Consolidated Tape Association; Order Disapproving the Twenty-Fifth Charges Amendment to the Second Restatement of the CTA Plan and Sixteenth Charges Amendment to the Restated CQ Plan, 58613-58634 [2022-20833]

Download as PDF Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices jspears on DSK121TN23PROD with NOTICES states that in connection with a Commission disapproval of the Proposed Amendment, it would ‘‘support the Commission’s efforts to ensure that the newly expanded consolidated market data (i.e., new core data) under the Commission’s Infrastructure Rule is disseminated in a manner consistent with the Exchange Act standards to ensure the investing public and all market participants have fair and reasonable access to it.’’ 343 One Filing Commenter states that it would be inconsistent with the Exchange Act and Rule 608 of Regulation NMS for the Commission to change sua sponte any or all of the proposed fees, as any such change would be material to the Proposed Amendment.344 This commenter states that, if the Commission intends to revise the Proposed Amendment in any material way, it must do so through rulemaking under Rule 608(b)(2) of Regulation NMS, by providing public notice of the specific changes it proposes and giving the Plan’s participants and the general public an opportunity to comment.345 One commenter states that the Commission should provide guidance in terms of the requirements of the MDI Rules as well as the application of the terms ‘‘fair and reasonable’’ and ‘‘not unfairly discriminatory’’ in the context of supplying competing consolidators with the underlying content of consolidated market data, adding that, without such guidance, any refiling of the amendments will result in proposals that do not meet standards under the Exchange Act.346 To the extent that these comments bear on potential future Commission action, rather than on the basis for the Commission’s decision to disapprove the Proposed Amendment, further discussion on these topics is unnecessary in this Order. V. Conclusion For the reasons set forth above, the Commission does not find, pursuant to Section 11A of the Act, and Rule 608(b)(2) thereunder, that the Proposed Amendment is consistent with the requirements of the Act and the rules and regulations thereunder applicable to an NMS plan amendment. It is therefore ordered, pursuant to Section 11A of the Act, and Rule 608(b)(2) thereunder, that the Proposed Amendment (File No. S7–24–89) be, and hereby is, disapproved. 343 Id. 344 See NYSE Letter, supra note 70, at 8. id. 346 See MayStreet Letter II, supra note 57, at 1– 2, 4, 20. 345 See VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 By the Commission. J. Matthew DeLesDernier, Deputy Secretary. [FR Doc. 2022–20831 Filed 9–26–22; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–95851; File No. SR–CTA/ CQ–2021–03] Consolidated Tape Association; Order Disapproving the Twenty-Fifth Charges Amendment to the Second Restatement of the CTA Plan and Sixteenth Charges Amendment to the Restated CQ Plan September 21, 2022. I. Introduction On November 5, 2021,1 certain participants in the Second Restatement of the Consolidated Tape Association (‘‘CTA’’) Plan and Restated Consolidated Quotation (‘‘CQ’’) Plan (collectively ‘‘CTA/CQ Plans’’ or ‘‘Plans’’) 2 filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’), pursuant to Section 11A of the Securities Exchange Act of 1934 (‘‘Act’’) 3 and Rule 608 of Regulation National Market System (‘‘NMS’’) thereunder,4 a proposal (the ‘‘Proposed Amendments’’) to amend the Plans.5 The Proposed Amendments 1 See Letter from Robert Books, Chair, CTA/CQ Operating Committee, to Vanessa Countryman, Secretary, Commission (Nov. 5, 2021) (‘‘Cover Letter’’), available at https://www.ctaplan.com/ publicdocs/ctaplan/notifications/trader-update/ 110000392367/CTA%20MDIR%20Fee %20Filing%20-%2011.5.21.pdf. 2 The CTA Plan, pursuant to which markets collect and disseminate last-sale price information for non-Nasdaq-listed securities, is a ‘‘transaction reporting plan’’ under Rule 601 of Regulation NMS, 17 CFR 242.601, and a ‘‘national market system plan’’ under Rule 608 of Regulation NMS, 17 CFR 242.608. The CQ Plan, pursuant to which markets collect and disseminate bid/ask quotation information for non-Nasdaq-listed securities, is a ‘‘national market system plan’’ under Rule 608 under the Act, 17 CFR 242.608. See Securities Exchange Act Release Nos. 10787 (May 10, 1974), 39 FR 17799 (May 20, 1974) (declaring the CTA Plan effective); 15009 (July 28, 1978), 43 FR 34851 (Aug. 7, 1978) (temporarily authorizing the CQ Plan); and 16518 (Jan. 22, 1980), 45 FR 6521 (Jan. 28, 1980) (permanently authorizing the CQ Plan). 3 15 U.S.C 78k–1. 4 17 CFR 242.608. 