Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Exchange's Pricing Schedule at Options 7, Section 10, 57716-57722 [2021-22569]
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Federal Register / Vol. 86, No. 198 / Monday, October 18, 2021 / Notices
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBYX–2021–023 on the subject line.
Paper Comments
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• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeBYX–2021–023. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBYX–2021–023, and
should be submitted on or before
November 8, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.16
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–22568 Filed 10–15–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93293; File No. SR–Phlx–
2021–58]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Amend the
Exchange’s Pricing Schedule at
Options 7, Section 10
October 12, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 30, 2021, Nasdaq PHLX LLC
(‘‘Phlx’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III, below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
Exchange’s Pricing Schedule at Options
7, Section 10 (Proprietary Data Feed
Fees) to: (i) Allow the external
distribution of analytic products derived
from information contained in the Phlx
Options Trade Outline (‘‘PHOTO’’) to
the general investing public; (ii)
increase fees for End of Day, Intra-Day,
and historical data to reflect the current
market value of these products; and (iii)
offer a discounted fee for 36 months of
historical data for current distributors.
The proposal also includes a number of
conforming and technical changes
described further below.
The text of the proposed rule change
is available on the Exchange’s website at
https://listingcenter.nasdaq.com/
rulebook/phlx/rules, at the principal
office of the Exchange, and at the
Commission’s Public Reference Room.
1
16 17
CFR 200.30–3(a)(12).
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15 U.S.C. 78s(b)(1).
17 CFR 240.19b–4.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
This Proposal will: (i) Allow the
external distribution of analytic
products derived from PHOTO
information to the general investing
public; (ii) increase fees for End of Day,
Intra-Day, and historical data to reflect
the current market value of these
products; and (iii) offer a discounted fee
for 36 months of historical data for
current distributors.
The Exchange initially filed these
proposed pricing changes on August 6,
2021 (SR–Phlx–2021–46), but withdrew
that filing on August 19, 2021. This
filing reintroduces the August 6
Proposal.
PHLX Options Trade Outline
(‘‘PHOTO’’)
PHOTO provides customers with the
ability to create and test trading models
and analytic strategies and build
customized sentiment indicators using
the following data fields:3
• Aggregate number of buy and sell
transactions in the affected series;
• Aggregate volume traded
electronically on the Exchange in the
affected series;
• Aggregate number of trades effected
on the Exchange to open a position; 4
3 See Securities Exchange Act Release No. 62887
(September 10, 2010), 75 FR 57092 (September 17,
2010) (SR–Phlx–2010–121) (initial filing
introducing PHOTO on September 1, 2010).
4 PHOTO provides subscribers with the aggregate
number of ‘‘opening purchase transactions.’’ The
term ‘‘opening purchase transaction’’ means an
exchange options transaction in which the
purchaser’s intention is to create or increase a long
position in the series of options involved in such
transaction. See Options 1, Section 1(b)(34).
PHOTO will also provide subscribers with the
aggregate number of ‘‘opening writing
transactions.’’ The term ‘‘opening writing
transaction’’ means an Exchange options
transaction in which the seller’s (writer’s) intention
is to create or increase a short position in the series
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• Aggregate number of trades effected
on the Exchange to close a position; 5
• Origin of the orders involved in
trades on the Exchange in the affected
series during a particular trading
session, specifically aggregated in the
following categories of participants:
Customers, broker-dealers, market
makers (including specialists,
Registered Options Traders (‘‘ROTs’’),
Streaming Quote Traders (‘‘SQTs’’) 6 and
Remote Streaming Quote Traders
(‘‘RSQTs’’)),7 and Professionals.8
PHOTO is available in End of Day and
Intra-Day files. The End of Day file is
updated during an overnight process
with additional fields and is available
the following morning.9 The monthly
subscriber fee for the End of Day
product is currently $400.
The Intra-Day product is captured in
‘‘snapshots’’ taken every 10 minutes
throughout the trading day, available to
of options involved in such transaction. See
Options 1, Section 1(b)(35).
5 PHOTO provides subscribers with the aggregate
number of ‘‘closing purchase transactions’’ in the
affected series. A ‘‘closing purchase transaction’’
means an Exchange options transaction in which
the purchaser’s intention is to reduce or eliminate
a short position in the series of options involved in
such transaction. See Options 1, Section 1(b)(11).
PHOTO will also provide subscribers with the
aggregate number of ‘‘closing sale transactions.’’ A
‘‘closing sale transaction’’ means an Exchange
options transaction in which the seller’s intention
is to reduce or eliminate a long position in the
series of options involved in such transaction. See
Options 1, Section 1(b)(12).
6 A ‘‘Streaming Quote Trader’’ or ‘‘SQT’’ means
a Market Maker who has received permission from
the Exchange to generate and submit option
quotations electronically in options to which such
SQT is assigned. An SQT may only submit such
quotations while such SQT is physically present on
the trading floor of the Exchange. An SQT may only
submit quotes in classes of options in which the
SQT is assigned. See Options 1, Section 1(b)(54).
7 A ‘‘Remote Streaming Quote Trader’’ or ‘‘RSQT’’
means a Market Maker that is a member affiliated
with a Remote Streaming Quote Trader
Organization with no physical trading floor
presence who has received permission from the
Exchange to generate and submit option quotations
electronically in options to which such RSQT has
been assigned. A qualified RSQT may function as
a Remote Lead Market Maker upon Exchange
approval. An RSQT is also known as a Remote
Market Maker (‘‘RMM’’) pursuant to Options 2,
Section 11. A Remote Streaming Quote
Organization (‘‘RSQTO’’) or Remote Market Maker
Organization (‘‘RMO’’) are Exchange member
organizations that have qualified pursuant to
Options 2, Section 1. See Options 1, Section
1(b)(49).
8 The term ‘‘Professional’’ means any person or
entity that (i) is not a broker or dealer in securities,
and (ii) places more than 390 orders in listed
options per day on average during a calendar month
for its own beneficial account(s). Member
organizations must indicate whether orders are for
Professionals. See Options 1, Section 1(b)(45).
9 These additional fields are: (i) Option First
Trade Price; (ii) Option High Trade Price; (iii)
Option Low Trade Price; (iv) Option Last Trade
Price; (v) Total Phlx electronic volume for the
series; (vi) Total industry volume for the series; and
(vii) Open interest for the series.
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subscribers within 5 minutes of the
conclusion of each period. Subscribers
receive the first calculation at 9:45 a.m.
ET, representing data captured from
9:30 a.m. to 9:39 a.m., and the second
calculation at 9:55 a.m., representing
data from both the most recent snapshot
and previous snapshots, continuing over
the course of the trading day. The
monthly subscriber fee for the Intra-Day
product is currently $1,500.
PHOTO historical data provides
information about the past activity of all
option series traded on the Exchange for
each trading session conducted during a
prior calendar month selected by the
subscriber.10 This data is intended to
enhance a purchaser’s ability to analyze
option trade and volume data, evaluate
historical trends in the trading activity
of a particular option series, and create
and test trading models and analytical
strategies. The product provides the
following data:
• Aggregate number of buy and sell
transactions in the affected series for
each trading session conducted during
the specified calendar month(s);
• Aggregate volume traded
electronically on the Exchange in the
affected series for each trading session
conducted during the specified calendar
month(s);
• Aggregate number of trades effected
on the Exchange to open a position 11 for
each trading session conducted during
the specified calendar month(s);
• Aggregate number of trades effected
on the Exchange to close a position 12
for each trading session conducted
during the specified calendar month(s);
• Origin of the orders involved in
trades on the Exchange in the affected
series for each trading session
conducted during the specified calendar
month(s), specifically aggregated in the
following categories of participants:
Customers, broker-dealers, market
makers (including specialists, ROTs,
SQTs 13 and RSQTs),14 and
Professionals.15
Historical PHOTO data is available
starting in January 2009 in both End of
Day and Intra-Day files.16 The End of
Day product provides aggregate data for
the entire trading session, while the
Intra-Day product includes periodic,
10 See Securities Exchange Act Release 63351
(November 19, 2010), 75 FR 73140 (November 29,
2010) (SR–Phlx–2010–154).
11 See Supra, n. 4.
12 See Supra, n. 5.
13 See Supra, n. 6.
14 See Supra, n. 7.
15 See Supra, n. 8.
16 See Securities Exchange Act Release No. 63351
(November 19, 2010), 75 FR 73140 (November 29,
2010) (SR–Phlx–2010–154) (introducing fees for
PHOTO historical data).
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cumulative data for each trading session
at ten minutes intervals. The fee for the
historical End of Day product is
currently $400 per month, and the fee
for the historical Intra-Day product is
$750 per month.
PHOTO is one of five market data
products offered by the Exchange.17 The
others are Phlx Depth of Market,18 Top
of Phlx Options,19 TOPO Plus Orders,20
and Historical Phlx Orders.21 PHOTO
plays a unique role in this array. It is not
necessary to execute a trade, but it
supplies the customer with information
about underlying market trends
designed to improve the quality of that
customer’s investment decisions.
Customers can, and often do, elect to
forego this information. The current
purchasers of PHOTO are investment
banks, market makers, asset managers
and other buy-side investors.22
PHOTO is subject to direct
competition from similar end of day and
intra-day options trading summaries
offered by ten other options
exchanges.23 All of these exchanges
17 There is little overlap in the data provided by
PHOTO and the data provided by the other options
market data products offered by the Exchange. The
only elements of overlapping data would be the last
sale information, which is available through Top of
Phlx Options and TOPO Plus orders, and total
exchange volume, which can be derived from
several of the other products.
18 Phlx Depth of Market (Phlx Depth) is designed
to provide aggregate order book and last sale data
from the PHLX Options Market in an easy-todisplay format. Similar to NASDAQ TotalViewAggregated feed, PHLX Depth summarizes the order
interest at each price level in the PHLX system. See
Options 3, Section 23(a)(3).
19 Top of Phlx Options (TOPO) is designed to
provide Best Bid and Offer (BBO) and last sale
information directly to PHLX Options Market
participant firms that subscribe to the data feed. See
Options 3, Section 23(a)(1).
20 TOPO Plus Orders is designed to provide Best
Bid and Offer (BBO) and last sale information plus
the state of single and complex orders on the PHLX
order book to firms on a real-time basis. TOPO Plus
Orders provides access to both the TOPO data feed
and the PHLX Orders data feed. See Options 3,
Section 23(a)(2).
