function as platforms between consumers of market data and consumers of trading services, and that overall competition between exchanges will limit their overall profitability.25 In connection with these arguments, the Exchange also attaches a report by Marc Rysman,26 which finds that the introduction of the NYSE Integrated Feed in 2015 attracted more trading to 20 A first-time subscriber would be any firm that has not previously subscribed to a particular product listed on the proposed fee schedule. See Notice, supra note 4, at 70128. 21 See id. 22 See id. 23 15 U.S.C. 78s(b)(3)(C). 24 15 U.S.C. 78s(b)(1). 25 See Notice, supra note 4, at 71030. 26 See Marc Rysman, Stock Exchanges as Platforms for Data and Trading (December 2, 2019) (‘‘Rysman Paper’’), available at https:// www.sec.gov/rules/sro/nysenat/2019/34-87797ex3b.pdf. PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 6983 NYSE by both subscribers and nonsubscribers to the NYSE Integrated Feed,27 and concludes that overall competition between exchanges will limit their overall profitability (not margins on any particular side of the platform).28 According to the Exchange, given the conclusion in the Rysman Paper that exchanges are platforms for market data and transaction services, competition for order flow on the trading side of the platform acts to constrain the pricing of market data on the other side of the platform.29 In addition, the Exchange argues that, due to the ready availability of substitutes and the low cost to move order flow to the substitute trading venues, an exchange setting market data fees that are not at competitive levels would expect to quickly lose business to alternative platforms with more attractive pricing.30 The Exchange argues that subscribing to the NYSE National Integrated Feed is optional, that its customers may choose to discontinue using the feed once the proposed fees are effective, and that any customers who choose to discontinue using the feed may choose to shift order flow away from the Exchange.31 Similarly, the Exchange argues that its market data pricing is constrained by the availability of numerous substitute platforms offering competing proprietary market data products and trading services.32 Moreover, the Exchange argues that its market data is sold in a competitive market and attaches a report by Charles M. Jones,33 which concludes that exchanges compete with each other in selling proprietary market data products, as well as with consolidated data feeds and with data provided by ATSs.34 The Exchange also more 27 The Exchange also states that, since May 2018, when NYSE National relaunched trading, the Exchange has observed a direct correlation between the steady increase of subscribers to the NYSE National Integrated Feed and the increase in the Exchange’s transaction market share volume over the same period. See Notice, supra note 4, at 71028. The Exchange states that, over an 18-month period since it commenced operations in May 2018, it has grown from 0% to nearly 2% market share of consolidated trading volume, and the number of NYSE National Integrated Feed subscribers increased from 12 to 56. See id. at 71028, 71031. 28 See id. at 71030. 29 See id. at 71031. 30 See id. 31 See id. at 71029, 71031. 32 See id. at 71031. 33 See Charles M. Jones, Understanding the Market for U.S. Equity Market Data (August 31, 2018) (‘‘Jones Paper’’), available at https:// www.sec.gov/rules/sro/nysenat/2019/34-87797ex3a.pdf. 34 See Notice, supra note 4, at 71029. The Jones Paper also states that the market for order flow and E:\FR\FM\06FEN1.SGM Continued 06FEN1 6984 Federal Register / Vol. 85, No. 25 / Thursday, February 6, 2020 / Notices lotter on DSKBCFDHB2PROD with NOTICES specifically argues that NYSE National BBO (which includes best bid and offer information for NYSE National on a real-time basis), NYSE National Trades (which includes NYSE National last sale information on a real-time basis), and consolidated data feeds are substitutes for the NYSE National Integrated Feed and constrain the Exchange’s ability to charge supracompetitive prices for the feed.35 With respect to the other requirements under the Act, the Exchange argues that the proposed fees are equitably allocated and are not unfairly discriminatory because they would apply on an equal basis to all data recipients that choose to subscribe to the data in a manner that is subject to an applicable fee and because any differences among categories of users are justified.36 Specifically, the Exchange argues that the professional and non-professional user fee structure has long been used by the Exchange to reduce the price of data to nonprofessional users and make it more broadly available, and that the nondisplay fee structure results in subscribers with greater uses of the data paying higher fees and subscribers with fewer uses of the data paying lower fees.37 For similar reasons, and because it claims numerous substitute market data products are available, the Exchange argues that the proposed fees do not impose an unnecessary or inappropriate burden on competition.38 With respect to the redistribution fee, the Exchange argues that the proposed fee is reasonable, equitable, and not unfairly discriminatory because vendors that would be charged the proposed fee would profit by re-transmitting the Exchange’s market data to their customers.39 Similarly, with respect to category 3 non-display fees, which would be charged to each trading platform on which the customer uses non-display data (capped at three platforms), the Exchange argues that the proposal is reasonable, equitable, and not unfairly discriminatory because such use of data is directly in competition with the Exchange and the Exchange should be permitted to recoup some of its lost trading revenue by charging for the data that makes such competition possible.40 the market for market data are closely linked, and that an exchange needs to consider the negative impact on its order flow if it raises the price of market data. See id. 35 See id. at 71032. 36 See id. at 71034–36. 37 See id. 38 See id. at 71036. 39 See id. at 71032. 40 See id. at 71033, 71035–36. VerDate Sep<11>2014 19:54 Feb 05, 2020 Jkt 250001 Finally, with respect to the nondisplay use declaration late fee and the multiple data feed fee, the Exchange claims that these fees are reasonable, equitable, and not unfairly discriminatory because they would offset the Exchange’s administrative burdens and costs associated with incorrect billing, late payments, and tracking data usage locations.41 The Commission received two comment letters that express concerns regarding the proposed rule change. One commenter states that the Exchange does not provide sufficient information to establish that the proposed fees are consistent with the Act and Commission rules.42 This commenter states its belief that the Exchange’s discussions regarding the reasonableness of the proposed fees (i.e., the comparison to similar fees charged by affiliated exchanges, the nature of the market for order flow, the availability of other data options, and the lack of a relation between the proposed fees and the costs of production) do not support a finding that the proposed fees are reasonable.43 This commenter also states that the Exchange does not provide any information about the costs of production for the NYSE National Integrated Feed, how much revenue the Exchange projects to generate from the proposed fees, how the proposed fees would impact subscribers, the competition between subscribers and non-subscribers, and how the proposed fees would be equitably allocated and would not impose any undue burden on competition.44 In addition, the commenter states that the Exchange does not provide any information about the latency difference between the NYSE National Integrated Feed and the consolidated data feed or other methods of getting comparable data.45 Moreover, this commenter questions the Exchange’s assertion that market participants have the ability to choose whether or not to connect to the NYSE National Integrated Feed and believes instead that many market participants must buy the feed.46 The commenter also objects to what it describes as conflicting statements by the Exchange: That the NYSE National Integrated Feed 41 See id. at 71033–36. Healthy Markets Letter, supra note 5. 