5 The Proposed Amendments were, as required by the Plans, approved and executed by at least twothirds of the self-regulatory organizations (‘‘SROs’’) that are participants of the Plans. The participants that approved and executed the amendments (the ‘‘Filing Participants’’) are: Cboe BYX Exchange, Inc.; Cboe BZX Exchange, Inc.; Cboe EDGA Exchange, Inc.; Cboe EDGX Exchange, Inc.; Cboe Exchange, Inc.; Nasdaq ISE, LLC; Nasdaq PHLX LLC; The Nasdaq Stock Market LLC; New York Stock Exchange LLC; NYSE American LLC; NYSE Arca, Inc.; NYSE Chicago, Inc.; and NYSE National, PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 58613 were published for comment in the Federal Register on November 26, 2021.6 On February 24, 2022, the Commission instituted proceedings pursuant to Rule 608(b)(2)(i) of Regulation NMS,7 to determine whether to disapprove the Proposed Amendments or to approve the Proposed Amendments with any changes or subject to any conditions the Commission deems necessary or appropriate after considering public comment.8 On May 19, 2022, the Commission designated a longer period within which to conclude proceedings regarding the Proposed Amendments.9 On July 21, 2022, the Commission again designated a longer period within which to conclude proceedings regarding the Proposed Amendments.10 The Proposed Amendment seeks to set fees for the data content underlying consolidated market data offerings pursuant to the Commission’s Market Data Infrastructure Rules (‘‘MDI Rules’’),11 which expand the content of consolidated market data and require the introduction of a competitive decentralized consolidation model. The Filing Participants propose what they characterize as ‘‘value-based’’ fees for top-of-book data, depth-of-book data, auction data, professional and nonprofessional users, non-display use, access, and redistribution. Below, the Commission provides an overview of the MDI Rules requirement pursuant to which the Proposed Amendment was Inc. The other SROs that are participants in the Plans and that did not approve or execute the amendments are (the ‘‘Non-Supporting Participants’’): Financial Industry Regulatory Authority, Inc.; Investors Exchange LLC; Long-Term Stock Exchange, Inc.; MEMX LLC; MIAX PEARL, LLC; and Nasdaq BX, Inc. 6 See Securities Exchange Act Release No. 93625 (Nov. 19, 2021), 86 FR 67517 (Nov. 26, 2021) (‘‘Notice’’). Comments received in response to the Proposed Amendments are available at https:// www.sec.gov/comments/sr-ctacq-2021-03/ srctacq202103.htm. 7 17 CFR 242.608(b)(2)(i). 8 See Securities Exchange Act Release No. 94309 (Feb. 24, 2022), 87 FR 11763 (Mar. 2, 2022). 9 See Securities Exchange Act Release No. 94952 (May 19, 2022), 87 FR 31921 (May 25, 2022). 10 See Securities Exchange Act Release No. 95346 (July 21, 2022), 87 FR 45142 (July 27, 2022). 11 The ‘‘MDI Rules’’ as used in this Order, and as relevant to the Proposed Amendments, are Rules 600, 603, and 614 of Regulation NMS. 17 CFR 242.600, 603, 614. See also Securities Exchange Act Release No. 90610 (Dec. 9 2020), 86 FR 18596 (Apr. 9, 2021) (File No. S7–03–20) (‘‘MDI Rules Release’’); Securities Exchange Act Release No. 90610A (May 24, 2021), 86 FR 29195 (June 1, 2021) (File No. S7– 03–20) (technical correction to MDI Rules Release). Several exchanges filed petitions for review challenging the MDI Rules Release in the U.S. Court of Appeals for the District of Columbia Circuit, which were denied on May 24, 2022. See The Nasdaq Stock Market LLC, et al. v. SEC, No. 21– 1100 (D.C. Cir. May 24, 2022). E:\FR\FM\27SEN1.SGM 27SEN1 58614 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices filed and then examines the proposed ‘‘value-based’’ methodology underlying the proposed fees and each of the proposed fees in turn, finding that, in each case, the Filing Participants have not demonstrated that the proposed fees are fair, reasonable, and not unreasonably discriminatory. This order disapproves the Proposed Amendments.12 jspears on DSK121TN23PROD with NOTICES II. Overview Pursuant to Regulation NMS and the Equity Data Plans,13 the national securities exchanges and national securities association (‘‘self-regulatory organizations’’ or ‘‘SROs’’) must provide certain information with respect to quotations for and transactions in for each NMS stock (‘‘NMS information’’) to an exclusive plan securities information processor (‘‘exclusive SIP’’), which consolidates this information and makes it available to market participants on the consolidated tapes. The purpose of the Equity Data Plans is to facilitate the collection and dissemination of SIP data so that the public has ready access to a ‘‘comprehensive, accurate, and reliable source of information for the prices and volume of any NMS stock at any time during the trading day.’’ 14 Because the infrastructure for the collection, consolidation, and dissemination of this data had not been significantly updated 12 The Filing Participants have filed similar amendments to the Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis (‘‘Nasdaq/UTP Plan’’), which the Commission is also disapproving. See Securities Exchange Act Release No. 95849 (Sep. 21, 2022) (File No. S7–24–89). Further, the participants of the CTA/CQ Plans and the Nasdaq/ UTP Plan have also filed amendments to implement the non-fee-related aspects of the Commission’s MDI Rules. See Securities Exchange Act Release Nos. 93615 (Nov. 19, 2021), 86 FR 67800 (Nov. 29, 2021) (File No. SR–CTA/CQ–2021–02); 93620 (Nov. 19, 2021), 86 FR 67541(File No. S7–24–89) (‘‘Proposed Non-Fee Amendments’’). The Commission is, by separate orders, also disapproving the Proposed Non-Fee Amendments. See Securities Exchange Act Release Nos. 95848 (Sep. 21, 2022) (File No. S7–24–89); 95850 (Sep. 21, 2022) (File No. SR–CTA/CQ–2021–02). 