21 Historical Phlx Orders provides a historical
record of the simple and complex order message
data from the TOPO Plus Orders data product.
Subscribers to this historical product may
download the Historical Phlx Orders daily message
logs on a T+1 basis from a secure FTP server.
Historical Phlx Orders is available as eight separate
files each day, four for simple orders and four for
complex orders. The data originates from the Phlx
Orders data feed and therefore, no quote data is
included.
22 An average of 26 customers per month over the
past year have subscribed to either the End of Day
or Intra-Day product.
23 These substitute products are: Nasdaq Options
Trade Outline, ISE Trade Profile, GEMX Trade
Profile data; open-close data from Cboe C1, C2,
BZX, and EDGX; and Open Close Reports from
MIAX Options, Pearl, and Emerald. A small number
of options exchanges do not offer PHOTO-like
products: Amex, ARCA, BOX, BX Options, and
MRX, although the Exchange understands that
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offer essentially the same end of day
and intra-day options trading summary
information, and generally differ solely
in the amount of history available for
purchase.24 A few data fields available
on PHOTO are also available on the
OPRA feed.25
The options trading summary files
offered by these ten exchanges are
substitutes, not complements.26 PHOTO
provides data on options market activity
which can be used to infer longer-term
trends. The information provided by
one exchange is generally similar to that
provided by other exchanges because
order flow can move from one exchange
to another, and market sentiment trends
that appear on one exchange are likely
to be similar to the sentiment trends on
other exchanges. The key differentiator
in the quality of the data depends on the
volume of transactions on a given
exchange. The greater the volume of
transactions, the greater the value of the
data. We observe that customers
purchase sufficient data to provide a
view of the market, but not more, as the
value of data from each additional
exchange yields diminishing returns.27
Fees for PHOTO are therefore
constrained by the competition among
exchanges for similar options trading
summary products.
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Proposed Changes
The Proposal will: (i) Allow the
external distribution of analytic
products derived from PHOTO
information to the general investing
public; (ii) increase fees for End of Day,
Intra-Day, and historical data to reflect
the current market value of the product;
and (iii) offer a discounted fee for 36
similar products for BX Options and MRX may be
forthcoming.
24 For example, Cboe offers history for their end
of day data starting in January 1990 while PHOTO
End of Day history is only offered starting in
January 2009. Also, Cboe offers intraday starting in
October 2019 while PHOTO intraday is offered
starting in January 2009.
25 The overlap is limited to open interest, total
industry volume, and first, high, low, and last trade
price for an option series.
26 Complementary products require the purchaser
to buy both products together to be useful, as in the
example of a video game and a video game console,
or a smartphone and a smartphone charger.
Products are substitutes when the purchase of one
product renders purchase of the other product less
necessary, as in the case of smartphones from two
different manufacturers.
27 Customers sometimes choose between
purchasing PHOTO-type data from one exchange
with a relatively large market share, or multiple
exchanges with smaller market shares which
collectively represent roughly the same fraction of
the market as the larger exchange. Once the
customer has an adequate view of the market, either
through one or a small number of exchanges, the
customer does not purchase additional data as the
value of more data diminishes with each successive
purchase.
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months of historical data for current
distributors.
External Distribution to the General
Investing Public
The external distribution of PHOTO
data or any analytic product derived
from such data is not currently
permitted, as explained in the initial
filing of this product.28 The Exchange
proposes to remove that prohibition and
allow vendors to distribute ‘‘Derived
Data’’ 29 based on PHOTO. Derived Data
is ‘‘any Information generated in whole
or in part from Exchange Information 30
such that the Information generated
cannot be reverse engineered to recreate
Exchange Information, or be used to
create other data that is recognizable as
a reasonable substitute for such
Exchange Information.’’ The Exchange
proposes to allow the distribution of
Derived Data based on the information
contained in the PHOTO product.31
An example of the type of Derived
Data that the Exchange would like
vendors to disseminate is the Sentiment
Indicator currently offered by the
Nasdaq ISE Exchange.32 This indicator
compares the number of opening long
call options to opening long put
options.33 If the value is greater than
28 See Securities Exchange Act Release No. 62887
(September 10, 2010), 75 FR 57092 (September 17,
2010) (SR–Phlx–2010–121) (‘‘PHOTO is available
only for internal use and distribution by
subscribers.’’).
29 ‘‘Derived Data’’ is not currently a defined term
in the Phlx Rulebook. In the Nasdaq rulebook,
‘‘Derived Data’’ is defined as ‘‘any information
generated in whole or in part from Exchange
Information such that the information generated
cannot be reverse engineered to recreate Exchange
Information, or be used to create other data that is
recognizable as a reasonable substitute for such
Exchange Information.’’ See Nasdaq Rulebook,
Equity 7 (Pricing Schedule), Section 139(f)
(definition of Derived Data for the Nasdaq Last Sale
and Nasdaq Last Sale Plus data feeds).
30 ‘‘Exchange Information’’ is any data or
information that has been collected, validated,
processed and/or recorded by the Exchange and
made available for transmission relating to: (i)
Eligible securities or other financial instruments,
markets, products, vehicles, indicators, or devices;
(ii) activities of the Exchange; or (iii) other
information or data from the Exchange. Information
includes, but is not limited to, any element of
information used or processed in such a way that
Exchange Information or a substitute for such
Information can be identified, recalculated or reengineered from the processed information.
31 Although Derived Data is a general term, in the
context of this proposal it applies only to data
derived from PHOTO information.
32 See Nasdaq ISE, LLC Rules, Options 7 (Pricing
Schedule), Section 10(D) (Enhanced Sentiment
Market Data), available at https://
listingcenter.nasdaq.com/rulebook/ise/rules/
ISE%20Options%207. See also https://
www.nasdaq.com/market-activity/isee-index.
33 ISE sentiment Index = (Number of long call
options purchased ÷ Number of long put options
purchased) × 100. Focusing on opening activity
allows for a more accurate measure of true investor
sentiment.
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100, more long call options have been
purchased by investors than long put
options, while values less than 100
indicates the opposite. The higher the
index is above 100, the more bullish the
market sentiment is thought to be; the
lower the index is below 100, the more
bearish. This is but one example.
While the Exchange could develop
and market such products on its own, a
more effective way to distribute such
information would be to allow market
data vendors to identify, develop, and
sell such indicators, harnessing the
power of the competitive marketplace to
promote innovation. This will promote
the dissemination of a variety of
analytical insights—previously available
only to investment banks, market
makers, asset managers and other buyside investors—to the general investing
public.34
This Proposal is based on industry
feedback. Over the years, a number of
vendors, as well as a few existing
customers, have expressed an interest in
creating indicators from PHOTO data
that can be easily consumed by the
general investing public. Phlx believes
that it will be first to the market with
an options data product that allows
market data vendors to distribute market
sentiment information. The fees charged
for a license to distribute the Derived
Data will be constrained by potential
competition, as any exchange with an
options trading product would be able
to submit an immediately-effective fee
filing to allow redistribution, most
likely without needing to modify the
underlying trading outline product in
any way, thereby subjecting the
proposed fee to market competition.
The Exchange proposes a fee of
$5,000 per month to allow the unlimited
external distribution of Derived Data
from PHOTO.
The Exchange expects up to 10
additional vendors to take advantage of
this innovation over the course of the
next 24 months. We do not have a
precise estimate of the number of
individuals expected to benefit, which
will ultimately depend on the
usefulness of the Derived Data products
that reach the market. Having said that,
we expect this to be a popular product
that will benefit thousands of investors.
34 The Exchange proposes to sell the license to
distribute this information in the form of Derived
Data, rather than distributing the underlying
information, so that the general investing public can
benefit from the interpretation of the underlying
data that we expect vendors to provide. Although
the Exchange expects that this product will have
the greatest utility for the general investing public,
it is possible that some firms may find a Derived
Data product useful as well. As such, the Exchange
is not inserting a requirement that distribution be
limited only to the general investing public.
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The Exchange proposes to license
distribution of Derived Data for a fee of
$5,000 per month, which will be in
addition to fees for the underlying
data.35
Fee Increases for End of Day, Intra-Day
and Historical Data
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The Exchange proposes to increase
the fee for End of Day data from $500
to $750 per month, and the fee for IntraDay data from $1,500 to $2,500. Fees for
historical data are proposed to increase
from $400 to $500 per month for the
End of Day file, and from $750 to $1,000
per month for the Intra-Day file.
These changes are proposed as an
adjustment to reflect the current market
value of the product, based on a review
of fees for substitute products for
PHOTO, particularly those offered by
Cboe and MIAX.36 As explained above,
PHOTO provides customers with the
ability to create and test trading models
and analytic strategies and build
customized sentiment indicators using
options transaction data. The value of
PHOTO, and similar products, is
determined in part by the number of
underlying transactions reflected in the
data, and in part by other factors such
as the technical sophistication of the
35 For example, external distribution of data
derived from the End of Day product will be $750
per month, plus the $5,000 per month fee.
36 Cboe (C1) offers end of day data for $600 per
month, and intra-day data for $2,000 per month. For
historical data, 1–4 years are available for $600/
month, and 5+ years of data are available for $300
per month. See Cboe Exchange, Inc. Fee Schedule
(July 1, 2021) available at https://cdn.cboe.com/
resources/membership/Cboe_FeeSchedule.pdf.
Cboe (C2) offers end of day data for $500 per month,
and Intra-Day data for $1,000 per month. Historical
data is available for $400 for End of Day, and $500
Intra-Day. See Cboe U.S. Options Fee Schedules
(Cboe Options) (June 1, 2021) available at https://
www.cboe.com/us/options/membership/fee_
schedule/ctwo/ Cboe BZX offers end of day data for
$500, intra-day for $1,500; end of day historical
data is $400 per month, and intra-day data is $750
per month. See Cboe U.S. Options Fee Schedules
(BZX Options) (June 1, 2021) available at https://
www.cboe.com/us/options/membership/fee_
schedule/bzx Cboe EDGX end of day data is $500
per month, Intra-Day data is $1,000 per month;
historical data is $400 for end of day, and $750 for
intra-day. See Cboe U.S. Options Fee Schedules
(EDGX Options) (June 1, 2021) available at https://
www.cboe.com/us/options/membership/fee_
schedule/edgx/ MIAX Options, MIAX Pearl and
MIAX Emerald are $600 per month for end of day,
and $2,000 per month for intra-day. See MIAX
Options Exchange Fee Schedule (July 12, 2021),
available at https://www.miaxoptions.com/sites/
default/files/fee_schedule-files/MIAX_Options_Fee_
Schedule_07122021.pdf; MIAX Pearl Options
Exchange Fee Schedule (July 1, 2021), available at
https://www.miaxoptions.com/sites/default/files/
fee_schedule-files/MIAX_Pearl_Options_Fee_
Schedule_07012021.pdf; MIAX Emerald Options
Exchange Fee Schedule (July 1, 2021), available at
https://www.miaxoptions.com/sites/default/files/
fee_schedule-files/MIAX_Emerald_Fee_Schedule_
07012021.pdf.