43 See id. at 5. 44 See id. at 5–6. 45 See id. at 6. 46 See id. at 3–4. The commenter states that a market participant that does not purchase the NYSE National Integrated Feed would be at a competitive disadvantage to firms that have purchased it and questions how a non-purchasing broker could provide best execution to its customers. See id. at 4. 42 See PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 is valuable to market participants, but that the feed is also not essential for market participants because it can be sufficiently replaced by substitutes.47 Another commenter also states that the Exchange fails to provide the necessary information to demonstrate that the proposed fees meet the requirements of the Act.48 This commenter similarly argues that the NYSE National Integrated Feed is not subject to competitive forces because there are no available substitutes for the Exchange’s depth-of-book product.49 The commenter also claims that depthof-book information is ‘‘essential’’ for many broker-dealers to provide customers with the best and most competitive order routing capabilities and execution quality, and that the Exchange is the exclusive purveyor of that information.50 With respect to competition by data vendors, the commenter argues that because any vendors must first purchase the data from the Exchange (subject to the Exchange’s terms and pricing) before being able to resell such data, these vendors cannot offer a competing product.51 In addition, this commenter disagrees that fees for the NYSE National Integrated Feed will be constrained by competition for order flow under the ‘‘platform theory’’ of competition.52 The commenter argues that the decision of where to trade occurs in milliseconds, while market data is purchased and charged monthly, independent of decisions on where to trade.53 The commenter also states that not all purchasers of market data execute trades solely on exchanges, which limits the theoretical ability to constrain market data prices by routing order flow to other exchanges.54 Moreover, the commenter cites a report by Lawrence R. Glosten to support its claim that exchanges have little incentive to reduce the prices for their own market data, because any theoretical increase in demand would be shared with other exchanges.55 The commenter further 47 See id. at 5. SIFMA Letter, supra note 5, at 1. 49 See id. at 2. Specifically, the commenter states that the Exchange cites alternatives to the NYSE National Integrated Feed that do not contain depthof-book information, which the commenter claims are ‘‘inferior products.’’ See id. 50 See id. 51 See id. 52 See id. 53 See id. 54 See id. 55 See id. (citing Lawrence R. Glosten, Economics of the Stock Exchange Business: Proprietary Market Data (January 2020), available at https:// www.sec.gov/comments/4-729/4729-6678493203560.pdf). 48 See E:\FR\FM\06FEN1.SGM 06FEN1 Federal Register / Vol. 85, No. 25 / Thursday, February 6, 2020 / Notices states that the exchanges have yet to show an increase (or decrease) in trading volume after reducing (or increasing) a respective exchange’s price of market data.56 Lastly, this commenter argues that the Exchange fails to provide supporting information for its claim that the proposed fees for the NYSE National Integrated Feed are based on the purported increased value of such data as measured by the Exchange’s expanded market share.57 The commenter states that, during the same May 2018 to December 2019 time period that NYSE National’s market share increased from 0% to 2.12%, the market shares of New York Stock Exchange LLC (‘‘NYSE’’) and NYSE Arca, Inc. decreased, but neither exchange responded by reducing the cost of its market data.58 The commenter thus asserts that the Exchange’s proposal would ‘‘significantly increase the overall cost of market data for NYSE exchanges when the overall market share for NYSE exchanges increased by only 0.34% from May 2018 to December 2019.’’ 59 The commenter believes that the Exchange has offered no evidence to show that competition for order flow constrains the price for market data and that the Exchange should provide additional information on the cost of its market data to support its proposal.60 When exchanges file their proposed rule changes with the Commission, including fee filings like the Exchange’s present proposal, they are required to provide a statement supporting the proposal’s basis under the Act and the rules and regulations thereunder applicable to the exchange.61 The instructions to Form 19b–4, on which exchanges file their proposed rule changes, specify that such statement ‘‘should be sufficiently detailed and specific to support a finding that the proposed rule change is consistent with [those] requirements.’’ 62 Section 6 of the Act, including Sections 6(b)(4), (5), and (8), require the rules of an exchange to: (1) Provide for 56 See id. id. 58 See id. The commenter also states that the market share of NYSE Chicago, Inc. decreased during this period. See id. Moreover, the commenter states that the market share of NYSE American LLC (‘‘NYSE American’’) increased during this period and that NYSE American similarly charges various fees for its market data products. See id. 59 Id. at 3 (footnote omitted). 60 See id. 61 See 17 CFR 240.19b–4 (Item 3 entitled ‘‘SelfRegulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change’’). 62 See id. lotter on DSKBCFDHB2PROD with NOTICES 57 See VerDate Sep<11>2014 19:54 Feb 05, 2020 Jkt 250001 the equitable allocation of reasonable fees among members, issuers, and other persons using the exchange’s facilities; 63 (2) perfect the mechanism of a free and open market and a national market system, protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers; 64 and (3) not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.65 In temporarily suspending the Exchange’s proposed rule change, the Commission intends to further consider whether the proposal to establish fees for the NYSE National Integrated Feed is consistent with the statutory requirements applicable to a national securities exchange under the Act. In particular, the Commission will consider whether the proposed rule change satisfies the standards under the Act and the rules thereunder requiring, among other things, that an exchange’s rules provide for the equitable allocation of reasonable fees among members, issuers, and other persons using its facilities; not permit unfair discrimination between customers, issuers, brokers or dealers; and do not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.66 Therefore, the Commission finds that it is appropriate in the public interest, for the protection of investors, and otherwise in furtherance of the purposes of the Act, to temporarily suspend the proposed rule change.67 IV. Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change In addition to temporarily suspending the proposal, the Commission also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 68 and 19(b)(2)(B) of the Act 69 to determine whether the Exchange’s proposed rule change should be approved or disapproved. Institution of proceedings does not 63 15 U.S.C. 78f(b)(4). U.S.C. 78f(b)(5). 65 15 U.S.C. 78f(b)(8). 66 See 15 U.S.C. 78f(b)(4), (5), and (8), respectively. 