13 The three effective national market system plans that govern the collection, consolidation, processing, and dissemination of certain NMS information are: (1) the CTA Plan; (2) the CQ Plan; and (3) the Nasdaq/UTP Plan (collectively, the ‘‘Equity Data Plans’’). Each of the Equity Data Plans is an effective national market system plan under 17 CFR 242.608 (Rule 608) of Regulation NMS. See also Securities Exchange Act Release Nos. 10787 (May 10, 1974), 39 FR 17799 (May 20, 1974) (declaring the CTA Plan effective); 15009 (July 28, 1978), 43 FR 34851 (Aug. 7, 1978) (temporarily authorizing the CQ Plan); and 16518 (Jan. 22, 1980), 45 FR 6521 (Jan. 28, 1980) (permanently authorizing the CQ Plan). 14 Concept Release on Equity Market Structure, Securities Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3593 (Jan. 21, 2010). VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 since its initial implementation in the 1970s, the Commission adopted amendments to Regulation NMS that increase the content of NMS information and amend the manner in which such NMS information is collected, consolidated, and disseminated by the Equity Data Plans.15 In the MDI Rules Release, the Commission stated, ‘‘[w]idespread availability of timely market information promotes fair and efficient markets and facilitates the ability of brokers and dealers to provide best execution to their customers.’’ 16 The adoption of the MDI Rules increases the content of NMS information and modifies the manner in which NMS information is collected, consolidated, and disseminated by the Plans. Significantly, under the MDI Rules, the Commission required the introduction of a competitive decentralized consolidation model under which competing consolidators and self-aggregators will replace the exclusive SIPs that collect, consolidate, and disseminate equity market data under the existing NMS plans for equity market data. Although the exclusive SIPs will no longer disseminate all consolidated information for an individual NMS stock, the Plans will continue to play an important role— they will develop and propose fees for the data content underlying consolidated market data, collect and allocate revenues collected for this data, develop the monthly performance metrics for competing consolidators, and provide an annual assessment of the competing consolidator model. Rule 614(e)(1) directs the participants of the effective national market system plan(s) for NMS stocks to file an amendment pursuant to Rule 608 of Regulation NMS to conform the Plans to reflect the provision of information with respect to quotations for and transactions in NMS stocks that is necessary to generate consolidated market data by the SROs to competing consolidators and self-aggregators. As the MDI Rules Release states, this means that the operating committees of the plan(s) will ‘‘need to propose the new fees that will be charged for the quotation and transaction information that is necessary to generate consolidated market data that is required to be made available by the SROs under Rule 603(b) to competing consolidators and self-aggregators.’’ 17 15 See MDI Rules Release, supra note 11, 86 FR at 18598–600. 16 See id. at 18599. 17 See MDI Rules Release, supra note 11, 86 FR at 18682. PO 00000 Frm 00142 Fmt 4703 Sfmt 4703 The Proposed Amendment was filed by the Filing Participants pursuant to this requirement.18 As explained below, the Filing Participants have not demonstrated that the proposed ‘‘value-based’’ fee methodology, or the specific proposed fees themselves, meet the statutory standard of being fair, reasonable, and not unreasonably discriminatory.19 The Commission is thus disapproving the Proposed Amendment under Rule 608(b)(2) of Regulation NMS because it cannot find that the proposed fees are necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.20 III. Summary of the Proposed Amendments 21 Under the Proposed Amendments, the Filing Participants propose to amend the Plans to adopt fees for the data content underlying consolidated market data offerings pursuant to the Commission’s MDI Rules. All of the SROs that are participants in the Plans have also filed a separate amendment to implement the non-fee-related aspects of the MDI Rules.22 The Filing Participants propose a fee structure for the following three categories of data content underlying consolidated market data offerings, which would collectively constitute the amended definition of core data, as that 18 Rule 614(e) requires the participants to ‘‘the effective national market system plan(s) for NMS stocks’’ to file an amendment to implement the MDI Rules. 17 CFR 242.614(e). The Filing Participants have filed the required amendment under the existing CTA/CQ Plans and the Nasdaq/UTP Plan. See supra note 12. While the Commission issued an order on August 6, 2020, approving, as modified, a new national market system plan regarding equity market data—the CT Plan—to replace the existing CTA/CQ Plans and Nasdaq/UTP Plan, that order was stayed on October 13, 2021, see Nasdaq Stock Mkt. LLC v. SEC, No. 21–1167 (D.C. Cir. Oct. 13, 2021), which was before the Filing Participants filed this amendment. The Commission’s order approving the CT Plan was subsequently vacated. See The Nasdaq Stock Market LLC, et al. v. Securities and Exchange Commission, Nos. 21– 1167, 21–1168, 21–1169 (D.C. Cir., July 5, 2022) (vacating Securities Exchange Act Release No. 92586 (Aug. 6, 2021), 86 FR 44142 (Aug. 11, 2021) (Order Approving, as Modified, a National Market System Plan Regarding Consolidated Market Data)). 