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product.37 The Exchange believes that
the proposed fees reflect the current
market value of this product, based on
a comparison to the fees charged by
competitors, adjusted by the relative
value of the competitor products.38 If
the Exchange is incorrect in its
assessment of the marketplace, current
and prospective customers will elect not
to purchase PHOTO.
Because fees are being set at market
rates, we do not expect to see significant
changes in sales for the core PHOTO
products due to these particular fee
changes, although, for the reasons
discussed below, we do expect the
discount on historical data to attract
between 5 and 10 new customers.39
Discounts for 36 Months of Historical
Data
PHOTO customers often purchase
historical data with their subscription to
create and test trading models and
analytical strategies. To facilitate such
testing and encourage new firms to
purchase the product (and in particular
to incentivize data vendors to develop
new Derived Data products), the
Exchange proposes an historical data
discount for Current Distributors: 40
37 PHOTO was originally delivered via FTP files,
but now is available through Report HQ, a
technology that allows access to all Nasdaq reports,
including PHOTO, via an ‘‘On-Demand’’ technology
with secure user access that provides firms with
more options to better manage their subscriptions.
A description of Report HQ access is available here:
https://www.nasdaq.com/docs/
NasdaqReportHQ.pdf.
38 The value of PHOTO has increased since the
product was first established on September 1, 2010.
See Securities Exchange Act Release No. 62887
(September 10, 2010), 75 FR 57092 (September 17,
2010) (SR–Phlx–2010–121). The same is true for the
historical PHOTO data. See Securities Exchange Act
Release No. 63351 (November 19, 2010), 75 FR
73140 (November 29, 2010) (SR–Phlx–2010–154).
39 As a conforming change, the Exchange also
proposes to replace the word ‘‘Subscriber’’ with
‘‘Distributor.’’ A ‘‘Distributor’’ of Nasdaq PHLX data
is ‘‘any entity that receives a feed or data file of data
directly from Nasdaq PHLX or indirectly through
another entity and then distributes it either
internally (within that entity) or externally (outside
that entity).’’ See Options 7, Section 10. The term
‘‘Subscriber’’ is not specifically defined in the Phlx
Options fee schedule, but is defined in the PSX
Equity schedule as ‘‘any access that a distributor of
the data entitlement package(s) provides to: (1)
Access the information in the data entitlement
package(s); or (2) communicate with the distributor
so as to cause the distributor to access the
information in the data entitlement package(s).’’ See
Equity 7, PSX TotalView, Subsection (d). In light of
these definitions, we believe that the term
‘‘Distributor’’ is a more apt term for purchasers of
PHOTO information than the term ‘‘Subscriber.’’
40 A ‘‘Current Distributor’’ is any firm that
purchases either the End of Day Product for the
current month, or the Intra-Day Product for the
current month in the same month that the 36
months of historical End of Day or Intra-Day data
is ordered.
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$6,000 for the most recent 36 months 41
of End of Day data (one-third of the
$18,000 for 36 months at the proposed
rate of $500 per month); and $12,000 for
the most recent 36 months of Intra-Day
data (one-third of the $36,000 for 36
months at the proposed rate of $1,000
per month). Current Distributors would
be able to purchase both End of Day and
Intra-Day data for $18,000. Data for any
months outside of the 36-month period
would be purchased at the standard
rates.42
The discount will depend on the type
of subscription: A current purchaser of
End of Day data would be eligible for
the historical End of Day product at the
reduced rate; a current purchaser of the
Intra-Day product would be able to
purchase the historical Intra-Day
product at the reduced rate; and a
purchaser of both the current End of
Day and Intra-Day products would be
entitled to purchase both types of
history at the reduced rate.43
This discount will allow any
customer with either a new or ongoing
subscription to take advantage of the
discounted rate. For example, a
customer that buys the End of Day
product for the first time in October
2021 would also be able to purchase
historical End of Day data for the period
September 2018 through September
2021 (inclusive) at the discounted rate.
Similarly, a customer with a
longstanding End of Day subscription
that is current in October 2021 would be
able to purchase the historical End of
Day data from September 2018 through
September 2021 at the discounted rate.
The same reasoning would apply to
Intra-Day customers.44
The proposed 36-month discount is
based on customer feedback and our
analysis of recent purchases. Customers
have told us over the years that 36
months of historical data is optimal for
41 The most recent 36 months is measured based
on the date of purchase of the 36 months of data
by a Current Distributor.
42 As a conforming change, the phrase ‘‘Charge
per calendar month Requested’’ is replaced with the
word ‘‘Fee’’ because of the special monthly rates for
Current Distributors.
43 Historical data is linked to the current product
because effective historical testing requires a
comparison of similar products. Effective testing of
the End of Day product, for example, requires End
of Day historical data, and the same would hold
true for Intra-Day data.
44 A customer may use the proposed historical
data discount more than once. For example, a
Current Distributor that purchases 36 months of
historical data at a discount, but later terminates
that subscription, would be eligible to purchase
another 36 months of historical data (based on the
date of purchase) upon renewing that subscription.
(Current Distributors that never terminate would
have no need for a second purchase, as they would
already possess the most recent months of historical
data.).
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testing. Although the median number of
months for the purchase of historical
data increased to 42 months over the
past year, we determined that this was
skewed by a large number of unusually
large purchases, and decided to use the
long-term average of 36 months as the
most appropriate basis for the discount.
Any exchange that provides options
trading statistics would be able to match
the proposed discount for historical data
through an immediately-effective fee
filing with the Commission, thus
subjecting the proposed fee change to
competition.
We believe that the historical data
discount will be attractive to our
customers, and expect between 5 and 10
new distributors in the first year as a
result.
Technical Change
The Exchange proposes to delete the
footnote describing how historical data
is charged as unnecessary.
Operative Date
The Exchange proposes the operative
date to be October 1, 2021.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,45 in general, and furthers the
objectives of Sections 6(b)(4) and 6(b)(5)
of the Act,46 in particular, in that it
provides for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility, and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
Equitable Allocation of Reasonable
Dues, Fees and Other Charges
As the Commission and courts 47 have
recognized, ‘‘[i]f competitive forces are
15 U.S.C. 78f(b).
15 U.S.C. 78f(b)(4) and (5).
47 The decision of the United States Court of
Appeals for the District of Columbia Circuit in
NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010)
upheld the Commission’s reliance upon
competitive markets to set reasonable and equitably
allocated fees for market data. ‘‘In fact, the
legislative history indicates that the Congress
intended that the market system evolve through the
interplay of competitive forces as unnecessary
regulatory restrictions are removed and that the SEC
wield its regulatory power in those situations where
competition may not be sufficient, such as in the
creation of a consolidated transactional reporting
system.’’ NetCoalition I, at 535 (quoting H.R. Rep.
No. 94–229, at 92 (1975), as reprinted in 1975
U.S.C.C.A.N. 321, 323) (internal quotation marks
omitted). The court agreed with the Commission’s
conclusion that ‘‘Congress intended that
competitive forces should dictate the services and
practices that constitute the U.S. national market
system for trading equity securities.’’ Id. (quoting
Securities Exchange Act Release No. 59039
45
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46
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operative, the self-interest of the
exchanges themselves will work
powerfully to constrain unreasonable or
unfair behavior.’’ 48 Accordingly, ‘‘the
existence of significant competition
provides a substantial basis for finding
that the terms of an exchange’s fee
proposal are equitable, fair, reasonable,
and not unreasonably or unfairly
discriminatory.’’ 49 The Commission
and the courts have repeatedly
expressed their preference for
competition over regulatory
intervention in determining prices,
products, and services in the securities
markets. In Regulation NMS, while
adopting a series of steps to improve the
current market model, the Commission
highlighted the importance of market
forces in determining prices and SRO
revenues, and also recognized that
current regulation of the market system
‘‘has been remarkably successful in
promoting market competition in its
broader forms that are most important to
investors and listed companies.’’ 50
PHOTO is in direct competition with
10 options trading products that serve as
substitutes for PHOTO information.51
All of these products offer the same type
of data content through end of day or
intra-day reports, and in general differ
only with respect to the amount of
history available.52 A small amount of
the information available on PHOTO is
also available on the OPRA feed.53
Purchase of PHOTO, like all market
data products, is optional.54 PHOTO is
(December 2, 2008), 73 FR 74770, 74,771 (December
9, 2008) (SR–NYSEArca–2006–21)).
48 See Securities Exchange Act Release No. 59039
(December 2, 2008), 73 FR 74770 (December 9,
2008) (SR–NYSEArca–2006–21).
49 See id.
50 See Securities Exchange Act Release No. 51808
(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
51 These substitute products are: NOTO, ISE
Trade Profile, GEMX Trade Profile data; open-close
data from Cboe C1, C2, BZX, and EDGX; and Open
Close Reports from MIAX Options, Pearl, and
Emerald. The Exchange understands that similar
products for BX Options and MRX will be
forthcoming.
52 For example, Cboe offers history for their end
of day data back through January 1990 while
PHOTO End of Day history is only offered back
through January 2009. Also, Cboe offers intra-day
history back through Oct 2019 while PHOTO IntraDay is offered through Jan 2009.
53 The overlap is limited to open interest and
total industry volume.
54 Staff Guidance on SRO Filings Related to Fees
states that ‘‘any discussion of alternatives should
include a discussion of how regulatory
requirements, particularly best execution
obligations, Regulation NMS Rule 611 (the Order
Protection Rule), and/or the Options Order
Protection and Locked/Crossed Market Plan
(Options Linkage Plan), as applicable, affect the
competitive analysis.’’ See Division of Trading and
Markets, U.S. Securities and Exchange Commission,
‘‘Staff Guidance on SRO Filings Related to Fees’’
(May 21, 2019), available at https://www.sec.gov/
PO 00000
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designed to help investors understand
underlying market trends to improve the
quality of investment decisions, but is
not necessary to execute a trade.
