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, 19541-19545 [2020-07231]

Download as PDF Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88538; File No. SR– NYSENAT–2020–05] 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 April 1, 2020. I. Introduction On February 3, 2020, 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 February 20, 2020.4 Pursuant to Section 19(b)(3)(C) of the Act,5 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. khammond on DSKJM1Z7X2PROD with NOTICES 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). 4 See Securities Exchange Act Release No. 88211 (February 14, 2020), 85 FR 9847 (‘‘Notice’’). Comments received on the Notice are available on the Commission’s website at https://www.sec.gov/ comments/sr-nysenat-2020-05/ srnysenat202005.htm. The Commission notes that, on December 4, 2019, NYSE National filed a proposed rule change to establish fees for the NYSE National Integrated Feed that are identical to the fees proposed in this filing. See Securities Exchange Act Release No. 87797 (December 18, 2019), 84 FR 71025 (December 26, 2019) (SR–NYSENAT–2019– 31). Comments received on SR–NYSENAT–2019–31 are available on the Commission’s website at https://www.sec.gov/comments/sr-nysenat-2019-31/ srnysenat201931.htm. On January 31, 2020, the Commission temporarily suspended SR– NYSENAT–2019–31 and instituted proceedings to determine whether to approve or disapprove that proposed rule change. See Securities Exchange Act Release No. 88109, 85 FR 6982 (February 6, 2020) (‘‘SR–NYSENAT–2019–31 OIP’’). On February 3, 2020, NYSE National withdrew SR–NYSENAT– 2019–31. See Securities Exchange Act Release No. 88118 (February 4, 2020), 85 FR 7611 (February 10, 2020). 5 15 U.S.C. 78s(b)(3)(C). VerDate Sep<11>2014 18:22 Apr 06, 2020 Jkt 250001 II. Description of the Proposed Rule Change NYSE National proposes to establish fees for the NYSE National Integrated Feed, which became effective on February 3, 2020.6 According to NYSE National, 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.7 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.8 It also includes information about NYSE National’s best bid or offer at any given time.9 NYSE National 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; 10 • $1,500 per month redistribution fee, which would be charged (once per redistributor account) to any redistributor 11 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; 12 • Non-display use 13 fees: 6 Prior to February 3, 2020, NYSE National did not charge any fees for the NYSE National Integrated Feed. See Notice, supra note 4, at 9847. 7 See id. 8 See id. 9 See id. 10 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. at 9848. 11 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. 12 See id. 13 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. As proposed, nondisplay 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. 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- PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 19541 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 market 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; 14 • $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; 15 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.16 The access fees, professional user fees, and non-display fees would not apply to Federal agencies 17 that display use declaration before they would be authorized to receive the feed. See id. at 9849. 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 NYSE National of the change by completing and submitting an updated declaration reflecting the change of use at the time of the change. See id. 14 According to NYSE National, 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. at 9848–49. 15 See id. at 9849. 16 See id. 17 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. E:\FR\FM\07APN1.SGM 07APN1 19542 Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices subscribe to the products listed on the proposed fee schedule that includes such fees.18 Finally, first-time subscribers 19 would be eligible for a free trial by contacting NYSE National 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.20 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.21 As proposed, NYSE National would provide the onemonth free trial for a particular product to each subscriber only once.22 khammond on DSKJM1Z7X2PROD with NOTICES 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. 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. NYSE National 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, NYSE National 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, NYSE 18 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. 19 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 9849. 20 See id. 21 See id. at 9849–50. 22 See id. at 9850. 23 15 U.S.C. 78s(b)(3)(C). 24 15 U.S.C. 78s(b)(1). 25 See Notice, supra note 4, at 9852. VerDate Sep<11>2014 18:22 Apr 06, 2020 Jkt 250001 National also provides 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 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 NYSE National, 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, NYSE National 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 NYSE National 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 NYSE National.31 Similarly, NYSE National 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 In addition to its ‘‘platform’’-based arguments, NYSE National presents an alternative competition-based argument, asserting that the NYSE National Integrated Feed is sold in a competitive 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/2020/34-88211ex3b.pdf. 27 See Notice, supra note 4, at 9852. NYSE National also states that, since May 2018, when NYSE National relaunched trading, it has observed a direct correlation between the steady increase of subscribers to the NYSE National Integrated Feed and the increase in NYSE National’s transaction market share volume over the same period. See id. at 9850. NYSE National states that, between May 2018 and October 2019, it has grown from 0% to nearly 2% market share of consolidated trading volume and, between May 2018 and November 2019, the number of NYSE National Integrated Feed subscribers increased from 12 to 57. See id. at 9847– 48, 9852. 28 See id. at 9852. 29 See id. at 9853. 30 See id. 31 See id. at 9850, 9853. 