19 See Sections 11A(c)(1)(C)–(D) of the Act, 15 U.S.C 78k–1(c)(1)(C)–(D); see also Rule 603(a) of Regulation NMS, 17 CFR 242.603. 20 17 CFR 242.608(b)(2). 21 The full text of the Proposed Amendments appear as Attachment A to the Notice. See Notice, supra note 6, 86 FR 67521–23. 22 See Proposed Non-Fee Amendments, supra note 12. E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices term is defined in Rule 600(b)(21) of Regulation NMS: 23 (1) Level 1 Core Data, which would include Top of Book Quotations, Last Sale Price Information, and odd-lot information (as defined in Rule 600(b)(59)).24 Currently, Plan fees for Level 1 Core Data include the provision of Top of Book Quotations and Last Sale Price Information, as well as administrative data (as defined in Rule 600(b)(2)),25 regulatory data (as defined in Rule 600(b)(78)),26 and SRO-specific program data (as defined in Rule 600(b)(85)).27 The Filing Participants propose that Level 1 Core Data would include all information that subscribers currently receive via the exclusive SIP and would add odd-lot quotation information to that content; 28 (2) Depth of book data (as defined in Rule 600(b)(26)); 29 and (3) Auction information (as defined in Rule 600(b)(5)).30 Professional and Nonprofessional Fee Structure For each of the three categories of data described above, the Filing Participants propose a Professional Subscriber Charge and a Nonprofessional Subscriber Charge.31 With respect to Level 1 Core Data, the Filing Participants propose to apply the Professional Subscriber and Nonprofessional Subscriber fees currently set forth in the Plans to the data content underlying Level 1 Service under the distributed consolidation model. Access to odd-lot information would be made available to Level 1 Core Data Professional and Nonprofessional Subscribers at no additional charge. With respect to depth-of-book data, Professional Subscribers would pay $99.00 per device per month for each Network’s data, and Nonprofessional Subscribers would pay $4.00 per subscriber per month for each Network’s depth-of-book data. The Filing 23 17 CFR 242.600(b)(21). CFR 242.600(b)(59). 25 17 CFR 242.600(b)(2). 26 17 CFR 242.600(b)(78). 27 17 CFR 242.600(b)(85). 28 Transactions in odd-lots are already reported via the consolidated feeds. 29 17 CFR 242.600(b)(26). 30 The Filing Participants state that they propose to price the three subsets of data that constitute core data separately so that data subscribers have flexibility to choose how much consolidated market data content they wish to purchase. For example, the Filing Participants state that they understand that certain data subscribers may not wish to add depth-of-book data or auction information, or may want to add only depth-of-book information but not auction information. The Filing Participants state, however, that they expect that competing consolidators would purchase all core data. See Notice, supra note 6, 86 FR at 67517 n.10. 31 The terms Professional Subscriber and Nonprofessional Subscriber are currently defined in the Plan, and the Filing Participants do not propose to amend those definitions. See Notice, supra note 6, 86 FR at 67518. jspears on DSK121TN23PROD with NOTICES 24 17 VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 Participants do not propose to offer perquote packet charges or enterprise rates for the use of depth-of-book data by either Professional Subscribers or Nonprofessional Subscribers. Finally, with respect to auction information, the Filing Participants propose that both Professional Subscribers and Nonprofessional Subscribers would pay $10.00 per device/subscriber per month for each Network’s auction information data. Non-Display Use Fees The Filing Participants propose to apply Non-Display Use Fees relating to the three categories of data described above: (1) Level 1 Core Data; (2) depthof-book data; and (3) auction information. With respect to Level 1 Core Data, the Filing Participants propose to apply the Non-Display Use fees currently set forth in the Plans. With respect to non-display use of depth-of-book data, subscribers would pay Non-Display Use Fees of $12,477.00 per month for each category of NonDisplay Use per Network.32 With respect to non-display auction information, subscribers would pay Non-Display Use fees of $1,248.00 per month for each category of Non-Display Use per Network. Access Fees Finally, in addition to the charges described above, the Filing Participants propose to charge Access Fees to all subscribers for the use of the three categories of data: (1) Level 1 Core Data; (2) depth-of-book data; and (3) auction information. With respect to Level 1 Core Data, the Filing Participants propose to apply the Access Fees currently set forth in the Plans. With respect to depth-of-book data, subscribers would pay a monthly Access Fee of $9,850.00 per Network. With respect to auction information, subscribers would pay a monthly Access Fee of $985.00 per Network. 