67 For purposes of temporarily suspending the proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 68 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily suspends a proposed rule change, Section 19(b)(3)(C) of the Act requires that the Commission institute proceedings under Section 19(b)(2)(B) to determine whether a proposed rule change should be approved or disapproved. 69 15 U.S.C. 78s(b)(2)(B). 64 15 PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 6985 indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, the Commission seeks and encourages interested persons to provide additional comment on the proposed rule change to inform the Commission’s analysis of whether to approve or disapprove the proposed rule change. Pursuant to Section 19(b)(2)(B) of the Act,70 the Commission is providing notice of the grounds for possible disapproval under consideration: • Whether the Exchange has demonstrated how its proposed fees are consistent with Section 6(b)(4) of the Act, which requires that the rules of a national securities exchange ‘‘provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities’’; 71 • Whether the Exchange has demonstrated how its proposed fees are consistent with Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange not be ‘‘designed to permit unfair discrimination between customers, issuers, brokers, or dealers’’; 72 and • Whether the Exchange has demonstrated how its proposed fees are consistent with Section 6(b)(8) of the Act, which requires that the rules of a national securities exchange ‘‘not impose any burden on competition not necessary or appropriate in furtherance of the purposes of [the Act].’’ 73 As discussed in Section III above, the Exchange made various arguments in support of its proposal and the Commission received two comment letters that expressed concerns regarding the proposal, including in particular that the Exchange did not provide sufficient information to establish that the proposed fees are consistent with the Act and the rules thereunder. Under the Commission’s Rules of Practice, the ‘‘burden to demonstrate that a proposed rule change is consistent with the [Act] and the rules and regulations issued thereunder . . . is on the [SRO] that proposed the rule 70 Id. Section 19(b)(2)(B) of the Act also provides that proceedings to determine whether to disapprove a proposed rule change must be concluded within 180 days of the date of publication of notice of the filing of the proposed rule change. See id. The time for conclusion of the proceedings may be extended for up to 60 days if the Commission finds good cause for such extension and publishes its reasons for so finding, or if the exchange consents to the longer period. See id. 71 15 U.S.C. 78f(b)(4). 72 15 U.S.C. 78f(b)(5). 73 15 U.S.C. 78f(b)(8). E:\FR\FM\06FEN1.SGM 06FEN1 6986 Federal Register / Vol. 85, No. 25 / Thursday, February 6, 2020 / Notices change.’’ 74 The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding,75 and any failure of an SRO to provide this information may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Act and the applicable rules and regulations.76 The Commission is instituting proceedings to allow for additional consideration and comment on the issues raised herein, including as to whether the proposed fees are consistent with the Act, and specifically, with its requirements that exchange fees be reasonable and equitably allocated, not be unfairly discriminatory, and not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.77 V. Commission’s Solicitation of Comments The Commission requests written views, data, and arguments with respect to the concerns identified above as well as any other relevant concerns. Such comments should be submitted by February 27, 2020. Rebuttal comments should be submitted by March 12, 2020. Although there do not appear to be any issues relevant to approval or disapproval that would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b-4, any request for an opportunity to make an oral presentation.78 The Commission asks that commenters address the sufficiency and merit of the Exchange’s statements in support of the proposal, in addition to any other comments they may wish to submit about the proposed rule change. Interested persons are invited to submit written data, views, and arguments concerning the proposed rule change, including whether the proposed rule change is consistent with the Act. lotter on DSKBCFDHB2PROD with NOTICES 74 17 CFR 201.700(b)(3). 75 See id. 76 See id. 77 See 15 U.S.C. 78f(b)(4), (5), and (8). 78 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the Commission flexibility to determine what type of proceeding—either oral or notice and opportunity for written comments—is appropriate for consideration of a particular proposal by an SRO. See Securities Acts Amendments of 1975, Report of the Senate Committee on Banking, Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). VerDate Sep<11>2014 19:54 Feb 05, 2020 Jkt 250001 Comments may be submitted by any of the following methods: proposed rule change should be approved or disapproved. Electronic Comments For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.80 J. Matthew DeLesDernier, Assistant Secretary. • 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 No. SR– NYSENAT–2019–31 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 No. SR–NYSENAT–2019–31. The 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 publicly available. All submissions should refer to File No. SR–NYSENAT–2019–31 and should be submitted on or before February 27, 2020. Rebuttal comments should be submitted by March 12, 2020. VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(3)(C) of the Act,79 that File No. SR–NYSENAT–2019–31, be and hereby is, temporarily suspended. In addition, the Commission is instituting proceedings to determine whether the 79 15 PO 00000 U.S.C. 78s(b)(3)(C). Frm 00094 Fmt 4703 [FR Doc. 2020–02280 Filed 2–5–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release Nos. 33–10752; 34–88113; File No. 265–28] Investor Advisory Committee Meeting Securities and Exchange Commission. ACTION: Notice of public meeting of Securities and Exchange Commission Investor Advisory Committee. AGENCY: The Securities and Exchange Commission Investor Advisory Committee, established pursuant to Section 911 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is providing notice that it will hold a public meeting. The public is invited to submit written statements to the Committee. DATES: The meeting will be held on Thursday, February 27, 2020 from 9:30 a.m. until 3:00 p.m. (ET). Written statements should be received on or before February 27, 2020. ADDRESSES: The meeting will be held in Multi-Purpose Room LL–006 at the Commission’s headquarters, 100 F Street NE, Washington, DC 20549. The meeting will be webcast on the Commission’s website at www.sec.gov. Written statements may be submitted by any of the following methods: SUMMARY: Electronic Statements D Use the Commission’s internet submission form (https://www.sec.gov/ rules/other.shtml); or D Send an email message to rulescomments@sec.gov. Please include File No. 265–28 on the subject line; or Paper Statements D Send paper statements to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. All submissions should refer to File No. 265–28. This file number should be included on the subject line if email is used. To help us process and review your statement more efficiently, please use only one method. 80 17 Sfmt 4703 E:\FR\FM\06FEN1.SGM CFR 200.30–3(a)(57) and (58). 06FEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 25 (Thursday, February 6, 2020)]
[Notices]
[Pages 6982-6986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-02280]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88109; File No. SR-NYSENAT-2019-31]