32 See id. at 9853. PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 market.33 NYSE National provides a report by Charles M. Jones,34 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.35 NYSE National also more 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 NYSE National’s ability to charge supracompetitive prices for the feed.36 In addition, NYSE National states that, since the date of filing of SR– NYSENAT–2019–31 and before the proposed fees went into effect on February 3, 2020, five subscribers to the NYSE National Integrated Feed (i.e., nearly nine percent of the prior subscriber base) have cancelled their subscriptions due to the imminent imposition of the fees.37 Moreover, NYSE National states that a sixth customer informed NYSE National that if NYSE National is permitted to impose the fees, the customer would cancel its subscription to the NYSE National Integrated Feed and instead subscribe to the NYSE National BBO feed.38 With respect to the other requirements under the Act, NYSE National 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.39 Specifically, NYSE National argues that the professional and non-professional user fee structure has long been used by NYSE National to reduce the price of data to nonprofessional users and make it more broadly available, and that the nondisplay fee structure results in 33 See id. at 9851. 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/2020/34-88211ex3a.pdf. 35 See Notice, supra note 4, at 9851. 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. 36 See id. at 9854. 37 See id. at 9848. 38 NYSE National states that six lost subscribers constitute 10.5 percent of the prior NYSE National Integrated Feed subscriber base. See id. 39 See id. at 9856–58. 34 See E:\FR\FM\07APN1.SGM 07APN1 Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices subscribers with greater uses of the data paying higher fees and subscribers with fewer uses of the data paying lower fees.40 For similar reasons, and because it claims numerous substitute market data products are available, NYSE National argues that the proposed fees do not impose an unnecessary or inappropriate burden on competition.41 With respect to the redistribution fee, NYSE National argues that the proposed fee is reasonable because vendors that would be charged the proposed fee would profit by re-transmitting NYSE National’s market data to their customers,42 and that the proposed fee is equitable and not unfairly discriminatory because the fees would be charged on an equal basis to those vendors that choose to redistribute the feed.43 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), NYSE National argues that the proposal is reasonable, equitable, and not unfairly discriminatory because such use of data is directly in competition with NYSE National and NYSE National should be permitted to recoup some of its lost trading revenue by charging for the data that makes such competition possible.44 Finally, with respect to the nondisplay use declaration late fee and the multiple data feed fee, NYSE National claims that these fees are reasonable, equitable, and not unfairly discriminatory because they would offset NYSE National’s administrative burdens and costs associated with incorrect billing, late payments, and tracking data usage locations.45 The Commission received comment letters that express concerns regarding the proposed rule change. One commenter states that NYSE National fails to provide the necessary information for the Commission to determine whether the proposed fees meet the requirements of the Act.46 This 40 See id. at 9856–57. id. at 9858–59. 42 See id. at 9854. 43 See id. at 9856–57. 44 See id. at 9855–58. 45 See id. 46 See letter from Ellen Greene, Managing Director, Equities & Options Market Structure, Securities Industry and Financial Markets Association (‘‘SIFMA’’), to Vanessa Countryman, Secretary, Commission, dated March 11, 2020 (‘‘SIFMA Letter’’). This commenter also refers to the comment letter it submitted on SR–NYSENAT– 2019–31 in stating that the proposal does not meet the requirements of the Act. See id. at 2. See also SR–NYSENAT–2019–31 OIP, supra note 4, at 6984– 85 (describing the commenter’s letter on SR– NYSENAT–2019–31); letter from Robert Toomey, Managing Director and Associate General Counsel, khammond on DSKJM1Z7X2PROD with NOTICES 41 See VerDate Sep<11>2014 18:22 Apr 06, 2020 Jkt 250001 commenter argues that the NYSE National Integrated Feed is not subject to competitive forces because there are no available substitutes to NYSE National’s depth-of-book product.47 This commenter also argues that competition for order flow under the ‘‘platform theory’’ does not constrain the cost of market data, but instead results in supra-monopoly prices for market data products.48 In addition, this commenter argues that NYSE National makes an unpersuasive attempt to show an elasticity of demand for the NYSE National Integrated Feed (i.e., in response to the fee increase, 5 of the 57 subscribers notified NYSE National of their intent to cancel their subscriptions before the fees went into effect).49 Moreover, this commenter argues that exchanges have yet to show an increase (or decrease) in trading volume after reducing (or increasing) a respective exchange’s price of market data, and that NYSE National does not state the anticipated impact on order flow from losing subscribers to the NYSE National Integrated Feed.50 Finally, the commenter argues that, because it believes competitive forces have not constrained the cost of market data, NYSE National should provide additional information on cost.51 Another commenter also states that the information provided by NYSE National is not adequate to establish that the proposed fees are consistent with the Act and Commission rules.52 This commenter questions whether third parties can compete with NYSE National in offering data related to activity on NYSE National.53 This commenter also questions NYSE National’s assertion that market participants have a meaningful ability to SIFMA, to Vanessa Countryman, Secretary, Commission, dated January 21, 2020, available at https://www.sec.gov/comments/sr-nysenat-2019-31/ srnysenat201931-6678406-204968.pdf. 47 See SIFMA Letter, supra note 46, at 2. 