32 The three categories of Non-Display Use are as follows: Category 1 applies when a datafeed recipient’s Non-Display Use is on its own behalf. Category 2 applies when a datafeed recipient’s NonDisplay Use is on behalf of its clients. Category 3 applies when a datafeed recipient’s Non-Display Use is for the purpose of internally matching buy and sell orders within an organization. Matching buy and sell orders includes matching customer orders on the data recipient’s own behalf and/or on behalf of its clients. Category 3 includes, but is not limited to, use in trading platform(s), such as exchanges, alternative trading systems (‘‘ATS’’), broker crossing networks, broker crossing systems not filed as ATS’s, dark pools, multilateral trading facilities, and systematic internalization systems. See Exhibit E (Schedule of Market Data Charges) to the CTA Plan; Section IX(b)(ii) to the CQ Plan. PO 00000 Frm 00143 Fmt 4703 Sfmt 4703 58615 The Filing Participants also propose to add language to the fee schedules for the Plans regarding the applicability of various fees to the expanded market data content required by the MDI Rules.33 First, the Filing Participants propose to specify that the Per-QuotePacket Charges and the Broker-Dealer Enterprise Cap will not apply to the expanded content of core data, and will only be available for the receipt and use of Level 1 Core Data. The Filing Participants state that, under the current Price List, the Per-Quote-Packet Charges and Enterprise Cap serve as alternative fee schedules to the normally applied Professional and Nonprofessional Subscriber Charges, and, further, that the proposed changes to the fee schedules are designed to clarify that these alternative fee schedules are only available with respect to the use of Level 1 Core Data, and that the fees for the use of depth-of-book data and auction information must be determined pursuant to the Professional and Nonprofessional fees described above. Second, the Filing Participants propose to add language to the fee schedule to specify that Level 1 Core Data would include Top of Book Quotation Information, Last Sale Price Information, odd-lot information, administrative data, regulatory data, and SRO program data. The Filing Participants state that this proposed change would use terms defined in Rule 600(b) to reflect both data currently made available to subscribers and the additional odd-lot information that would be included at no additional charge. Third, the Filing Participants propose to add language to the fee schedule to provide that the existing Redistribution Fees would apply to all three categories of core data (i.e., Level 1 Core Data, depth-of-book, and auction information), including any subset thereof. According to the Filing Participants, Redistribution Fees are currently charged to any entity that makes last-sale information or quotation information available to any other entity or to any person other than its employees, irrespective of the means of transmission or access. The Filing Participants propose to amend this description to make it applicable to core data, as that term is defined in Rule 600(b)(21). The Filing Participants do not propose to change the amount of the existing Redistribution Fees. The Filing Participants also propose that the existing Redistribution Fees would be charged to competing consolidators. 33 See proposed Exhibit E to the CTA Plan; proposed Section IX(b)(ii) of the CQ Plan. E:\FR\FM\27SEN1.SGM 27SEN1 jspears on DSK121TN23PROD with NOTICES 58616 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices Finally, the Filing Participants propose to make non-substantive changes to language in the fee schedules to take into account the expanded content of core data. For example, the Filing Participants are proposing to add headings referencing Level 1 Core Data. Additionally, under Data Access Charges and Multiple Feed Charges, the Participants are proposing to amend ‘‘Bid-Ask’’ to refer to ‘‘Top of Book and odd-lot information.’’ 34 The Filing Participants state that the Proposed Amendments would be implemented to coincide with the phased implementation of the MDI Rules as required by the Commission. With respect to the method used to develop the proposed fees, the Filing Participants state that in the absence of cost information being available to the Operating Committee, fees for consolidated market data are fair and reasonable and not unreasonably discriminatory if they are related to the value of the data to subscribers. The Filing Participants state that the value of depth-of-book data and auction information is well established, as this content has been available to market participants directly from the exchanges for years, and in some cases decades, at prices constrained by direct and platform competition. According to the Filing Participants, exchanges have filed fees for this data pursuant to the standards specified in Section 6(b)(5) of the Act. The Filing Participants state that, to determine the value of depth-of-book data, the Filing Participants considered a number of methodologies, based on the current fees charged for depth-ofbook data products offered by exchanges, to determine the appropriate level at which to set fees for the expanded data content. The Filing Participants state they reviewed (1) an ISO Trade-Based Model; 35 (2) a Depth to Top-Of-Book Ratio Model (‘‘Depth-toTOB Model’’); and (3) a Message-Based Model.36 Ultimately, the Filing Participants selected a Depth-to-TOB Model to determine the appropriate fees for the expanded data content. The Filing Participants state that they reviewed the depth to top-of-book ratios of Professional device rates on Nasdaq (Nasdaq TotalView compared to Nasdaq Basic), Cboe (Cboe Full Depth