Customers can, and do, choose to forego
the information from PHOTO or any of
its competitor products when making a
trade, as is evident from the relatively
small number of current subscribers. As
noted, a monthly average of only 26
customers over the past year subscribed
to either the End of Day or Intra-Day
products.55
Each of the three proposed changes—
allowing the external distribution of
derived data, modifying fees to reflect
current market value, and discounting
historical data—is subject to
competition, both separately and
together. As a whole, the Proposals will
expand and enhance that competition.
First, the proposal to allow the
external distribution of derived data is
subject to competition as discussed
above, and also introduces a new
category of market participant—market
data vendors—into the equation. Under
the current rulebook, PHOTO data is not
available for redistribution, in either
native form or through Derived Data.56
This proposal will create a new market
for the sale of Derived Data products to
the general investing public. This is
itself evidence of the competitive
environment for PHOTO and its
substitutes, as it is exactly the type of
innovation one would expect to see in
a competitive market. It will also spur
further innovation by challenging
market data vendors to create new and
innovative Derived Data products. Any
exchange that wishes to allow
distribution of a Derived Data product
based on options trading information
would be able to do so with an
immediately-effective fee filing similar
to this Proposal, most likely without
requiring any technological
enhancement to the underlying product.
Allowing the redistribution of Derived
Data, but not the underlying
information, to the general investing
public is an equitable allocation of
reasonable dues, fees and other charges
because it is the most efficient
tm/staff-guidance-sro-rule-filings-fees (‘‘Staff
Guidance’’). Given that PHOTO is an optional
analytic product, other regulatory requirements are
inapplicable.
55 Staff Guidance, Supra n. 59, indicates that an
SRO may estimate elasticity of demand for a
product as part of the fee proposal. Such estimation
is impossible in the case of PHOTO, which has not
had a price change in nearly 10 years, and more
generally is inapposite for any product subject to
overall competition among exchange platforms.
56 See Securities Exchange Act Release No. 62887
(September 10, 2010), 75 FR 57092 (September 17,
2010) (SR–Phlx–2010–121) (stating that ‘‘PHOTO is
available only for internal use and distribution by
subscribers.’’).
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mechanism for widespread delivery of
market sentiment information. As
explained above, the proposal is
designed to promote the dissemination
of a variety of analytical insights—
previously available only to investment
banks, market makers, asset managers
and other buy-side investors—to the
general investing public by creating an
incentive for market data vendors to
identify, develop, and sell such
indicators. Ordinarily, neither
exchanges nor vendors allow
redistribution of analytic products—
such products are typically designed
solely for the use of direct customers,
not for redistribution to the customers of
customers in the manner of a data feed.
Allowing the redistribution of Derived
Data provides an incentive for vendors
to innovate with new compelling and
varied analytic products for the general
investing public that will provide access
to market sentiment insights currently
available only to sophisticated
investors.
Second, the proposed adjustments to
PHOTO fees reflect the Exchange’s
assessment of the current marketplace,
based on a review of fees for substitute
products, particularly those offered by
Cboe and MIAX.57 As explained above,
PHOTO provides customers with the
ability to create and test trading models
and analytic strategies and build
customized sentiment indicators using
57 Cboe (C1) offers end of day data for $600 per
month, and intra-day data for $2,000 per month. For
historical data, 1–4 years are available for $600/
month, and 5+ years of data are available for $300
per month. See Cboe Exchange, Inc. Fee Schedule
(July 1, 2021) available at https://cdn.cboe.com/
resources/membership/Cboe_FeeSchedule.pdf.
Cboe (C2) offers end of day data for $500 per month,
and Intra-Day data for $1,000 per month. Historical
data is available for $400 for End of Day, and $500
Intra-Day. See Cboe U.S. Options Fee Schedules
(Cboe Options) (June 1, 2021) available at https://
www.cboe.com/us/options/membership/fee_
schedule/ctwo/ Cboe BZX offers end of day data for
$500, intra-day for $1,500; end of day historical
data is $400 per month, and intra-day data is $750
per month. See Cboe U.S. Options Fee Schedules
(BZX Options) (June 1, 2021) available at https://
www.cboe.com/us/options/membership/fee_
schedule/bzx Cboe EDGX end of day data is $500
per month, Intra-Day data is $1,000 per month;
historical data is $400 for end of day, and $750 for
intra-day. See Cboe U.S. Options Fee Schedules
(EDGX Options) (June 1, 2021) available at https://
www.cboe.com/us/options/membership/fee_
schedule/edgx/ MIAX Options, MIAX Pearl and
MIAX Emerald are $600 per month for end of day,
and $2,000 per month for intra-day. See MIAX
Options Exchange Fee Schedule (July 12, 2021),
available at https://www.miaxoptions.com/sites/
default/files/fee_schedule-files/MIAX_Options_Fee_
Schedule_07122021.pdf; MIAX Pearl Options
Exchange Fee Schedule (July 1, 2021), available at
https://www.miaxoptions.com/sites/default/files/
fee_schedule-files/MIAX_Pearl_Options_Fee_
Schedule_07012021.pdf; MIAX Emerald Options
Exchange Fee Schedule (July 1, 2021), available at
https://www.miaxoptions.com/sites/default/files/
fee_schedule-files/MIAX_Emerald_Fee_Schedule_
07012021.pdf.
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options transaction data. The value of
PHOTO, and similar products, is
determined in part by the number of
underlying transactions reflected in the
data, and in part the technical
sophistication of the product.58 The
Exchange believes that the proposed
fees reflect the current market value of
this product, based on a comparison to
the fees charged by competitors,
adjusted by the relative value of the
competitor products.59 If the Exchange
is incorrect in its assessment of the
marketplace, current and prospective
customers will elect not to purchase
PHOTO.
Third, offering historical data at a
discount is yet another example of how
the competitive marketplace works to
constrain prices. In order to effectively
compete, the Exchange proposes to
reduce the price of historical data to: (i)
Encourage vendors to test the product
for the first time and develop Derived
Data products, and (ii) incentivize those
categories of market participants that
currently purchase the product—
investment banks, market makers, asset
managers and other buy-side investors—
to test new trading models and
analytical strategies. As explained
above, the Exchange believes that this
36-month period is optimal for testing
based on customer feedback and our
analysis of recent purchases, and
expects this new fee structure to be
attractive for both old and new
customers. Options exchanges that offer
substitute products would be able to
reduce the price of their historical data
through an immediately-effective fee
filing at any time in response.
For all of these reasons, each aspect
of the proposal, separately and together,
is subject to competition, and therefore
provides for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility.
The Proposal Does Not Permit Unfair
Discrimination
Nothing in the Proposal treats any
category of market participant any
58 PHOTO was originally delivered via FTP files,
but now is available through Report HQ, a
technology that allows access to all Nasdaq reports,
including PHOTO, via an ‘‘On-Demand’’ technology
with secure user access that provides firms with
more options to better manage their subscriptions.
A description of Report HQ access is available here:
https://www.nasdaq.com/docs/
NasdaqReportHQ.pdf.
59 The value of PHOTO has increased since the
product was first established on September 1, 2010.
See Securities Exchange Act Release No. 62887
(September 10, 2010), 75 FR 57092 (September 17,
2010) (SR–Phlx–2010–121). The same is true for the
historical PHOTO data. See Securities Exchange Act
Release No. 63351 (November 19, 2010), 75 FR
73140 (November 29, 2010) (SR–Phlx–2010–154).
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57721
differently from any other category of
market participant. On the contrary, the
Proposal expands distribution of
PHOTO information beyond investment
banks, market makers, asset managers
and other buy-side investors to market
data vendors and the general investing
public. Allowing the distribution of
Derived Data to the general investing
public will broaden the availability of
such information while not treating any
current recipient of the product
differently in any way. The new fee
structure, which modifies fees to reflect
current market value and offers
historical data at a discount, applies
equally to all current and potential
distributors. PHOTO is available to all
market participants, including members
and non-members, and all market
participants receive the same
information in the PHOTO data feed.
With respect to the specific fee
changes, it is reasonable and not unfair
discrimination to charge an external
distributor of Derived Data a $5,000
licensing fee. Vendors will ordinarily
charge a fee to their downstream
customers for this service, and, even if
the vendor is not charging a specific fee
for this particular service, Derived Data
products from PHOTO will be part of a
suite of offerings that generally promote
sales. External distribution is
fundamentally different than internal
use, in that the former generates revenue
from external sales while the latter does
not. It is not unfair discrimination to
charge a licensing fee for a product that
generates downstream revenue.
Nor is it unfair discrimination to
allow the redistribution of Derived Data,
but not the underlying information, to
the general investing public. As
explained above, neither exchanges nor
vendors ordinarily allow redistribution
of analytic products—such products are
typically designed solely for the use of
direct customers, not for redistribution
to the customers of customers in the
manner of a data feed. Allowing the
redistribution of Derived Data provides
an incentive for vendors to innovate
with new compelling and varied
analytic products for the general
investing public that will provide access
to market sentiment insights currently
available only to sophisticated
investors. This proposal is therefore not
unfair discrimination, but rather allows
for more equitable access to market
sentiment information to the general
investing public.
It is also not unfair discrimination to
provide a discount for 36 months of
historical data to current distributors,
but not former distributors or firms that
have never purchased the product. Any
firm would be able to become a current
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distributor at any time by subscribing to
the PHOTO service, and would be able
to cancel the subscription at any time
after receiving the 36 months of
historical data for the proposed
discounted fee. It is not unfair
discrimination to limit the historical
data discount to current distributors, as
they are in the best position to benefit
from the historical data, whereas firms
that do not currently receive the service
would have little use for the
information.
For all of these reasons, the Proposal
does not permit unfair discrimination.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act.
The Exchange operates in a highly
competitive environment in which the
Exchange must continually adjust its
fees to remain competitive. Because
competitors are free to modify their own
fees in response, the Exchange believes
that the degree to which fee changes in
this market may impose any burden on
competition is extremely limited.
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Intermarket Competition
As discussed in detail under Statutory
Basis, PHOTO is subject to direct
competition from the ten other options
exchanges that offer substitutes to
PHOTO. Moreover, purchase of PHOTO
is optional. It is designed to help
investors understand underlying market
trends to improve the quality of
investment decisions, but is not
necessary to execute a trade.