48 See id. 49 See id. 50 See id. 51 See id. 52 See letter from Tyler Gellasch, Executive Director, The Healthy Markets Association, to Vanessa Countryman, Office of the Secretary, Commission, dated March 12, 2020 (‘‘Healthy Markets Letter’’). See also SR–NYSENAT–2019–31 OIP, supra note 4, at 6984 (describing the commenter’s letter on SR–NYSENAT–2019–31); letter from Tyler Gellasch, Executive Director, The Healthy Markets Association, to Vanessa Countryman, Office of the Secretary, Commission, dated January 16, 2020, available at https:// www.sec.gov/comments/sr-nysenat-2019-31/ srnysenat201931-6663540-203934.pdf. 53 See Healthy Markets Letter, supra note 52, at 6–8. This commenter states that NYSE National controls who, under what terms, and when anyone other than NYSE National can obtain order-related information about NYSE National. See id. at 7. PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 19543 choose whether or not to connect to the NYSE National Integrated Feed and believes instead that many market participants must buy the feed.54 This commenter acknowledges that NYSE National provides the number of customers that discontinued using the NYSE National Integrated Feed in response to the proposed fees, but expresses concern that NYSE National has not provided any relevant information about these customers (e.g., why they subscribed to the NYSE National Integrated Feed in the first place; whether they were proprietary trading firms, agency brokers, or data vendors; and whether and how often they sent orders to NYSE National).55 This commenter also states that NYSE National should update and further elaborate on information about the remaining subscribers.56 Moreover, this commenter argues that NYSE National’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.57 This commenter also states that NYSE National does not provide any information about the costs of production for the NYSE National Integrated Feed, the expected revenue NYSE National projects to generate from the proposed fees, the impact of the proposed fees on subscribers, the competition between subscribers and non-subscribers, and whether the proposed fees would be equitably allocated and would not impose any undue burden on competition.58 In addition, the commenter states that NYSE National does not provide any information about the latency difference between the NYSE National Integrated Feed and the consolidated data feed or other methods of transmitting data.59 Finally, this commenter objects to NYSE National’s platform-based arguments, stating that the supply and demand 54 See id. at 4–5. According to this commenter, if one set of market participants has access to a faster, richer data set, then those without that information will not be as competitive and may not be able to quote or otherwise route orders in a manner that could effectively achieve best execution. See id. at 8. 55 See id. at 5–6. 56 See id. at 6. 57 See id. at 8–9. 58 See id. at 9. 59 See id. E:\FR\FM\07APN1.SGM 07APN1 19544 Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices functions for order flow and market data are separate.60 When exchanges file their proposed rule changes with the Commission, including fee filings like NYSE National’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 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 NYSE National’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 khammond on DSKJM1Z7X2PROD with NOTICES 60 See id. at 9–10. 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. 63 15 U.S.C. 78f(b)(4). 64 15 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. 61 See VerDate Sep<11>2014 18:22 Apr 06, 2020 Jkt 250001 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 IV. Proceedings To Determine Whether necessary or appropriate in furtherance To Approve or Disapprove the of the purposes of [the Act].’’ 73 Proposed Rule Change As discussed in Section III above, In addition to temporarily suspending NYSE National made various arguments the proposal, the Commission also in support of its proposal and the hereby institutes proceedings pursuant Commission received comment letters to Sections 19(b)(3)(C) 68 and 19(b)(2)(B) that expressed concerns regarding the 69 of the Act to determine whether NYSE proposal, including in particular that National’s proposed rule change should NYSE National did not provide be approved or disapproved. Institution sufficient information to establish that of proceedings does not indicate that the the proposed fees are consistent with Commission has reached any the Act and the rules thereunder. conclusions with respect to any of the Under the Commission’s Rules of issues involved. Rather, the Commission Practice, the ‘‘burden to demonstrate seeks and encourages interested persons that a proposed rule change is to provide additional comment on the consistent with the [Act] and the rules proposed rule change to inform the and regulations issued thereunder . . . Commission’s analysis of whether to is on the [SRO] that proposed the rule approve or disapprove the proposed change.’’ 74 The description of a rule change. proposed rule change, its purpose and Pursuant to Section 19(b)(2)(B) of the operation, its effect, and a legal analysis Act,70 the Commission is providing of its consistency with applicable notice of the grounds for possible requirements must all be sufficiently disapproval under consideration: detailed and specific to support an • Whether NYSE National has affirmative Commission finding,75 and demonstrated how its proposed fees are any failure of an SRO to provide this consistent with Section 6(b)(4) of the information may result in the Act, which requires that the rules of a Commission not having a sufficient national securities exchange ‘‘provide basis to make an affirmative finding that for the equitable allocation of reasonable a proposed rule change is consistent dues, fees, and other charges among its with the Act and the applicable rules members and issuers and other persons and regulations.76 71 using its facilities’’; The Commission is instituting • Whether NYSE National has demonstrated how its proposed fees are proceedings to allow for additional consideration and comment on the consistent with Section 6(b)(5) of the issues raised herein, including as to Act, which requires, among other whether the proposed fees are things, that the rules of a national consistent with the Act, and securities exchange not be ‘‘designed to specifically, with its requirements that permit unfair discrimination between exchange fees be reasonable and customers, issuers, brokers, or equitably allocated, not be unfairly 72 dealers’’; and discriminatory, and not impose any • Whether NYSE National has demonstrated how its proposed fees are burden on competition that is not necessary or appropriate in furtherance 67 For purposes of temporarily suspending the of the purposes of the Act.77 otherwise in furtherance of the purposes of the Act, to temporarily suspend the proposed rule change.67 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). 