compared to Cboe One) and NYSE (NYSE Integrated compared to NYSE BQT). The Filing Participants state that they also reviewed the ratio proposed by IEX between its proposed fees for real-time top-of-book and depth feeds (TOPS compared to DEEP). The Filing Participants state that using the ratios calculated for Nasdaq, NYSE, and IEX resulted in an average ratio of 3.94x between the prices of depth-of-book and top-of-book feeds.37 The Filing Participants then applied this 3.94x ratio to the current fees charged for consolidated market as more specifically described below. With respect to the fees for auction information, the Filing Participants state that they looked to the number of trades that occur during the auction process as compared to the trading day and determined that roughly 10% of daily trading volume takes place during auctions. Consequently, the Filing Participants concluded that charging a fee that was 10% of the fee charged for depth-of-book data was an appropriate proxy for determining the value of auction information. As a result, the Filing Participants have proposed a $10.00 fee per Network for auction information, which the Filing Participants state is fair and reasonable and not unreasonably discriminatory. With respect to the fees for Level 1 Core Data, the Filing Participants state that it is fair and reasonable and not unreasonably discriminatory to include access to odd-lot information at no charge in addition to the current fees, which the Filing Participants state they are not proposing to change. Finally, as described above, the Filing Participants propose that the existing 34 The Filing Participants further state that they are not proposing any changes to the Multiple Feed Charges, Late/Clearly Erroneous Reporting Charges, and Consolidated Volume Data Non-Compliance Fee. According to the Participants, these current fees are administrative fees and would continue to apply to any data usage. See Notice, supra note 6, 86 FR at 67519. 35 According to the Filing Participants, the ISOBased model analyzed the number of intermarket sweep orders executing through the NBBO, looking at the number of intermarket sweep orders executed in the first five levels of depth as compared to all ISOs executed. See Notice, supra note 6, 86 FR at 67520 n.18. 36 According to the Filing Participants, the Message-based model looked at the total number of orders displayable in the first five levels of depth as compared to all displayable orders. See Notice, supra note 6, 86 FR at 67520 n.19. 37 The Filing Participants state that they also conducted alternative calculations by including a broader range of products or those products offering more robust depth fees. These alternative calculations resulted in ratios greater than 3.94x and were not selected by the Filing Participants. The Filing Participants state that the 3.94x ratio represents the difference in value between top-ofbook and five levels of depth that would be required to be included in consolidated market data under Rule 603(b) Because the alternate methodologies, which focused on only the top five levels of depth, resulted in higher ratios, the Filing Participants state that the more conservative 3.94x ratio would be a fair and reasonable ratio between the proposed fees for depth-of-book data required to be included in the consolidated market data and the current fees for the existing Top of Book Quotation information. See Notice, supra note 6, 86 FR at 67520. VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 PO 00000 Frm 00144 Fmt 4703 Sfmt 4703 Redistribution Fees would apply to the amended core data and that Redistribution Fees would also apply to competing consolidators. IV. Discussion A. The Applicable Standard of Review Under Rule 608(b)(2) of Regulation NMS, the Commission shall approve a national market system plan or proposed amendment to an effective national market system plan, with such changes or subject to such conditions as the Commission may deem necessary or appropriate, if it finds that such plan or amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.38 The Commission shall disapprove a national market system plan or proposed amendment if it does not make such a finding.39 Furthermore, under Rule 700(b)(3)(ii) of the Commission’s Rules of Practice, The burden to demonstrate that a NMS plan filing is consistent with the Exchange Act and the rules and regulations issued thereunder that are applicable to NMS plans is on the plan participants that filed the NMS plan filing. Any failure of the plan participants that filed the NMS plan filing to provide such detail and specificity may result in the Commission not having a sufficient basis to make an affirmative finding that an NMS plan filing is consistent with the Exchange Act and the rules and regulations issued thereunder that are applicable to NMS plans.40 In addition, the fees proposed in the Proposed Amendments for data content underlying consolidated market data offerings must be assessed against the statutory standard, including Sections 11A(c)(1)(C)–(D) of the Exchange Act and Rule 603(a) under Regulation NMS.41 Such fees must satisfy the statutory standards of being fair and reasonable and not unreasonably discriminatory.42 In making this assessment, the Commission must have 38 17 CFR 242.608(b)(2). 