Self-Regulatory Organizations; NYSE National, Inc.; Suspension of 
and Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change To Establish Fees for the NYSE 
National Integrated Feed

January 31, 2020.

I. Introduction

    On December 4, 2019, NYSE National, Inc. (``NYSE National'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to establish fees for the NYSE National Integrated 
Feed. The proposed rule change was immediately effective upon filing 
with the Commission pursuant to Section 19(b)(3)(A) of the Act.\3\ The 
proposed rule change was published for comment in the Federal Register 
on December 26, 2019.\4\ The Commission received two comment letters on 
the proposal.\5\ Pursuant to Section 19(b)(3)(C) of the Act,\6\ the 
Commission is hereby: (1) Temporarily suspending the proposed rule 
change; and (2) instituting proceedings to determine whether to approve 
or disapprove the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A). A proposed rule change may take 
effect upon filing with the Commission if it is designated by the 
exchange as ``establishing or changing a due, fee, or other charge 
imposed by the self-regulatory organization on any person, whether 
or not the person is a member of the self-regulatory organization.'' 
15 U.S.C. 78s(b)(3)(A)(ii). However, the Commission notes that, by 
its terms, the proposed rule change would not impose any fees for 
the NYSE National Integrated Feed until February 3, 2020. See infra 
note 7 and accompanying text.
    \4\ See Securities Exchange Act Release No. 87797 (December 18, 
2019), 84 FR 71025 (December 26, 2019) (``Notice'').
    \5\ See Letter from Tyler Gellasch, Executive Director, The 
Healthy Markets Association, to Vanessa Countryman, Office of the 
Secretary, Commission, dated January 16, 2020 (``Healthy Markets 
Letter''); Letter from Robert Toomey, Managing Director and 
Associate General Counsel, Securities Industry and Financial Markets 
Association (``SIFMA''), to Vanessa Countryman, Secretary, 
Commission, dated January 21, 2020 (``SIFMA Letter'').
    \6\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The Exchange proposes to establish fees for the NYSE National 
Integrated Feed and to make these fees operative on February 3, 
2020.\7\ According to the Exchange, the NYSE National Integrated Feed 
is a NYSE National-only market data feed that provides vendors and 
subscribers on a real-time basis with a unified view of events, in 
sequence, as they appear on the NYSE National matching engine.\8\ The 
NYSE National Integrated Feed includes depth-of-book order data, last 
sale data, security status updates (e.g., trade corrections and trading 
halts), and stock summary messages.\9\ It also includes information 
about the Exchange's best bid or offer at any given time.\10\ The 
Exchange proposes the following fees for the NYSE National Integrated 
Feed:
---------------------------------------------------------------------------

    \7\ The Exchange currently does not charge any fees for the NYSE 
National Integrated Feed. See Notice, supra note 4, at 71026.
    \8\ See id.
    \9\ See id.
    \10\ See id.
---------------------------------------------------------------------------

     $2,500 per month access fee, which would be charged (once 
per firm) to any data recipient that receives a data feed of the NYSE 
National Integrated Feed; \11\
---------------------------------------------------------------------------

    \11\ Data recipients that only use display devices to view NYSE 
National Integrated Feed data and do not separately receive a data 
feed would not be charged an access fee. See id.
---------------------------------------------------------------------------

     $1,500 per month redistribution fee, which would be 
charged (once per redistributor account) to any redistributor \12\ of 
the NYSE National Integrated Feed;
---------------------------------------------------------------------------