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). PO 00000 Frm 00123 Fmt 4703 Sfmt 4703 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 April 28, 2020. Rebuttal comments should be submitted by May 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 73 15 U.S.C. 78f(b)(8). CFR 201.700(b)(3). 75 See id. 76 See id. 77 See 15 U.S.C. 78f(b)(4), (5), and (8). 74 17 E:\FR\FM\07APN1.SGM 07APN1 Federal Register / Vol. 85, No. 67 / Tuesday, April 7, 2020 / Notices 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 NYSE National’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 rule-comments@ sec.gov. Please include File No. SR– NYSENAT–2020–05 on the subject line. Paper Comments khammond on DSKJM1Z7X2PROD with NOTICES • 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–2020–05. 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 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 21:39 Apr 06, 2020 Jkt 250001 19545 office of NYSE National. 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–2020–05 and should be submitted on or before April 28, 2020. Rebuttal comments should be submitted by May 12, 2020. of 1934 (‘‘Act’’) 1 and Rule 608 thereunder,2 a proposal to amend the Plan for the Purpose of Developing and Implementing Procedures Designed to Facilitate the Listing and Trading of Standardized Options (the ‘‘Plan’’).3 Amendment No. 5 was published for comment in the Federal Register on December 17, 2019.4 The Commission received no comment letters regarding the Amendment. This order approves Amendment No. 5 to the Plan. VI. Conclusion II. Description of the Amendment It is therefore ordered, pursuant to Section 19(b)(3)(C) of the Act,79 that File No. SR–NYSENAT–2020–05, 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. A. Background For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.80 J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–07231 Filed 4–6–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–88532; File No. 4–443] Joint Industry Plan; Order Approving Amendment No. 5 to the Plan for the Purpose of Developing and Implementing Procedures Designed To Facilitate the Listing and Trading of Standardized Options To Adopt a Penny Interval Program April 1, 2020. I. Introduction On July 18, 2019, BOX Exchange LLC; Cboe BZX Exchange, Inc.; Cboe C2 Exchange, Inc.; Cboe Exchange, Inc.; Cboe EDGX Exchange, Inc.; Miami International Securities Exchange, LLC; MIAX Emerald, LLC; MIAX PEARL, LLC; Nasdaq BX, Inc.; Nasdaq GEMX, LLC; Nasdaq ISE, LLC; Nasdaq MRX, LLC; Nasdaq PHLX LLC; The Nasdaq Stock Market LLC; NYSE American, LLC; NYSE Arca, Inc. (collectively, ‘‘Exchanges’’); and The Options Clearing Corporation (‘‘OCC’’) (together with the OCC, ‘‘Plan Sponsors’’) filed with the Securities and Exchange Commission (‘‘Commission’’) pursuant to Section 11A(a)(3) of the Securities Exchange Act 79 15 80 17 PO 00000 U.S.C. 78s(b)(3)(C). CFR 200.30–3(a)(57) and (58). Frm 00124 Fmt 4703 Sfmt 4703 In January 2007, the Commission approved rules that allowed the six registered options exchanges that then existed to begin quoting certain multiply listed options classes overlying thirteen stocks and Exchange Traded Funds (‘‘ETFs’’) in penny increments pursuant to a six-month Penny Pilot 1 15 U.S.C. 78k–1(a)(3). CFR 242.608. 3 See Letter from BOX Exchange LLC, CBOE BZX Exchange, Inc., CBOE Exchange, Inc., CBOE C2 Exchange, Inc, CBOE EDGX Exchange, Inc., Miami International Securities Exchange, LLC, MIAX Emerald, LLC, MIAX PEARL, LLC, NASDAQ BX, Inc., NASDAQ GEMX, LLC, NASDAQ ISE, LLC, NASDAQ MRX, LLC, NASDAQ PHLX, LLC, The NASDAQ Stock Market LLC, NYSE American, LLC, NYSE Arca, Inc., and the OCC, to Vanessa Countryman, Secretary, Commission, dated July 18, 2019. (‘‘Amendment No. 5’’). On July 6, 2001, the Commission approved the Plan, which was proposed by the American Stock Exchange LLC, Chicago Board Options Exchange, Incorporated, International Securities Exchange LLC, OCC, Philadelphia Stock Exchange, Inc., and Pacific Exchange, Inc. See Securities Exchange Act Release No. 44521, 66 FR 36809 (July 13, 2001). See also Securities Exchange Act Release Nos. 49199 (February 5, 2004), 69 FR 7030 (February 12, 2004) (adding Boston Stock Exchange, Inc. as a Plan Sponsor); 57546 (March 21, 2008), 73 FR 16393 (March 27, 2008) (adding The Nasdaq Stock Market, LLC as a Plan Sponsor); 61528 (February 17, 2010), 75 FR 8415 (February 24, 2010) (adding BATS Exchange, Inc. as a Plan Sponsor); 63162 (October 22, 2010), 75 FR 66401 (October 28, 2010) (adding C2 Options Exchange Incorporated as a Plan Sponsor); 66952 (May 9, 2012), 77 FR 28641 (May 15, 2012) (adding BOX Options Exchange LLC as a Plan Sponsor); 67327 (June 29, 2012), 77 FR 40125 (July 6, 2012) (adding Nasdaq OMX BX, Inc. as a Plan Sponsor); 70765 (October 28, 2013), 78 FR 65739 (November 1, 2013) (adding Topaz Exchange, LLC as a Plan Sponsor); 70764 (October 28, 2013), 78 FR 65733 (November 1, 2013) (adding Miami International Securities Exchange, LLC as a Plan Sponsor); 76822 (January 1, 2016), 81 FR 1251 (January 11, 2016) (adding EDGX Exchange, Inc. as a Plan Sponsor); 77323 (March 8, 2016), 81 FR 13433 (March 14, 2016) (adding ISE Mercury, LLC as a Plan Sponsor); 79897 (January 30, 2017), 82 FR 9263 (February 3, 2017) (adding MIAX PEARL, LLC as a Plan Sponsor); and 85228 (March 1, 2019), 84 FR 8355 (March 7, 2019) (adding MIAX Emerald, LLC as a Plan Sponsor). The full text of the Plan is available at: https://www.theocc.com/ components/docs/clearing/services/options_listing_ procedures_plan.pdf. 4 See Securities Exchange Act Release No. 87681 (December 9, 2019), 84 FR 68960 (‘‘Notice’’). 2 17 E:\FR\FM\07APN1.SGM 07APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 67 (Tuesday, April 7, 2020)]
[Notices]
[Pages 19541-19545]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07231]