The Proposal is grounded in the
Exchange’s efforts to compete more
effectively. The Exchange is proposing
to broaden distribution of PHOTO
information beyond investment banks,
market makers, asset managers and
other buy-side investors to market data
vendors and the general investing
public, and to provide a discount for
distributors to test investment strategies
and trading models, and develop market
sentiment indicators. These changes
will not cause any unnecessary or
inappropriate burden on intermarket
competition, but rather will promote
competition by expanding the market
for PHOTO data and encouraging new
distributors to investigate the product.
Other exchanges are, of course, free to
match these changes or undertake other
competitive responses, enhancing
overall competition.
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Intramarket Competition
The Proposal will not cause any
unnecessary or inappropriate burden on
intramarket competition. On the
contrary, it will foster competition by
expanding dissemination of data to
vendors and the general investing
public, and by encouraging more market
participants to use PHOTO data to help
inform their investments strategies and
analytic models.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were either
solicited or received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act.60
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
Phlx–2021–58 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Phlx–2021–58. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–Phlx–2021–58 and should
be submitted on or before November 8,
2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.61
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–22569 Filed 10–15–21; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–93289; File No. SR–
CboeBZX–2021–066]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Notice of Filing
and Immediate Effectiveness of a
Proposed Rule Change To Adopt a
Rule Regarding the Allowance of OffExchange Transactions by a Member
Acting as Agent Otherwise Than on
BZX in Accordance With Rule 19c–1
Under the Securities Exchange Act of
1934
October 12, 2021.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that, on
17 CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
61
1 15
60
PO 00000
15 U.S.C. 78s(b)(3)(A)(ii).
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]]>Agencies
[Federal Register Volume 86, Number 198 (Monday, October 18, 2021)]
[Notices]
[Pages 57716-57722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-22569]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93293; File No. SR-Phlx-2021-58]
Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend the
Exchange's Pricing Schedule at Options 7, Section 10
October 12, 2021.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 30, 2021, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I, II, and III, below,
which Items have been prepared by the Exchange. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the Exchange's Pricing Schedule at
Options 7, Section 10 (Proprietary Data Feed Fees) to: (i) Allow the
external distribution of analytic products derived from information
contained in the Phlx Options Trade Outline (``PHOTO'') to the general
investing public; (ii) increase fees for End of Day, Intra-Day, and
historical data to reflect the current market value of these products;
and (iii) offer a discounted fee for 36 months of historical data for
current distributors. The proposal also includes a number of conforming
and technical changes described further below.
The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
This Proposal will: (i) Allow the external distribution of analytic
products derived from PHOTO information to the general investing
public; (ii) increase fees for End of Day, Intra-Day, and historical
data to reflect the current market value of these products; and (iii)
offer a discounted fee for 36 months of historical data for current
distributors.
The Exchange initially filed these proposed pricing changes on
August 6, 2021 (SR-Phlx-2021-46), but withdrew that filing on August
19, 2021. This filing reintroduces the August 6 Proposal.
PHLX Options Trade Outline (``PHOTO'')
PHOTO provides customers with the ability to create and test
trading models and analytic strategies and build customized sentiment
indicators using the following data fields:\3\
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\3\ See Securities Exchange Act Release No. 62887 (September 10,
2010), 75 FR 57092 (September 17, 2010) (SR-Phlx-2010-121) (initial
filing introducing PHOTO on September 1, 2010).
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Aggregate number of buy and sell transactions in the
affected series;
Aggregate volume traded electronically on the Exchange in
the affected series;
Aggregate number of trades effected on the Exchange to
open a position; \4\
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\4\ PHOTO provides subscribers with the aggregate number of
``opening purchase transactions.'' The term ``opening purchase
transaction'' means an exchange options transaction in which the
purchaser's intention is to create or increase a long position in
the series of options involved in such transaction. See Options 1,
Section 1(b)(34). PHOTO will also provide subscribers with the
aggregate number of ``opening writing transactions.'' The term
``opening writing transaction'' means an Exchange options
transaction in which the seller's (writer's) intention is to create
or increase a short position in the series of options involved in
such transaction. See Options 1, Section 1(b)(35).
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[[Page 57717]]
Aggregate number of trades effected on the Exchange to
close a position; \5\
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\5\ PHOTO provides subscribers with the aggregate number of
``closing purchase transactions'' in the affected series. A
``closing purchase transaction'' means an Exchange options
transaction in which the purchaser's intention is to reduce or
eliminate a short position in the series of options involved in such
transaction. See Options 1, Section 1(b)(11). PHOTO will also
provide subscribers with the aggregate number of ``closing sale
transactions.'' A ``closing sale transaction'' means an Exchange
options transaction in which the seller's intention is to reduce or
eliminate a long position in the series of options involved in such
transaction. See Options 1, Section 1(b)(12).
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Origin of the orders involved in trades on the Exchange in
the affected series during a particular trading session, specifically
aggregated in the following categories of participants: Customers,
broker-dealers, market makers (including specialists, Registered
Options Traders (``ROTs''), Streaming Quote Traders (``SQTs'') \6\ and
Remote Streaming Quote Traders (``RSQTs'')),\7\ and Professionals.\8\
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\6\ A ``Streaming Quote Trader'' or ``SQT'' means a Market Maker
who has received permission from the Exchange to generate and submit
option quotations electronically in options to which such SQT is
assigned. An SQT may only submit such quotations while such SQT is
physically present on the trading floor of the Exchange. An SQT may
only submit quotes in classes of options in which the SQT is
assigned. See Options 1, Section 1(b)(54).
\7\ A ``Remote Streaming Quote Trader'' or ``RSQT'' means a
Market Maker that is a member affiliated with a Remote Streaming
Quote Trader Organization with no physical trading floor presence
who has received permission from the Exchange to generate and submit
option quotations electronically in options to which such RSQT has
been assigned. A qualified RSQT may function as a Remote Lead Market
Maker upon Exchange approval. An RSQT is also known as a Remote
Market Maker (``RMM'') pursuant to Options 2, Section 11. A Remote
Streaming Quote Organization (``RSQTO'') or Remote Market Maker
Organization (``RMO'') are Exchange member organizations that have
qualified pursuant to Options 2, Section 1. See Options 1, Section
1(b)(49).
\8\ The term ``Professional'' means any person or entity that
(i) is not a broker or dealer in securities, and (ii) places more
than 390 orders in listed options per day on average during a
calendar month for its own beneficial account(s). Member
organizations must indicate whether orders are for Professionals.
See Options 1, Section 1(b)(45).
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PHOTO is available in End of Day and Intra-Day files. The End of
Day file is updated during an overnight process with additional fields
and is available the following morning.\9\ The monthly subscriber fee
for the End of Day product is currently $400.
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\9\ These additional fields are: (i) Option First Trade Price;
(ii) Option High Trade Price; (iii) Option Low Trade Price; (iv)
Option Last Trade Price; (v) Total Phlx electronic volume for the
series; (vi) Total industry volume for the series; and (vii) Open
interest for the series.
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The Intra-Day product is captured in ``snapshots'' taken every 10
minutes throughout the trading day, available to subscribers within 5
minutes of the conclusion of each period. Subscribers receive the first
calculation at 9:45 a.m. ET, representing data captured from 9:30 a.m.
to 9:39 a.m., and the second calculation at 9:55 a.m., representing
data from both the most recent snapshot and previous snapshots,
continuing over the course of the trading day. The monthly subscriber
fee for the Intra-Day product is currently $1,500.
PHOTO historical data provides information about the past activity
of all option series traded on the Exchange for each trading session
conducted during a prior calendar month selected by the subscriber.\10\
This data is intended to enhance a purchaser's ability to analyze
option trade and volume data, evaluate historical trends in the trading
activity of a particular option series, and create and test trading
models and analytical strategies. The product provides the following
data:
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\10\ See Securities Exchange Act Release 63351 (November 19,
2010), 75 FR 73140 (November 29, 2010) (SR-Phlx-2010-154).
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Aggregate number of buy and sell transactions in the
affected series for each trading session conducted during the specified
calendar month(s);
Aggregate volume traded electronically on the Exchange in
the affected series for each trading session conducted during the
specified calendar month(s);
Aggregate number of trades effected on the Exchange to
open a position \11\ for each trading session conducted during the
specified calendar month(s);
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\11\ See Supra, n. 4.
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Aggregate number of trades effected on the Exchange to
close a position \12\ for each trading session conducted during the
specified calendar month(s);
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\12\ See Supra, n. 5.
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Origin of the orders involved in trades on the Exchange in
the affected series for each trading session conducted during the
specified calendar month(s), specifically aggregated in the following
categories of participants: Customers, broker-dealers, market makers
(including specialists, ROTs, SQTs \13\ and RSQTs),\14\ and
Professionals.\15\
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\13\ See Supra, n. 6.
\14\ See Supra, n. 7.
\15\ See Supra, n. 8.
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Historical PHOTO data is available starting in January 2009 in both
End of Day and Intra-Day files.\16\ The End of Day product provides
aggregate data for the entire trading session, while the Intra-Day
product includes periodic, cumulative data for each trading session at
ten minutes intervals. The fee for the historical End of Day product is
currently $400 per month, and the fee for the historical Intra-Day
product is $750 per month.
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\16\ See Securities Exchange Act Release No. 63351 (November 19,
2010), 75 FR 73140 (November 29, 2010) (SR-Phlx-2010-154)
(introducing fees for PHOTO historical data).
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PHOTO is one of five market data products offered by the
Exchange.\17\ The others are Phlx Depth of Market,\18\ Top of Phlx
Options,\19\ TOPO Plus Orders,\20\ and Historical Phlx Orders.\21\
PHOTO plays a unique role in this array. It is not necessary to execute
a trade, but it supplies the customer with information about underlying
market trends designed to improve the quality of that customer's
investment decisions. Customers can, and often do, elect to forego this
information. The current purchasers of PHOTO are investment banks,
market makers, asset managers and other buy-side investors.\22\
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\17\ There is little overlap in the data provided by PHOTO and
the data provided by the other options market data products offered
by the Exchange. The only elements of overlapping data would be the
last sale information, which is available through Top of Phlx
Options and TOPO Plus orders, and total exchange volume, which can
be derived from several of the other products.
\18\ Phlx Depth of Market (Phlx Depth) is designed to provide
aggregate order book and last sale data from the PHLX Options Market
in an easy-to-display format. Similar to NASDAQ TotalView-Aggregated
feed, PHLX Depth summarizes the order interest at each price level
in the PHLX system. See Options 3, Section 23(a)(3).