    \12\ A redistributor would be a vendor or person that provides a 
real-time NYSE National market data product externally to a data 
recipient that is not its affiliate or wholly owned subsidiary, or 
to any system that an external data recipient uses, irrespective of 
the means of transmission or access. See id.
---------------------------------------------------------------------------

     $10 per month professional per user fee and $1 per month 
non-professional per user fee, which would apply to each display device 
that has access to the NYSE National Integrated Feed; \13\
---------------------------------------------------------------------------

    \13\ See id.
---------------------------------------------------------------------------

     Non-display use \14\ fees:
---------------------------------------------------------------------------

    \14\ Non-display use would mean accessing, processing, or 
consuming the NYSE National Integrated Feed, delivered directly or 
through a redistributor, for a purpose other than in support of a 
data recipient's display or further internal or external 
redistribution. See id. at 71026-27. As proposed, non-display use 
would include trading uses such as high frequency or algorithmic 
trading, as well as any trading in any asset class, automated order 
or quote generation and order pegging, price referencing for 
algorithmic trading or smart order routing, operations controls 
programs, investment analysis, order verification, surveillance 
programs, risk management, compliance, and portfolio management. See 
id. at 71027. One, two, or three categories of non-display use may 
apply to a data recipient. See id. Moreover, data recipients that 
receive the NYSE National Integrated Feed for non-display use would 
be required to complete and submit a non-display use declaration 
before they would be authorized to receive the feed. See id. In 
addition, if a data recipient's use of the NYSE National Integrated 
Feed data changes at any time after the data recipient submits a 
non-display use declaration, the data recipient must inform the 
Exchange of the change by completing and submitting an updated 
declaration reflecting the change of use at the time of the change. 
See id.

---------------------------------------------------------------------------

[[Page 6983]]

    [cir] $5,000 per month category 1 non-display fee, which would 
apply when a data recipient's non-display use of real-time market data 
is on its own behalf;
    [cir] $5,000 per month category 2 non-display fee, which would 
apply when a data recipient's non-display use of real-time data is on 
behalf of its clients;
    [cir] $5,000 per platform per month category 3 non-display fee 
(capped at $15,000), which would apply when a data recipient's non-
display use of real-time market data is for the purpose of internally 
matching buy and sell orders within an organization, including matching 
customer orders on a data recipient's own behalf and on behalf of its 
clients; \15\
---------------------------------------------------------------------------

    \15\ According to the Exchange, category 3 non-display fees 
would apply to non-display use in trading platforms, such as, but 
not limited to, alternative trading systems (``ATSs''), broker 
crossing networks, broker crossing systems not filed as ATSs, dark 
pools, multilateral trading facilities, exchanges, and systematic 
internalization systems. See id.
---------------------------------------------------------------------------

     $1,000 per month non-display use declaration late fee, 
which would apply to any data recipient that is paying an access fee 
for the NYSE National Integrated Feed and that fails to complete and 
submit the annual non-display use declaration by December 31 of the 
year, and would apply beginning January 1 and for each month thereafter 
until the data recipient has completed and submitted the annual non-
display use declaration; \16\ and
---------------------------------------------------------------------------

    \16\ See id.
---------------------------------------------------------------------------

     $200 per month multiple data feed fee, which would apply 
to any data recipient that takes a data feed for a market data product 
in more than two locations, and would apply to each location, beyond 
the first two locations, where the data recipient receives a data 
feed.\17\
---------------------------------------------------------------------------

    \17\ See id.
---------------------------------------------------------------------------

    The access fees, professional user fees, and non-display fees would 
not apply to Federal agencies \18\ that subscribe to the products 
listed on the proposed fee schedule that includes such fees.\19\
---------------------------------------------------------------------------

    \18\ The term ``Federal agencies'' as used in the proposed fee 
schedule would include all Federal agencies subject to the Federal 
Acquisition Regulation (``FAR''), as well as any Federal agency not 
subject to FAR that has promulgated its own procurement rules. See 
id. All Federal agencies that subscribe to the NYSE National real-
time proprietary market data products would continue to be required 
to execute the appropriate subscriber agreement, which includes, 
among other things, provisions against the redistribution of data. 
See id. at 70128.
    \19\ The proposed fee schedule lists NYSE National BBO, NYSE 
National Trades, and NYSE National Integrated Feed, and specifies 
that there would be no fees for NYSE National BBO and NYSE National 
Trades.
---------------------------------------------------------------------------

    Finally, first-time subscribers \20\ would be eligible for a free 
trial by contacting the Exchange and would not be charged the access 
fee, the non-display fee, any applicable professional and non-
professional user fee, and the redistribution fee for one calendar 
month for each of the products listed on the proposed fee schedule.\21\ 
The free trial would be for the first full calendar month following the 
date a subscriber is approved to receive trial access to NYSE National 
market data.\22\ As proposed, the Exchange would provide the one-month 
free trial for a particular product to each subscriber only once.
---------------------------------------------------------------------------

    \20\ A first-time subscriber would be any firm that has not 
previously subscribed to a particular product listed on the proposed 
fee schedule. See Notice, supra note 4, at 70128.
    \21\ See id.
    \22\ See id.
---------------------------------------------------------------------------