[[Page 19541]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88538; File No. SR-NYSENAT-2020-05]

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

April 1, 2020.

I. Introduction

On February 3, 2020, 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 February 20, 2020.\4\ Pursuant to Section 19(b)(3)(C) of the Act,\5\
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).
\4\ See Securities Exchange Act Release No. 88211 (February 14,
2020), 85 FR 9847 (``Notice''). Comments received on the Notice are
available on the Commission's website at https://www.sec.gov/comments/sr-nysenat-2020-05/srnysenat202005.htm. The Commission
notes that, on December 4, 2019, NYSE National filed a proposed rule
change to establish fees for the NYSE National Integrated Feed that
are identical to the fees proposed in this filing. See Securities
Exchange Act Release No. 87797 (December 18, 2019), 84 FR 71025
(December 26, 2019) (SR-NYSENAT-2019-31). Comments received on SR-
NYSENAT-2019-31 are available on the Commission's website at https://www.sec.gov/comments/sr-nysenat-2019-31/srnysenat201931.htm. On
January 31, 2020, the Commission temporarily suspended SR-NYSENAT-
2019-31 and instituted proceedings to determine whether to approve
or disapprove that proposed rule change. See Securities Exchange Act
Release No. 88109, 85 FR 6982 (February 6, 2020) (``SR-NYSENAT-2019-
31 OIP''). On February 3, 2020, NYSE National withdrew SR-NYSENAT-
2019-31. See Securities Exchange Act Release No. 88118 (February 4,
2020), 85 FR 7611 (February 10, 2020).
\5\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