\19\ Top of Phlx Options (TOPO) is designed to provide Best Bid
and Offer (BBO) and last sale information directly to PHLX Options
Market participant firms that subscribe to the data feed. See
Options 3, Section 23(a)(1).
\20\ TOPO Plus Orders is designed to provide Best Bid and Offer
(BBO) and last sale information plus the state of single and complex
orders on the PHLX order book to firms on a real-time basis. TOPO
Plus Orders provides access to both the TOPO data feed and the PHLX
Orders data feed. See Options 3, Section 23(a)(2).
\21\ Historical Phlx Orders provides a historical record of the
simple and complex order message data from the TOPO Plus Orders data
product. Subscribers to this historical product may download the
Historical Phlx Orders daily message logs on a T+1 basis from a
secure FTP server. Historical Phlx Orders is available as eight
separate files each day, four for simple orders and four for complex
orders. The data originates from the Phlx Orders data feed and
therefore, no quote data is included.
\22\ An average of 26 customers per month over the past year
have subscribed to either the End of Day or Intra-Day product.
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PHOTO is subject to direct competition from similar end of day and
intra-day options trading summaries offered by ten other options
exchanges.\23\ All of these exchanges
[[Page 57718]]
offer essentially the same end of day and intra-day options trading
summary information, and generally differ solely in the amount of
history available for purchase.\24\ A few data fields available on
PHOTO are also available on the OPRA feed.\25\
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\23\ These substitute products are: Nasdaq Options Trade
Outline, ISE Trade Profile, GEMX Trade Profile data; open-close data
from Cboe C1, C2, BZX, and EDGX; and Open Close Reports from MIAX
Options, Pearl, and Emerald. A small number of options exchanges do
not offer PHOTO-like products: Amex, ARCA, BOX, BX Options, and MRX,
although the Exchange understands that similar products for BX
Options and MRX may be forthcoming.
\24\ For example, Cboe offers history for their end of day data
starting in January 1990 while PHOTO End of Day history is only
offered starting in January 2009. Also, Cboe offers intraday
starting in October 2019 while PHOTO intraday is offered starting in
January 2009.
\25\ The overlap is limited to open interest, total industry
volume, and first, high, low, and last trade price for an option
series.
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The options trading summary files offered by these ten exchanges
are substitutes, not complements.\26\ PHOTO provides data on options
market activity which can be used to infer longer-term trends. The
information provided by one exchange is generally similar to that
provided by other exchanges because order flow can move from one
exchange to another, and market sentiment trends that appear on one
exchange are likely to be similar to the sentiment trends on other
exchanges. The key differentiator in the quality of the data depends on
the volume of transactions on a given exchange. The greater the volume
of transactions, the greater the value of the data. We observe that
customers purchase sufficient data to provide a view of the market, but
not more, as the value of data from each additional exchange yields
diminishing returns.\27\ Fees for PHOTO are therefore constrained by
the competition among exchanges for similar options trading summary
products.
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\26\ Complementary products require the purchaser to buy both
products together to be useful, as in the example of a video game
and a video game console, or a smartphone and a smartphone charger.
Products are substitutes when the purchase of one product renders
purchase of the other product less necessary, as in the case of
smartphones from two different manufacturers.
\27\ Customers sometimes choose between purchasing PHOTO-type
data from one exchange with a relatively large market share, or
multiple exchanges with smaller market shares which collectively
represent roughly the same fraction of the market as the larger
exchange. Once the customer has an adequate view of the market,
either through one or a small number of exchanges, the customer does
not purchase additional data as the value of more data diminishes
with each successive purchase.
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Proposed Changes
The Proposal will: (i) Allow the external distribution of analytic
products derived from PHOTO information to the general investing
public; (ii) increase fees for End of Day, Intra-Day, and historical
data to reflect the current market value of the product; and (iii)
offer a discounted fee for 36 months of historical data for current
distributors.
External Distribution to the General Investing Public
The external distribution of PHOTO data or any analytic product
derived from such data is not currently permitted, as explained in the
initial filing of this product.\28\ The Exchange proposes to remove
that prohibition and allow vendors to distribute ``Derived Data'' \29\
based on PHOTO. Derived Data is ``any Information generated in whole or
in part from Exchange Information \30\ such that the Information
generated cannot be reverse engineered to recreate Exchange
Information, or be used to create other data that is recognizable as a
reasonable substitute for such Exchange Information.'' The Exchange
proposes to allow the distribution of Derived Data based on the
information contained in the PHOTO product.\31\
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\28\ See Securities Exchange Act Release No. 62887 (September
10, 2010), 75 FR 57092 (September 17, 2010) (SR-Phlx-2010-121)
(``PHOTO is available only for internal use and distribution by
subscribers.'').
\29\ ``Derived Data'' is not currently a defined term in the
Phlx Rulebook. In the Nasdaq rulebook, ``Derived Data'' is defined
as ``any information generated in whole or in part from Exchange
Information such that the information generated cannot be reverse
engineered to recreate Exchange Information, or be used to create
other data that is recognizable as a reasonable substitute for such
Exchange Information.'' See Nasdaq Rulebook, Equity 7 (Pricing
Schedule), Section 139(f) (definition of Derived Data for the Nasdaq
Last Sale and Nasdaq Last Sale Plus data feeds).
\30\ ``Exchange Information'' is any data or information that
has been collected, validated, processed and/or recorded by the
Exchange and made available for transmission relating to: (i)
Eligible securities or other financial instruments, markets,
products, vehicles, indicators, or devices; (ii) activities of the
Exchange; or (iii) other information or data from the Exchange.
Information includes, but is not limited to, any element of
information used or processed in such a way that Exchange
Information or a substitute for such Information can be identified,
recalculated or re-engineered from the processed information.
\31\ Although Derived Data is a general term, in the context of
this proposal it applies only to data derived from PHOTO
information.
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An example of the type of Derived Data that the Exchange would like
vendors to disseminate is the Sentiment Indicator currently offered by
the Nasdaq ISE Exchange.\32\ This indicator compares the number of
opening long call options to opening long put options.\33\ If the value
is greater than 100, more long call options have been purchased by
investors than long put options, while values less than 100 indicates
the opposite. The higher the index is above 100, the more bullish the
market sentiment is thought to be; the lower the index is below 100,
the more bearish. This is but one example.
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\32\ See Nasdaq ISE, LLC Rules, Options 7 (Pricing Schedule),
Section 10(D) (Enhanced Sentiment Market Data), available at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207. See
also https://www.nasdaq.com/market-activity/isee-index.
\33\ ISE sentiment Index = (Number of long call options
purchased / Number of long put options purchased) x 100. Focusing on
opening activity allows for a more accurate measure of true investor
sentiment.
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While the Exchange could develop and market such products on its
own, a more effective way to distribute such information would be to
allow market data vendors to identify, develop, and sell such
indicators, harnessing the power of the competitive marketplace to
promote innovation. This will promote the dissemination of a variety of
analytical insights--previously available only to investment banks,
market makers, asset managers and other buy-side investors--to the
general investing public.\34\
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\34\ The Exchange proposes to sell the license to distribute
this information in the form of Derived Data, rather than
distributing the underlying information, so that the general
investing public can benefit from the interpretation of the
underlying data that we expect vendors to provide. Although the
Exchange expects that this product will have the greatest utility
for the general investing public, it is possible that some firms may
find a Derived Data product useful as well. As such, the Exchange is
not inserting a requirement that distribution be limited only to the
general investing public.
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This Proposal is based on industry feedback. Over the years, a
number of vendors, as well as a few existing customers, have expressed
an interest in creating indicators from PHOTO data that can be easily
consumed by the general investing public. Phlx believes that it will be
first to the market with an options data product that allows market
data vendors to distribute market sentiment information. The fees
charged for a license to distribute the Derived Data will be
constrained by potential competition, as any exchange with an options
trading product would be able to submit an immediately-effective fee
filing to allow redistribution, most likely without needing to modify
the underlying trading outline product in any way, thereby subjecting
the proposed fee to market competition.
The Exchange proposes a fee of $5,000 per month to allow the
unlimited external distribution of Derived Data from PHOTO.
The Exchange expects up to 10 additional vendors to take advantage
of this innovation over the course of the next 24 months. We do not
have a precise estimate of the number of individuals expected to
benefit, which will ultimately depend on the usefulness of the Derived
Data products that reach the market. Having said that, we expect this
to be a popular product that will benefit thousands of investors.
[[Page 57719]]
The Exchange proposes to license distribution of Derived Data for a
fee of $5,000 per month, which will be in addition to fees for the
underlying data.\35\
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\35\ For example, external distribution of data derived from the
End of Day product will be $750 per month, plus the $5,000 per month
fee.
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Fee Increases for End of Day, Intra-Day and Historical Data
The Exchange proposes to increase the fee for End of Day data from
$500 to $750 per month, and the fee for Intra-Day data from $1,500 to
$2,500. Fees for historical data are proposed to increase from $400 to
$500 per month for the End of Day file, and from $750 to $1,000 per
month for the Intra-Day file.
These changes are proposed as an adjustment to reflect the current
market value of the product, based on a review of fees for substitute
products for PHOTO, particularly those offered by Cboe and MIAX.\36\ As
explained above, PHOTO provides customers with the ability to create
and test trading models and analytic strategies and build customized
sentiment indicators using options transaction data. The value of
PHOTO, and similar products, is determined in part by the number of
underlying transactions reflected in the data, and in part by other
factors such as the technical sophistication of the product.\37\ The
Exchange believes that the proposed fees reflect the current market
value of this product, based on a comparison to the fees charged by
competitors, adjusted by the relative value of the competitor
products.\38\ If the Exchange is incorrect in its assessment of the
marketplace, current and prospective customers will elect not to
purchase PHOTO.
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\36\ Cboe (C1) offers end of day data for $600 per month, and
intra-day data for $2,000 per month. For historical data, 1-4 years
are available for $600/month, and 5+ years of data are available for
$300 per month. See Cboe Exchange, Inc. Fee Schedule (July 1, 2021)
available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf. Cboe (C2) offers end of day data for $500 per
month, and Intra-Day data for $1,000 per month. Historical data is
available for $400 for End of Day, and $500 Intra-Day. See Cboe U.S.