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\23\ at any time within 
60 days of the date of filing of an immediately effective proposed rule 
change pursuant to Section 19(b)(1) of the Act,\24\ the Commission 
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') 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. As discussed below, the Commission believes a temporary 
suspension of the proposed rule change is necessary and appropriate to 
allow for additional analysis of the proposed rule change's consistency 
with the Act and the rules thereunder.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(C).
    \24\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    The Exchange proposes to adopt fees for the NYSE National 
Integrated Feed and provides various arguments to support the 
proposal's consistency with the Act. With respect to whether the 
proposed fees are reasonable, the Exchange states that exchanges in 
general function as platforms between consumers of market data and 
consumers of trading services, and that overall competition between 
exchanges will limit their overall profitability.\25\ In connection 
with these arguments, the Exchange also attaches a report by Marc 
Rysman,\26\ which finds that the introduction of the NYSE Integrated 
Feed in 2015 attracted more trading to NYSE by both subscribers and 
non-subscribers to the NYSE Integrated Feed,\27\ and concludes that 
overall competition between exchanges will limit their overall 
profitability (not margins on any particular side of the platform).\28\ 
According to the Exchange, given the conclusion in the Rysman Paper 
that exchanges are platforms for market data and transaction services, 
competition for order flow on the trading side of the platform acts to 
constrain the pricing of market data on the other side of the 
platform.\29\
---------------------------------------------------------------------------

    \25\ See Notice, supra note 4, at 71030.
    \26\ See Marc Rysman, Stock Exchanges as Platforms for Data and 
Trading (December 2, 2019) (``Rysman Paper''), available at https://www.sec.gov/rules/sro/nysenat/2019/34-87797-ex3b.pdf.
    \27\ The Exchange also states that, since May 2018, when NYSE 
National relaunched trading, the Exchange has observed a direct 
correlation between the steady increase of subscribers to the NYSE 
National Integrated Feed and the increase in the Exchange's 
transaction market share volume over the same period. See Notice, 
supra note 4, at 71028. The Exchange states that, over an 18-month 
period since it commenced operations in May 2018, it has grown from 
0% to nearly 2% market share of consolidated trading volume, and the 
number of NYSE National Integrated Feed subscribers increased from 
12 to 56. See id. at 71028, 71031.
    \28\ See id. at 71030.
    \29\ See id. at 71031.
---------------------------------------------------------------------------

    In addition, the Exchange argues that, due to the ready 
availability of substitutes and the low cost to move order flow to the 
substitute trading venues, an exchange setting market data fees that 
are not at competitive levels would expect to quickly lose business to 
alternative platforms with more attractive pricing.\30\ The Exchange 
argues that subscribing to the NYSE National Integrated Feed is 
optional, that its customers may choose to discontinue using the feed 
once the proposed fees are effective, and that any customers who choose 
to discontinue using the feed may choose to shift order flow away from 
the Exchange.\31\ Similarly, the Exchange argues that its market data 
pricing is constrained by the availability of numerous substitute 
platforms offering competing proprietary market data products and 
trading services.\32\
---------------------------------------------------------------------------

    \30\ See id.
    \31\ See id. at 71029, 71031.
    \32\ See id. at 71031.
---------------------------------------------------------------------------

    Moreover, the Exchange argues that its market data is sold in a 
competitive market and attaches a report by Charles M. Jones,\33\ which 
concludes that exchanges compete with each other in selling proprietary 
market data products, as well as with consolidated data feeds and with 
data provided by ATSs.\34\ The Exchange also more

[[Page 6984]]

specifically argues that NYSE National BBO (which includes best bid and 
offer information for NYSE National on a real-time basis), NYSE 
National Trades (which includes NYSE National last sale information on 
a real-time basis), and consolidated data feeds are substitutes for the 
NYSE National Integrated Feed and constrain the Exchange's ability to 
charge supracompetitive prices for the feed.\35\
---------------------------------------------------------------------------

    \33\ See Charles M. Jones, Understanding the Market for U.S. 
Equity Market Data (August 31, 2018) (``Jones Paper''), available at 
https://www.sec.gov/rules/sro/nysenat/2019/34-87797-ex3a.pdf.
    \34\ See Notice, supra note 4, at 71029. The Jones Paper also 
states that the market for order flow and the market for market data 
are closely linked, and that an exchange needs to consider the 
negative impact on its order flow if it raises the price of market 
data. See id.
    \35\ See id. at 71032.
---------------------------------------------------------------------------

    With respect to the other requirements under the Act, the Exchange 
argues that the proposed fees are equitably allocated and are not 
unfairly discriminatory because they would apply on an equal basis to 
all data recipients that choose to subscribe to the data in a manner 
that is subject to an applicable fee and because any differences among 
categories of users are justified.\36\ Specifically, the Exchange 
argues that the professional and non-professional user fee structure 
has long been used by the Exchange to reduce the price of data to non-
professional users and make it more broadly available, and that the 
non-display fee structure results in subscribers with greater uses of 
the data paying higher fees and subscribers with fewer uses of the data 
paying lower fees.\37\ For similar reasons, and because it claims 
numerous substitute market data products are available, the Exchange 
argues that the proposed fees do not impose an unnecessary or 
inappropriate burden on competition.\38\
---------------------------------------------------------------------------

    \36\ See id. at 71034-36.
    \37\ See id.
    \38\ See id. at 71036.
---------------------------------------------------------------------------

    With respect to the redistribution fee, the Exchange argues that 
the proposed fee is reasonable, equitable, and not unfairly 
discriminatory because vendors that would be charged the proposed fee 
would profit by re-transmitting the Exchange's market data to their 
customers.\39\ Similarly, with respect to category 3 non-display fees, 
which would be charged to each trading platform on which the customer 
uses non-display data (capped at three platforms), the Exchange argues 
that the proposal is reasonable, equitable, and not unfairly 
discriminatory because such use of data is directly in competition with 
the Exchange and the Exchange should be permitted to recoup some of its 
lost trading revenue by charging for the data that makes such 
competition possible.\40\
---------------------------------------------------------------------------