NYSE National proposes to establish fees for the NYSE National
Integrated Feed, which became effective on February 3, 2020.\6\
According to NYSE National, 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.\7\ 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.\8\ It also includes information about NYSE
National's best bid or offer at any given time.\9\ NYSE National
proposes the following fees for the NYSE National Integrated Feed:
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\6\ Prior to February 3, 2020, NYSE National did not charge any
fees for the NYSE National Integrated Feed. See Notice, supra note
4, at 9847.
\7\ See id.
\8\ See id.
\9\ 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; \10\
---------------------------------------------------------------------------

\10\ 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. at 9848.
---------------------------------------------------------------------------

$1,500 per month redistribution fee, which would be
charged (once per redistributor account) to any redistributor \11\ of
the NYSE National Integrated Feed;
---------------------------------------------------------------------------

\11\ 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; \12\
---------------------------------------------------------------------------

\12\ See id.
---------------------------------------------------------------------------

Non-display use \13\ fees:
---------------------------------------------------------------------------

\13\ 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. 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. 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. at 9849. 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 NYSE National of the
change by completing and submitting an updated declaration
reflecting the change of use at the time of the change. See id.
---------------------------------------------------------------------------

[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 market 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; \14\
---------------------------------------------------------------------------

\14\ According to NYSE National, 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. at 9848-49.
---------------------------------------------------------------------------

$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; \15\ and
---------------------------------------------------------------------------

\15\ See id. at 9849.
---------------------------------------------------------------------------

$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.\16\
---------------------------------------------------------------------------

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

The access fees, professional user fees, and non-display fees would
not apply to Federal agencies \17\ that

[[Page 19542]]

subscribe to the products listed on the proposed fee schedule that
includes such fees.\18\
---------------------------------------------------------------------------

\17\ 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.
\18\ 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 \19\ would be eligible for a free
trial by contacting NYSE National 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.\20\
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.\21\ As proposed, NYSE National would provide the one-month
free trial for a particular product to each subscriber only once.\22\
---------------------------------------------------------------------------

\19\ 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 9849.
\20\ See id.
\21\ See id. at 9849-50.
\22\ See id. at 9850.
---------------------------------------------------------------------------

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. 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).
---------------------------------------------------------------------------

NYSE National 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, NYSE National 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, NYSE National also provides 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 NYSE National, 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 9852.
\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/2020/34-88211-ex3b.pdf.
\27\ See Notice, supra note 4, at 9852. NYSE National also
states that, since May 2018, when NYSE National relaunched trading,
it has observed a direct correlation between the steady increase of
subscribers to the NYSE National Integrated Feed and the increase in
NYSE National's transaction market share volume over the same
period. See id. at 9850. NYSE National states that, between May 2018
and October 2019, it has grown from 0% to nearly 2% market share of
consolidated trading volume and, between May 2018 and November 2019,
the number of NYSE National Integrated Feed subscribers increased
from 12 to 57. See id. at 9847-48, 9852.
\28\ See id. at 9852.
\29\ See id. at 9853.
---------------------------------------------------------------------------

In addition, NYSE National 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\ NYSE National
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
NYSE National.\31\ Similarly, NYSE National 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 9850, 9853.
\32\ See id. at 9853.
---------------------------------------------------------------------------

In addition to its ``platform''-based arguments, NYSE National
presents an alternative competition-based argument, asserting that the
NYSE National Integrated Feed is sold in a competitive market.\33\ NYSE
National provides a report by Charles M. Jones,\34\ 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.\35\ NYSE National also more 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 NYSE National's ability to charge
supracompetitive prices for the feed.\36\ In addition, NYSE National
states that, since the date of filing of SR-NYSENAT-2019-31 and before
the proposed fees went into effect on February 3, 2020, five
subscribers to the NYSE National Integrated Feed (i.e., nearly nine
percent of the prior subscriber base) have cancelled their
subscriptions due to the imminent imposition of the fees.\37\ Moreover,
NYSE National states that a sixth customer informed NYSE National that
if NYSE National is permitted to impose the fees, the customer would
cancel its subscription to the NYSE National Integrated Feed and
instead subscribe to the NYSE National BBO feed.\38\
---------------------------------------------------------------------------