Options Fee Schedules (Cboe Options) (June 1, 2021) available at
https://www.cboe.com/us/options/membership/fee_schedule/ctwo/ Cboe
BZX offers end of day data for $500, intra-day for $1,500; end of
day historical data is $400 per month, and intra-day data is $750
per month. See Cboe U.S. Options Fee Schedules (BZX Options) (June
1, 2021) available at https://www.cboe.com/us/options/membership/fee_schedule/bzx Cboe EDGX end of day data is $500 per month, Intra-
Day data is $1,000 per month; historical data is $400 for end of
day, and $750 for intra-day. See Cboe U.S. Options Fee Schedules
(EDGX Options) (June 1, 2021) available at https://www.cboe.com/us/options/membership/fee_schedule/edgx/ MIAX Options, MIAX Pearl and
MIAX Emerald are $600 per month for end of day, and $2,000 per month
for intra-day. See MIAX Options Exchange Fee Schedule (July 12,
2021), available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_07122021.pdf; MIAX
Pearl Options Exchange Fee Schedule (July 1, 2021), available at
https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_07012021.pdf; MIAX Emerald Options
Exchange Fee Schedule (July 1, 2021), available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_07012021.pdf.
\37\ PHOTO was originally delivered via FTP files, but now is
available through Report HQ, a technology that allows access to all
Nasdaq reports, including PHOTO, via an ``On-Demand'' technology
with secure user access that provides firms with more options to
better manage their subscriptions. A description of Report HQ access
is available here: https://www.nasdaq.com/docs/NasdaqReportHQ.pdf.
\38\ The value of PHOTO has increased since the product was
first established on September 1, 2010. See Securities Exchange Act
Release No. 62887 (September 10, 2010), 75 FR 57092 (September 17,
2010) (SR-Phlx-2010-121). The same is true for the historical PHOTO
data. See Securities Exchange Act Release No. 63351 (November 19,
2010), 75 FR 73140 (November 29, 2010) (SR-Phlx-2010-154).
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Because fees are being set at market rates, we do not expect to see
significant changes in sales for the core PHOTO products due to these
particular fee changes, although, for the reasons discussed below, we
do expect the discount on historical data to attract between 5 and 10
new customers.\39\
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\39\ As a conforming change, the Exchange also proposes to
replace the word ``Subscriber'' with ``Distributor.'' A
``Distributor'' of Nasdaq PHLX data is ``any entity that receives a
feed or data file of data directly from Nasdaq PHLX or indirectly
through another entity and then distributes it either internally
(within that entity) or externally (outside that entity).'' See
Options 7, Section 10. The term ``Subscriber'' is not specifically
defined in the Phlx Options fee schedule, but is defined in the PSX
Equity schedule as ``any access that a distributor of the data
entitlement package(s) provides to: (1) Access the information in
the data entitlement package(s); or (2) communicate with the
distributor so as to cause the distributor to access the information
in the data entitlement package(s).'' See Equity 7, PSX TotalView,
Subsection (d). In light of these definitions, we believe that the
term ``Distributor'' is a more apt term for purchasers of PHOTO
information than the term ``Subscriber.''
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Discounts for 36 Months of Historical Data
PHOTO customers often purchase historical data with their
subscription to create and test trading models and analytical
strategies. To facilitate such testing and encourage new firms to
purchase the product (and in particular to incentivize data vendors to
develop new Derived Data products), the Exchange proposes an historical
data discount for Current Distributors: \40\ $6,000 for the most recent
36 months \41\ of End of Day data (one-third of the $18,000 for 36
months at the proposed rate of $500 per month); and $12,000 for the
most recent 36 months of Intra-Day data (one-third of the $36,000 for
36 months at the proposed rate of $1,000 per month). Current
Distributors would be able to purchase both End of Day and Intra-Day
data for $18,000. Data for any months outside of the 36-month period
would be purchased at the standard rates.\42\
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\40\ A ``Current Distributor'' is any firm that purchases either
the End of Day Product for the current month, or the Intra-Day
Product for the current month in the same month that the 36 months
of historical End of Day or Intra-Day data is ordered.
\41\ The most recent 36 months is measured based on the date of
purchase of the 36 months of data by a Current Distributor.
\42\ As a conforming change, the phrase ``Charge per calendar
month Requested'' is replaced with the word ``Fee'' because of the
special monthly rates for Current Distributors.
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The discount will depend on the type of subscription: A current
purchaser of End of Day data would be eligible for the historical End
of Day product at the reduced rate; a current purchaser of the Intra-
Day product would be able to purchase the historical Intra-Day product
at the reduced rate; and a purchaser of both the current End of Day and
Intra-Day products would be entitled to purchase both types of history
at the reduced rate.\43\
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\43\ Historical data is linked to the current product because
effective historical testing requires a comparison of similar
products. Effective testing of the End of Day product, for example,
requires End of Day historical data, and the same would hold true
for Intra-Day data.
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This discount will allow any customer with either a new or ongoing
subscription to take advantage of the discounted rate. For example, a
customer that buys the End of Day product for the first time in October
2021 would also be able to purchase historical End of Day data for the
period September 2018 through September 2021 (inclusive) at the
discounted rate. Similarly, a customer with a longstanding End of Day
subscription that is current in October 2021 would be able to purchase
the historical End of Day data from September 2018 through September
2021 at the discounted rate. The same reasoning would apply to Intra-
Day customers.\44\
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\44\ A customer may use the proposed historical data discount
more than once. For example, a Current Distributor that purchases 36
months of historical data at a discount, but later terminates that
subscription, would be eligible to purchase another 36 months of
historical data (based on the date of purchase) upon renewing that
subscription. (Current Distributors that never terminate would have
no need for a second purchase, as they would already possess the
most recent months of historical data.).
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The proposed 36-month discount is based on customer feedback and
our analysis of recent purchases. Customers have told us over the years
that 36 months of historical data is optimal for
[[Page 57720]]
testing. Although the median number of months for the purchase of
historical data increased to 42 months over the past year, we
determined that this was skewed by a large number of unusually large
purchases, and decided to use the long-term average of 36 months as the
most appropriate basis for the discount.
Any exchange that provides options trading statistics would be able
to match the proposed discount for historical data through an
immediately-effective fee filing with the Commission, thus subjecting
the proposed fee change to competition.
We believe that the historical data discount will be attractive to
our customers, and expect between 5 and 10 new distributors in the
first year as a result.
Technical Change
The Exchange proposes to delete the footnote describing how
historical data is charged as unnecessary.
Operative Date
The Exchange proposes the operative date to be October 1, 2021.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\45\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\46\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and issuers and other persons using any
facility, and is not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\45\ 15 U.S.C. 78f(b).
\46\ 15 U.S.C. 78f(b)(4) and (5).
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Equitable Allocation of Reasonable Dues, Fees and Other Charges
As the Commission and courts \47\ have recognized, ``[i]f
competitive forces are operative, the self-interest of the exchanges
themselves will work powerfully to constrain unreasonable or unfair
behavior.'' \48\ Accordingly, ``the existence of significant
competition provides a substantial basis for finding that the terms of
an exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.'' \49\ The Commission and the
courts have repeatedly expressed their preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. In Regulation NMS, while adopting a series
of steps to improve the current market model, the Commission
highlighted the importance of market forces in determining prices and
SRO revenues, and also recognized that current regulation of the market
system ``has been remarkably successful in promoting market competition
in its broader forms that are most important to investors and listed
companies.'' \50\
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\47\ The decision of the United States Court of Appeals for the
District of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525
(D.C. Cir. 2010) upheld the Commission's reliance upon competitive
markets to set reasonable and equitably allocated fees for market
data. ``In fact, the legislative history indicates that the Congress
intended that the market system evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed and that the SEC wield its regulatory power in those
situations where competition may not be sufficient, such as in the
creation of a consolidated transactional reporting system.''
NetCoalition I, at 535 (quoting H.R. Rep. No. 94-229, at 92 (1975),
as reprinted in 1975 U.S.C.C.A.N. 321, 323) (internal quotation
marks omitted). The court agreed with the Commission's conclusion
that ``Congress intended that competitive forces should dictate the
services and practices that constitute the U.S. national market
system for trading equity securities.'' Id. (quoting Securities
Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770,
74,771 (December 9, 2008) (SR-NYSEArca-2006-21)).
\48\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\49\ See id.
\50\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
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PHOTO is in direct competition with 10 options trading products
that serve as substitutes for PHOTO information.\51\ All of these
products offer the same type of data content through end of day or
intra-day reports, and in general differ only with respect to the
amount of history available.\52\ A small amount of the information
available on PHOTO is also available on the OPRA feed.\53\
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\51\ These substitute products are: NOTO, ISE Trade Profile,
GEMX Trade Profile data; open-close data from Cboe C1, C2, BZX, and
EDGX; and Open Close Reports from MIAX Options, Pearl, and Emerald.
The Exchange understands that similar products for BX Options and
MRX will be forthcoming.
\52\ For example, Cboe offers history for their end of day data
back through January 1990 while PHOTO End of Day history is only
offered back through January 2009. Also, Cboe offers intra-day
history back through Oct 2019 while PHOTO Intra-Day is offered
through Jan 2009.
\53\ The overlap is limited to open interest and total industry
volume.
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Purchase of PHOTO, like all market data products, is optional.\54\
PHOTO is designed to help investors understand underlying market trends
to improve the quality of investment decisions, but is not necessary to
execute a trade. Customers can, and do, choose to forego the
information from PHOTO or any of its competitor products when making a
trade, as is evident from the relatively small number of current
subscribers. As noted, a monthly average of only 26 customers over the
past year subscribed to either the End of Day or Intra-Day
products.\55\
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\54\ Staff Guidance on SRO Filings Related to Fees states that
``any discussion of alternatives should include a discussion of how
regulatory requirements, particularly best execution obligations,
Regulation NMS Rule 611 (the Order Protection Rule), and/or the
Options Order Protection and Locked/Crossed Market Plan (Options
Linkage Plan), as applicable, affect the competitive analysis.'' See
Division of Trading and Markets, U.S. Securities and Exchange
Commission, ``Staff Guidance on SRO Filings Related to Fees'' (May
21, 2019), available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (``Staff Guidance''). Given that PHOTO is an
optional analytic product, other regulatory requirements are
inapplicable.
\55\ Staff Guidance, Supra n. 59, indicates that an SRO may
estimate elasticity of demand for a product as part of the fee
proposal. Such estimation is impossible in the case of PHOTO, which
has not had a price change in nearly 10 years, and more generally is
inapposite for any product subject to overall competition among
exchange platforms.