    \39\ See id. at 71032.
    \40\ See id. at 71033, 71035-36.
---------------------------------------------------------------------------

    Finally, with respect to the non-display use declaration late fee 
and the multiple data feed fee, the Exchange claims that these fees are 
reasonable, equitable, and not unfairly discriminatory because they 
would offset the Exchange's administrative burdens and costs associated 
with incorrect billing, late payments, and tracking data usage 
locations.\41\
---------------------------------------------------------------------------

    \41\ See id. at 71033-36.
---------------------------------------------------------------------------

    The Commission received two comment letters that express concerns 
regarding the proposed rule change. One commenter states that the 
Exchange does not provide sufficient information to establish that the 
proposed fees are consistent with the Act and Commission rules.\42\ 
This commenter states its belief that the Exchange's discussions 
regarding the reasonableness of the proposed fees (i.e., the comparison 
to similar fees charged by affiliated exchanges, the nature of the 
market for order flow, the availability of other data options, and the 
lack of a relation between the proposed fees and the costs of 
production) do not support a finding that the proposed fees are 
reasonable.\43\ This commenter also states that the Exchange does not 
provide any information about the costs of production for the NYSE 
National Integrated Feed, how much revenue the Exchange projects to 
generate from the proposed fees, how the proposed fees would impact 
subscribers, the competition between subscribers and non-subscribers, 
and how the proposed fees would be equitably allocated and would not 
impose any undue burden on competition.\44\ In addition, the commenter 
states that the Exchange does not provide any information about the 
latency difference between the NYSE National Integrated Feed and the 
consolidated data feed or other methods of getting comparable data.\45\ 
Moreover, this commenter questions the Exchange's assertion that market 
participants have the ability to choose whether or not to connect to 
the NYSE National Integrated Feed and believes instead that many market 
participants must buy the feed.\46\ The commenter also objects to what 
it describes as conflicting statements by the Exchange: That the NYSE 
National Integrated Feed is valuable to market participants, but that 
the feed is also not essential for market participants because it can 
be sufficiently replaced by substitutes.\47\
---------------------------------------------------------------------------

    \42\ See Healthy Markets Letter, supra note 5.
    \43\ See id. at 5.
    \44\ See id. at 5-6.
    \45\ See id. at 6.
    \46\ See id. at 3-4. The commenter states that a market 
participant that does not purchase the NYSE National Integrated Feed 
would be at a competitive disadvantage to firms that have purchased 
it and questions how a non-purchasing broker could provide best 
execution to its customers. See id. at 4.
    \47\ See id. at 5.
---------------------------------------------------------------------------

    Another commenter also states that the Exchange fails to provide 
the necessary information to demonstrate that the proposed fees meet 
the requirements of the Act.\48\ This commenter similarly argues that 
the NYSE National Integrated Feed is not subject to competitive forces 
because there are no available substitutes for the Exchange's depth-of-
book product.\49\ The commenter also claims that depth-of-book 
information is ``essential'' for many broker-dealers to provide 
customers with the best and most competitive order routing capabilities 
and execution quality, and that the Exchange is the exclusive purveyor 
of that information.\50\ With respect to competition by data vendors, 
the commenter argues that because any vendors must first purchase the 
data from the Exchange (subject to the Exchange's terms and pricing) 
before being able to resell such data, these vendors cannot offer a 
competing product.\51\
---------------------------------------------------------------------------

    \48\ See SIFMA Letter, supra note 5, at 1.
    \49\ See id. at 2. Specifically, the commenter states that the 
Exchange cites alternatives to the NYSE National Integrated Feed 
that do not contain depth-of-book information, which the commenter 
claims are ``inferior products.'' See id.
    \50\ See id.
    \51\ See id.
---------------------------------------------------------------------------

    In addition, this commenter disagrees that fees for the NYSE 
National Integrated Feed will be constrained by competition for order 
flow under the ``platform theory'' of competition.\52\ The commenter 
argues that the decision of where to trade occurs in milliseconds, 
while market data is purchased and charged monthly, independent of 
decisions on where to trade.\53\ The commenter also states that not all 
purchasers of market data execute trades solely on exchanges, which 
limits the theoretical ability to constrain market data prices by 
routing order flow to other exchanges.\54\ Moreover, the commenter 
cites a report by Lawrence R. Glosten to support its claim that 
exchanges have little incentive to reduce the prices for their own 
market data, because any theoretical increase in demand would be shared 
with other exchanges.\55\ The commenter further

[[Page 6985]]

states that the exchanges have yet to show an increase (or decrease) in 
trading volume after reducing (or increasing) a respective exchange's 
price of market data.\56\
---------------------------------------------------------------------------

    \52\ See id.
    \53\ See id.
    \54\ See id.
    \55\ See id. (citing Lawrence R. Glosten, Economics of the Stock 
Exchange Business: Proprietary Market Data (January 2020), available 
at https://www.sec.gov/comments/4-729/4729-6678493-203560.pdf).
    \56\ See id.
---------------------------------------------------------------------------

    Lastly, this commenter argues that the Exchange fails to provide 
supporting information for its claim that the proposed fees for the 
NYSE National Integrated Feed are based on the purported increased 
value of such data as measured by the Exchange's expanded market 
share.\57\ The commenter states that, during the same May 2018 to 
December 2019 time period that NYSE National's market share increased 
from 0% to 2.12%, the market shares of New York Stock Exchange LLC 
(``NYSE'') and NYSE Arca, Inc. decreased, but neither exchange 
responded by reducing the cost of its market data.\58\ The commenter 
thus asserts that the Exchange's proposal would ``significantly 
increase the overall cost of market data for NYSE exchanges when the 
overall market share for NYSE exchanges increased by only 0.34% from 
May 2018 to December 2019.'' \59\ The commenter believes that the 
Exchange has offered no evidence to show that competition for order 
flow constrains the price for market data and that the Exchange should 
provide additional information on the cost of its market data to 
support its proposal.\60\
---------------------------------------------------------------------------