\33\ See id. at 9851.
\34\ 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/2020/34-88211-ex3a.pdf.
\35\ See Notice, supra note 4, at 9851. 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.
\36\ See id. at 9854.
\37\ See id. at 9848.
\38\ NYSE National states that six lost subscribers constitute
10.5 percent of the prior NYSE National Integrated Feed subscriber
base. See id.
---------------------------------------------------------------------------

With respect to the other requirements under the Act, NYSE National
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.\39\ Specifically, NYSE National
argues that the professional and non-professional user fee structure
has long been used by NYSE National 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

[[Page 19543]]

subscribers with greater uses of the data paying higher fees and
subscribers with fewer uses of the data paying lower fees.\40\ For
similar reasons, and because it claims numerous substitute market data
products are available, NYSE National argues that the proposed fees do
not impose an unnecessary or inappropriate burden on competition.\41\
---------------------------------------------------------------------------

\39\ See id. at 9856-58.
\40\ See id. at 9856-57.
\41\ See id. at 9858-59.
---------------------------------------------------------------------------

With respect to the redistribution fee, NYSE National argues that
the proposed fee is reasonable because vendors that would be charged
the proposed fee would profit by re-transmitting NYSE National's market
data to their customers,\42\ and that the proposed fee is equitable and
not unfairly discriminatory because the fees would be charged on an
equal basis to those vendors that choose to redistribute the feed.\43\
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), NYSE National argues that the
proposal is reasonable, equitable, and not unfairly discriminatory
because such use of data is directly in competition with NYSE National
and NYSE National should be permitted to recoup some of its lost
trading revenue by charging for the data that makes such competition
possible.\44\
---------------------------------------------------------------------------

\42\ See id. at 9854.
\43\ See id. at 9856-57.
\44\ See id. at 9855-58.
---------------------------------------------------------------------------

Finally, with respect to the non-display use declaration late fee
and the multiple data feed fee, NYSE National claims that these fees
are reasonable, equitable, and not unfairly discriminatory because they
would offset NYSE National's administrative burdens and costs
associated with incorrect billing, late payments, and tracking data
usage locations.\45\
---------------------------------------------------------------------------

\45\ See id.
---------------------------------------------------------------------------

The Commission received comment letters that express concerns
regarding the proposed rule change. One commenter states that NYSE
National fails to provide the necessary information for the Commission
to determine whether the proposed fees meet the requirements of the
Act.\46\ This commenter argues that the NYSE National Integrated Feed
is not subject to competitive forces because there are no available
substitutes to NYSE National's depth-of-book product.\47\ This
commenter also argues that competition for order flow under the
``platform theory'' does not constrain the cost of market data, but
instead results in supra-monopoly prices for market data products.\48\
In addition, this commenter argues that NYSE National makes an
unpersuasive attempt to show an elasticity of demand for the NYSE
National Integrated Feed (i.e., in response to the fee increase, 5 of
the 57 subscribers notified NYSE National of their intent to cancel
their subscriptions before the fees went into effect).\49\ Moreover,
this commenter argues that exchanges have yet to show an increase (or
decrease) in trading volume after reducing (or increasing) a respective
exchange's price of market data, and that NYSE National does not state
the anticipated impact on order flow from losing subscribers to the
NYSE National Integrated Feed.\50\ Finally, the commenter argues that,
because it believes competitive forces have not constrained the cost of
market data, NYSE National should provide additional information on
cost.\51\
---------------------------------------------------------------------------

\46\ See letter from Ellen Greene, Managing Director, Equities &
Options Market Structure, Securities Industry and Financial Markets
Association (``SIFMA''), to Vanessa Countryman, Secretary,
Commission, dated March 11, 2020 (``SIFMA Letter''). This commenter
also refers to the comment letter it submitted on SR-NYSENAT-2019-31
in stating that the proposal does not meet the requirements of the
Act. See id. at 2. See also SR-NYSENAT-2019-31 OIP, supra note 4, at
6984-85 (describing the commenter's letter on SR-NYSENAT-2019-31);
letter from Robert Toomey, Managing Director and Associate General
Counsel, SIFMA, to Vanessa Countryman, Secretary, Commission, dated
January 21, 2020, available at https://www.sec.gov/comments/sr-nysenat-2019-31/srnysenat201931-6678406-204968.pdf.
\47\ See SIFMA Letter, supra note 46, at 2.
\48\ See id.
\49\ See id.
\50\ See id.
\51\ See id.
---------------------------------------------------------------------------