39 Id. 40 17 CFR 201.700(b)(3)(ii). Sections 11A(c)(1)(C)–(D) of the Exchange Act, 15 U.S.C 78k–1(c)(1)(C)–(D); Rule 603(a) of Regulation NMS, 17 CFR 242.603. See also MDI Rules Release, supra note 11, 86 FR at 18650. 42 See Sections 11A(c)(1)(C)–(D) of the Act, 15 U.S.C 78k–1(c)(1)(C)–(D); Rule 603(a) of Regulation NMS, 17 CFR 242.603. See also MDI Rules Release, Section III.E.2(c), supra note 11, 86 FR at 18684– 87 (discussing the statutory requirements applicable to consolidated market data and the standards the Commission has historically applied to assessing compliance with the statutory requirements). 41 See E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices ‘‘sufficient information before it to satisfy its statutorily mandated review function’’ to determine that the fees meet the standard.43 For the reasons discussed below, the Commission finds that the Filing Participants have not demonstrated that the Proposed Amendment is consistent with the Act.44 Accordingly, the Commission cannot find that the Proposed Amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.45 In the discussion that follows, the Commission analyzes the methodology selected by the Filing Participants to develop the proposed fees for data content underlying consolidated market data, as well as the implementation of that methodology, and discusses in turn each of the proposed fee categories for content underlying consolidated market data. jspears on DSK121TN23PROD with NOTICES B. ‘‘Cost-Based’’ vs. ‘‘Value-Based’’ Fees for Data Content Underlying Consolidated Market Data The ‘‘value-based’’ fee methodology proposed by the Filing Participants, and opposed by certain commenters, would apply to each of the specific proposed fees,46 and the Commission therefore discusses this issue before addressing each of the proposed fees. In the MDI Rules Release, the Commission stated that the Operating Committee of the Plan ‘‘should continue to have an important role in the operation, development, and regulation of the national market system for the collection, consolidation, and dissemination of consolidated market data.’’ 47 The Commission further stated that ‘‘the fees for data content underlying consolidated market data, as now defined, are subject to the national market system process that has been established,’’ and that the ‘‘Operating Committee(s) have plenty of experience in developing fees for SIP data.’’ 48 The Filing Participants state that the Operating Committee has brought this experience to bear to determine the fees 43 See MDI Rules Release, supra note 11, 86 FR at 18685 (citing to In the Matter of the Application of Bloomberg L.P., Securities Exchange Act Release No. 83755 (July 31, 2018), 2018 WL 3640780, at *9 (‘‘Bloomberg Order’’)). 44 17 CFR 201.700(b)(3). 45 17 CFR 242.608(b)(2). 46 See Notice, supra note 6, 86 FR at 67519–21. 47 MDI Rules Release, supra note 11, 86 FR at 18682. 48 MDI Rules Release, supra note 11, 86 FR at 18683. VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 for the new core data elements.49 In the Cover Letter,50 the Filing Participants also acknowledge that the fees established for consolidated market data must be fair and reasonable and not unreasonably discriminatory, and they state that they are proposing fees that are fair and reasonable and not unreasonably discriminatory. Additionally, the Filing Participants argue that, while the Commission has stated that one way to demonstrate that fees for consolidated market data are fair and reasonable is to show that they are reasonably related to costs, the Exchange Act does not require a showing of costs and historically the Plan has not demonstrated that its fees are fair and reasonable on the basis of cost data.51 The Filing Participants further represent that, under the decentralized competing consolidator model, the Operating Committee has no knowledge of any of the costs associated with consolidated market data.52 According to the Filing Participants, under the current exclusive SIP model, the Operating Committee (1) specifies the technology that each Participant must use to provide the SIPs with data, and (2) contracts directly with a SIP to collect, consolidate, and disseminate consolidated market data, and the Operating Committee therefore has knowledge only of the costs associated with collecting and consolidating market data, as opposed to the costs associated with producing the data.53 By contrast, the Filing Participants state, under the decentralized competing consolidator model, the Plans will no longer have a role either in specifying the technology associated with exchanges providing data or in contracting with a SIP. Rather, the Filing Participants state, each national securities exchange will be responsible, as specified in Rule 603(b), for determining the methods of access to and format of data necessary to generate consolidated market data.54 Moreover, the Filing Participants argue, competing consolidators will be responsible for connecting to the exchanges to obtain data directly from each exchange, without any involvement of the Operating Committee, and the Operating Committee will not have access to information about how each exchange would generate the data it would be 49 See Notice, supra note 6, 86 FR at 67519. Cover Letter, supra note 1, at 6; see also Notice, supra note 6, 86 FR at 67519. 51 See Notice, supra note 6, 86 FR at 67519. 