    \57\ See id.
    \58\ See id. The commenter also states that the market share of 
NYSE Chicago, Inc. decreased during this period. See id. Moreover, 
the commenter states that the market share of NYSE American LLC 
(``NYSE American'') increased during this period and that NYSE 
American similarly charges various fees for its market data 
products. See id.
    \59\ Id. at 3 (footnote omitted).
    \60\ See id.
---------------------------------------------------------------------------

    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\61\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \62\
---------------------------------------------------------------------------

    \61\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \62\ See id.
---------------------------------------------------------------------------

    Section 6 of the Act, including Sections 6(b)(4), (5), and (8), 
require the rules of an exchange to: (1) Provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \63\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \64\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\65\
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78f(b)(4).
    \64\ 15 U.S.C. 78f(b)(5).
    \65\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In temporarily suspending the Exchange's proposed rule change, the 
Commission intends to further consider whether the proposal to 
establish fees for the NYSE National Integrated Feed is consistent with 
the statutory requirements applicable to a national securities exchange 
under the Act. In particular, the Commission will consider whether the 
proposed rule change satisfies the standards under the Act and the 
rules thereunder requiring, among other things, that an exchange's 
rules provide for the equitable allocation of reasonable fees among 
members, issuers, and other persons using its facilities; not permit 
unfair discrimination between customers, issuers, brokers or dealers; 
and do not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\66\
---------------------------------------------------------------------------

    \66\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
---------------------------------------------------------------------------

    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\67\
---------------------------------------------------------------------------

    \67\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\68\ and 19(b)(2)(B) of the Act \69\ to determine whether the 
Exchange's proposed rule change should be approved or disapproved. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, the Commission seeks and encourages interested persons to 
provide additional comment on the proposed rule change to inform the 
Commission's analysis of whether to approve or disapprove the proposed 
rule change.
---------------------------------------------------------------------------

    \68\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \69\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\70\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
---------------------------------------------------------------------------

    \70\ Id. Section 19(b)(2)(B) of the Act also provides that 
proceedings to determine whether to disapprove a proposed rule 
change must be concluded within 180 days of the date of publication 
of notice of the filing of the proposed rule change. See id. The 
time for conclusion of the proceedings may be extended for up to 60 
days if the Commission finds good cause for such extension and 
publishes its reasons for so finding, or if the exchange consents to 
the longer period. See id.
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how its proposed 
fees are consistent with Section 6(b)(4) of the Act, which requires 
that the rules of a national securities exchange ``provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members and issuers and other persons using its facilities''; \71\
---------------------------------------------------------------------------

    \71\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how its proposed 
fees are consistent with Section 6(b)(5) of the Act, which requires, 
among other things, that the rules of a national securities exchange 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers''; \72\ and
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

     Whether the Exchange has demonstrated how its proposed 
fees are consistent with Section 6(b)(8) of the Act, which requires 
that the rules of a national securities exchange ``not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of [the Act].'' \73\
---------------------------------------------------------------------------

    \73\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    As discussed in Section III above, the Exchange made various 
arguments in support of its proposal and the Commission received two 
comment letters that expressed concerns regarding the proposal, 
including in particular that the Exchange did not provide sufficient 
information to establish that the proposed fees are consistent with the 
Act and the rules thereunder.
    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule

[[Page 6986]]

change.'' \74\ The description of a proposed rule change, its purpose 
and operation, its effect, and a legal analysis of its consistency with 
applicable requirements must all be sufficiently detailed and specific 
to support an affirmative Commission finding,\75\ and any failure of an 
SRO to provide this information may result in the Commission not having 
a sufficient basis to make an affirmative finding that a proposed rule 
change is consistent with the Act and the applicable rules and 
regulations.\76\
---------------------------------------------------------------------------

    \74\ 17 CFR 201.700(b)(3).
    \75\ See id.
    \76\ See id.
---------------------------------------------------------------------------

    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed fees are consistent with the Act, and 
specifically, with its requirements that exchange fees be reasonable 
and equitably allocated, not be unfairly discriminatory, and not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.\77\
---------------------------------------------------------------------------

    \77\ See 15 U.S.C. 78f(b)(4), (5), and (8).
---------------------------------------------------------------------------

V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by February 27, 2020. 
Rebuttal comments should be submitted by March 12, 2020. Although there 
do not appear to be any issues relevant to approval or disapproval that 
would be facilitated by an oral presentation of views, data, and 
arguments, the Commission will consider, pursuant to Rule 19b-4, any 
request for an opportunity to make an oral presentation.\78\
---------------------------------------------------------------------------

    \78\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rule change, 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 No. SR-NYSENAT-2019-31 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 No. SR-NYSENAT-2019-31. The 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 publicly available. All submissions 
should refer to File No. SR-NYSENAT-2019-31 and should be submitted on 
or before February 27, 2020. Rebuttal comments should be submitted by 
March 12, 2020.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\79\ that File No. SR-NYSENAT-2019-31, be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 78s(b)(3)(C).
    \80\ 17 CFR 200.30-3(a)(57) and (58).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\80\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-02280 Filed 2-5-20; 8:45 am]
 BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.