Another commenter also states that the information provided by NYSE
National is not adequate to establish that the proposed fees are
consistent with the Act and Commission rules.\52\ This commenter
questions whether third parties can compete with NYSE National in
offering data related to activity on NYSE National.\53\ This commenter
also questions NYSE National's assertion that market participants have
a meaningful 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.\54\ This commenter acknowledges that
NYSE National provides the number of customers that discontinued using
the NYSE National Integrated Feed in response to the proposed fees, but
expresses concern that NYSE National has not provided any relevant
information about these customers (e.g., why they subscribed to the
NYSE National Integrated Feed in the first place; whether they were
proprietary trading firms, agency brokers, or data vendors; and whether
and how often they sent orders to NYSE National).\55\ This commenter
also states that NYSE National should update and further elaborate on
information about the remaining subscribers.\56\
---------------------------------------------------------------------------

\52\ See letter from Tyler Gellasch, Executive Director, The
Healthy Markets Association, to Vanessa Countryman, Office of the
Secretary, Commission, dated March 12, 2020 (``Healthy Markets
Letter''). See also SR-NYSENAT-2019-31 OIP, supra note 4, at 6984
(describing the commenter's letter on SR-NYSENAT-2019-31); letter
from Tyler Gellasch, Executive Director, The Healthy Markets
Association, to Vanessa Countryman, Office of the Secretary,
Commission, dated January 16, 2020, available at https://www.sec.gov/comments/sr-nysenat-2019-31/srnysenat201931-6663540-203934.pdf.
\53\ See Healthy Markets Letter, supra note 52, at 6-8. This
commenter states that NYSE National controls who, under what terms,
and when anyone other than NYSE National can obtain order-related
information about NYSE National. See id. at 7.
\54\ See id. at 4-5. According to this commenter, if one set of
market participants has access to a faster, richer data set, then
those without that information will not be as competitive and may
not be able to quote or otherwise route orders in a manner that
could effectively achieve best execution. See id. at 8.
\55\ See id. at 5-6.
\56\ See id. at 6.
---------------------------------------------------------------------------

Moreover, this commenter argues that NYSE National'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.\57\ This commenter also states that NYSE National does not
provide any information about the costs of production for the NYSE
National Integrated Feed, the expected revenue NYSE National projects
to generate from the proposed fees, the impact of the proposed fees on
subscribers, the competition between subscribers and non-subscribers,
and whether the proposed fees would be equitably allocated and would
not impose any undue burden on competition.\58\ In addition, the
commenter states that NYSE National does not provide any information
about the latency difference between the NYSE National Integrated Feed
and the consolidated data feed or other methods of transmitting
data.\59\ Finally, this commenter objects to NYSE National's platform-
based arguments, stating that the supply and demand

[[Page 19544]]

functions for order flow and market data are separate.\60\
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\57\ See id. at 8-9.
\58\ See id. at 9.
\59\ See id.
\60\ See id. at 9-10.
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When exchanges file their proposed rule changes with the
Commission, including fee filings like NYSE National'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\
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\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.
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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\
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\63\ 15 U.S.C. 78f(b)(4).
\64\ 15 U.S.C. 78f(b)(5).
\65\ 15 U.S.C. 78f(b)(8).
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In temporarily suspending NYSE National'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\
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\66\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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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\
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\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).
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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 NYSE
National'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.
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\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).
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Pursuant to Section 19(b)(2)(B) of the Act,\70\ the Commission is
providing notice of the grounds for possible disapproval under
consideration:
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\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.
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Whether NYSE National 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\
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\71\ 15 U.S.C. 78f(b)(4).
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Whether NYSE National 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
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\72\ 15 U.S.C. 78f(b)(5).
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Whether NYSE National 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\
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\73\ 15 U.S.C. 78f(b)(8).
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As discussed in Section III above, NYSE National made various
arguments in support of its proposal and the Commission received
comment letters that expressed concerns regarding the proposal,
including in particular that NYSE National 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 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.
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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\
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\77\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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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 April 28, 2020. Rebuttal
comments should be submitted by May 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

[[Page 19545]]

arguments, the Commission will consider, pursuant to Rule 19b-4, any
request for an opportunity to make an oral presentation.\78\
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\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).
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The Commission asks that commenters address the sufficiency and
merit of NYSE National'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-2020-05 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-2020-05. 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 NYSE National. 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-2020-05 and should be submitted on
or before April 28, 2020. Rebuttal comments should be submitted by May
12, 2020.

VI. Conclusion

It is therefore ordered, pursuant to Section 19(b)(3)(C) of the
Act,\79\ that File No. SR-NYSENAT-2020-05, 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.
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\79\ 15 U.S.C. 78s(b)(3)(C).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\80\
J. Matthew DeLesDernier,
Assistant Secretary.

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\80\ 17 CFR 200.30-3(a)(57) and (58).
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[FR Doc. 2020-07231 Filed 4-6-20; 8:45 am]
BILLING CODE 8011-01-P

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