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Each of the three proposed changes--allowing the external
distribution of derived data, modifying fees to reflect current market
value, and discounting historical data--is subject to competition, both
separately and together. As a whole, the Proposals will expand and
enhance that competition.
First, the proposal to allow the external distribution of derived
data is subject to competition as discussed above, and also introduces
a new category of market participant--market data vendors--into the
equation. Under the current rulebook, PHOTO data is not available for
redistribution, in either native form or through Derived Data.\56\ This
proposal will create a new market for the sale of Derived Data products
to the general investing public. This is itself evidence of the
competitive environment for PHOTO and its substitutes, as it is exactly
the type of innovation one would expect to see in a competitive market.
It will also spur further innovation by challenging market data vendors
to create new and innovative Derived Data products. Any exchange that
wishes to allow distribution of a Derived Data product based on options
trading information would be able to do so with an immediately-
effective fee filing similar to this Proposal, most likely without
requiring any technological enhancement to the underlying product.
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\56\ See Securities Exchange Act Release No. 62887 (September
10, 2010), 75 FR 57092 (September 17, 2010) (SR-Phlx-2010-121)
(stating that ``PHOTO is available only for internal use and
distribution by subscribers.'').
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Allowing the redistribution of Derived Data, but not the underlying
information, to the general investing public is an equitable allocation
of reasonable dues, fees and other charges because it is the most
efficient
[[Page 57721]]
mechanism for widespread delivery of market sentiment information. As
explained above, the proposal is designed to promote the dissemination
of a variety of analytical insights--previously available only to
investment banks, market makers, asset managers and other buy-side
investors--to the general investing public by creating an incentive for
market data vendors to identify, develop, and sell such indicators.
Ordinarily, neither exchanges nor vendors allow redistribution of
analytic products--such products are typically designed solely for the
use of direct customers, not for redistribution to the customers of
customers in the manner of a data feed. Allowing the redistribution of
Derived Data provides an incentive for vendors to innovate with new
compelling and varied analytic products for the general investing
public that will provide access to market sentiment insights currently
available only to sophisticated investors.
Second, the proposed adjustments to PHOTO fees reflect the
Exchange's assessment of the current marketplace, based on a review of
fees for substitute products, particularly those offered by Cboe and
MIAX.\57\ As explained above, PHOTO provides customers with the ability
to create and test trading models and analytic strategies and build
customized sentiment indicators using options transaction data. The
value of PHOTO, and similar products, is determined in part by the
number of underlying transactions reflected in the data, and in part
the technical sophistication of the product.\58\ The Exchange believes
that the proposed fees reflect the current market value of this
product, based on a comparison to the fees charged by competitors,
adjusted by the relative value of the competitor products.\59\ If the
Exchange is incorrect in its assessment of the marketplace, current and
prospective customers will elect not to purchase PHOTO.
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\57\ Cboe (C1) offers end of day data for $600 per month, and
intra-day data for $2,000 per month. For historical data, 1-4 years
are available for $600/month, and 5+ years of data are available for
$300 per month. See Cboe Exchange, Inc. Fee Schedule (July 1, 2021)
available at https://cdn.cboe.com/resources/membership/Cboe_FeeSchedule.pdf. Cboe (C2) offers end of day data for $500 per
month, and Intra-Day data for $1,000 per month. Historical data is
available for $400 for End of Day, and $500 Intra-Day. See Cboe U.S.
Options Fee Schedules (Cboe Options) (June 1, 2021) available at
https://www.cboe.com/us/options/membership/fee_schedule/ctwo/ Cboe
BZX offers end of day data for $500, intra-day for $1,500; end of
day historical data is $400 per month, and intra-day data is $750
per month. See Cboe U.S. Options Fee Schedules (BZX Options) (June
1, 2021) available at https://www.cboe.com/us/options/membership/fee_schedule/bzx Cboe EDGX end of day data is $500 per month, Intra-
Day data is $1,000 per month; historical data is $400 for end of
day, and $750 for intra-day. See Cboe U.S. Options Fee Schedules
(EDGX Options) (June 1, 2021) available at https://www.cboe.com/us/options/membership/fee_schedule/edgx/ MIAX Options, MIAX Pearl and
MIAX Emerald are $600 per month for end of day, and $2,000 per month
for intra-day. See MIAX Options Exchange Fee Schedule (July 12,
2021), available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Options_Fee_Schedule_07122021.pdf; MIAX
Pearl Options Exchange Fee Schedule (July 1, 2021), available at
https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Pearl_Options_Fee_Schedule_07012021.pdf; MIAX Emerald Options
Exchange Fee Schedule (July 1, 2021), available at https://www.miaxoptions.com/sites/default/files/fee_schedule-files/MIAX_Emerald_Fee_Schedule_07012021.pdf.
\58\ PHOTO was originally delivered via FTP files, but now is
available through Report HQ, a technology that allows access to all
Nasdaq reports, including PHOTO, via an ``On-Demand'' technology
with secure user access that provides firms with more options to
better manage their subscriptions. A description of Report HQ access
is available here: https://www.nasdaq.com/docs/NasdaqReportHQ.pdf.
\59\ The value of PHOTO has increased since the product was
first established on September 1, 2010. See Securities Exchange Act
Release No. 62887 (September 10, 2010), 75 FR 57092 (September 17,
2010) (SR-Phlx-2010-121). The same is true for the historical PHOTO
data. See Securities Exchange Act Release No. 63351 (November 19,
2010), 75 FR 73140 (November 29, 2010) (SR-Phlx-2010-154).
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Third, offering historical data at a discount is yet another
example of how the competitive marketplace works to constrain prices.
In order to effectively compete, the Exchange proposes to reduce the
price of historical data to: (i) Encourage vendors to test the product
for the first time and develop Derived Data products, and (ii)
incentivize those categories of market participants that currently
purchase the product--investment banks, market makers, asset managers
and other buy-side investors--to test new trading models and analytical
strategies. As explained above, the Exchange believes that this 36-
month period is optimal for testing based on customer feedback and our
analysis of recent purchases, and expects this new fee structure to be
attractive for both old and new customers. Options exchanges that offer
substitute products would be able to reduce the price of their
historical data through an immediately-effective fee filing at any time
in response.
For all of these reasons, each aspect of the proposal, separately
and together, is subject to competition, and therefore provides for the
equitable allocation of reasonable dues, fees and other charges among
members and issuers and other persons using any facility.
The Proposal Does Not Permit Unfair Discrimination
Nothing in the Proposal treats any category of market participant
any differently from any other category of market participant. On the
contrary, the Proposal expands distribution of PHOTO information beyond
investment banks, market makers, asset managers and other buy-side
investors to market data vendors and the general investing public.
Allowing the distribution of Derived Data to the general investing
public will broaden the availability of such information while not
treating any current recipient of the product differently in any way.
The new fee structure, which modifies fees to reflect current market
value and offers historical data at a discount, applies equally to all
current and potential distributors. PHOTO is available to all market
participants, including members and non-members, and all market
participants receive the same information in the PHOTO data feed.
With respect to the specific fee changes, it is reasonable and not
unfair discrimination to charge an external distributor of Derived Data
a $5,000 licensing fee. Vendors will ordinarily charge a fee to their
downstream customers for this service, and, even if the vendor is not
charging a specific fee for this particular service, Derived Data
products from PHOTO will be part of a suite of offerings that generally
promote sales. External distribution is fundamentally different than
internal use, in that the former generates revenue from external sales
while the latter does not. It is not unfair discrimination to charge a
licensing fee for a product that generates downstream revenue.
Nor is it unfair discrimination to allow the redistribution of
Derived Data, but not the underlying information, to the general
investing public. As explained above, neither exchanges nor vendors
ordinarily allow redistribution of analytic products--such products are
typically designed solely for the use of direct customers, not for
redistribution to the customers of customers in the manner of a data
feed. Allowing the redistribution of Derived Data provides an incentive
for vendors to innovate with new compelling and varied analytic
products for the general investing public that will provide access to
market sentiment insights currently available only to sophisticated
investors. This proposal is therefore not unfair discrimination, but
rather allows for more equitable access to market sentiment information
to the general investing public.
It is also not unfair discrimination to provide a discount for 36
months of historical data to current distributors, but not former
distributors or firms that have never purchased the product. Any firm
would be able to become a current
[[Page 57722]]
distributor at any time by subscribing to the PHOTO service, and would
be able to cancel the subscription at any time after receiving the 36
months of historical data for the proposed discounted fee. It is not
unfair discrimination to limit the historical data discount to current
distributors, as they are in the best position to benefit from the
historical data, whereas firms that do not currently receive the
service would have little use for the information.
For all of these reasons, the Proposal does not permit unfair
discrimination.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
The Exchange operates in a highly competitive environment in which
the Exchange must continually adjust its fees to remain competitive.
Because competitors are free to modify their own fees in response, the
Exchange believes that the degree to which fee changes in this market
may impose any burden on competition is extremely limited.
Intermarket Competition
As discussed in detail under Statutory Basis, PHOTO is subject to
direct competition from the ten other options exchanges that offer
substitutes to PHOTO. Moreover, purchase of PHOTO is optional. It is
designed to help investors understand underlying market trends to
improve the quality of investment decisions, but is not necessary to
execute a trade.
The Proposal is grounded in the Exchange's efforts to compete more
effectively. The Exchange is proposing to broaden distribution of PHOTO
information beyond investment banks, market makers, asset managers and
other buy-side investors to market data vendors and the general
investing public, and to provide a discount for distributors to test
investment strategies and trading models, and develop market sentiment
indicators. These changes will not cause any unnecessary or
inappropriate burden on intermarket competition, but rather will
promote competition by expanding the market for PHOTO data and
encouraging new distributors to investigate the product. Other
exchanges are, of course, free to match these changes or undertake
other competitive responses, enhancing overall competition.
Intramarket Competition
The Proposal will not cause any unnecessary or inappropriate burden
on intramarket competition. On the contrary, it will foster competition
by expanding dissemination of data to vendors and the general investing
public, and by encouraging more market participants to use PHOTO data
to help inform their investments strategies and analytic models.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\60\
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\60\ 15 U.S.C. 78s(b)(3)(A)(ii).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-Phlx-2021-58 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-Phlx-2021-58. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-Phlx-2021-58 and should be submitted on
or before November 8, 2021.
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\61\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\61\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-22569 Filed 10-15-21; 8:45 am]
BILLING CODE 8011-01-P