52 See id. 53 See id. 54 See id. 50 See PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 58617 required to disseminate under Rule 603(b).55 Accordingly, the Filing Participants argue, the Operating Committee does not and will not have access to any information about the cost of providing consolidated market data under the decentralized competing consolidator model.56 The Filing Participants state that, in light of the absence of cost information available to the Operating Committee, fees for consolidated market data are fair and reasonable and not unreasonably discriminatory if they are related to the value of the data to subscribers. The Filing Participants argue that the value of depth-of-book data and auction information is well-established, as this content has been available to market participants directly from the exchanges for years, and in some cases decades, at prices constrained by direct and platform competition. The Filing Participants further state that exchanges have filed fees for this data pursuant to the standards specified in Section 6(b)(5) of the Act and that the fees in the Proposed Amendment were filed using a value-based methodology. Some commenters oppose the Proposed Amendment, arguing that the proposed fees are based on a flawed methodology that, inconsistent with the MDI Rules, fails to provide a cost-based justification.57 These commenters state 55 See id. id. 57 See Letter from Christopher Solgan, Senior Counsel, MIAX Exchange Group, to Vanessa Countryman, Secretary, Commission, at 3 (Jan. 12, 2022) (‘‘MIAX Letter’’) (comment from a NonSupporting Participant); Letter from John Ramsay, Chief Market Policy Officer, Investors Exchange LLC, to Vanessa Countryman, Secretary, Commission, at 2–3 (Dec. 17, 2021) (‘‘IEX Letter’’) (comment from a Non-Supporting Participant). See also Letter from Joe Wald, Managing Director, CoHead of Electronic Trading, and Ray Ross, Managing Director, Co-Head of Electronic Trading, BMO Capital Markets Group, to Vanessa Countryman, Secretary, Commission, at 2–3 (Dec. 17, 2021) (‘‘BMO Letter’’); Letter from Ellen Greene, Managing Director, Equity & Options Market Structure, and William C. Thum, Managing Director and Associate General Counsel, Asset Management Group, Securities Industry and Financial Markets Association, to Vanessa Countryman, Secretary, Commission, at 4–5 (Dec. 17, 2021) (‘‘SIFMA Letter I’’) (noting that the fees charged by monopolistic providers, such as exclusive SIPs, need to be tied to some type of cost-based standard in order to preclude excessive profits if fees are too high or underfunding or subsidization if fees are too low); Letter from Patrick Flannery, Chief Executive Officer, MayStreet, to Vanessa Countryman, Secretary, Commission, at 6 (Dec. 17, 2021) (‘‘MayStreet Letter I’’); Letter from Hubert De Jesus, Managing Director, Global Head of Market Structure and Electronic Trading, and Samantha DeZur, Director, Global Public Policy, BlackRock, to Vanessa Countryman, Secretary, Commission, at 2 (Dec. 16, 2021) (‘‘BlackRock Letter’’); Letter from Allison Bishop, President, Proof Services LLC, to Vanessa Countryman, Secretary, Commission, at 2– 56 See E:\FR\FM\27SEN1.SGM Continued 27SEN1 58618 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices jspears on DSK121TN23PROD with NOTICES that the proposed fees should bear a reasonable relationship to the cost of producing the market data, which, they argue, is the primary basis the Commission has identified for justifying the fees for core data.58 Some commenters also state that the methodology used has resulted in proposed fees that are unreasonably high.59 In making this argument, some commenters object to using the current prices for the exchanges’ proprietary data products as the basis for calculating the proposed core data fees,60 stating that such a method is inconsistent with the MDI Rules’ goal of expanding access to consolidated data 61 and with statements in the MDI Rules Release that the proposed fees should bear a reasonable relationship to the cost of producing the data.62 One commenter 3 (Nov. 22, 2021) (‘‘Proof Services Letter’’); Letter from Adrian Griffiths, Head of Market Structure, MEMX LLC, to Vanessa Countryman, Secretary, Commission, at 18 (Nov. 8, 2021) (‘‘MEMX Letter’’); Letter from Ellen Greene, Managing Director, Equity & Options Market Structure, and William C. Thum, Managing Director and Associate General Counsel, Asset Management Group, Securities Industry and Financial Markets Association, to Vanessa Countryman, Secretary, Commission, at 2 (Apr. 27, 2022) (‘‘SIFMA Letter II’’). 58 See IEX Letter, supra note 57, at 1, 2–3 (stating that the proposal fails to establish that the fees for the data content underlying consolidated market data meet the statutory standards of being fair, reasonable, and not unreasonably discriminatory); MIAX Letter, supra note 57, at 3. See also BMO Letter, supra note 57, at 2–3; SIFMA Letter I, supra note 57, at 4–5 (stating that the fees charged by monopolistic providers, such as exclusive SIPs, need to be tied to some type of cost-based standard in order to preclude excessive profits if fees are too high or underfunding or subsidization if fees are too low); MayStreet Letter I, supra note 57, at 6; BlackRock Letter, supra note 57, at 2; Proof Services Letter, supra note 57, at 2, 3; MEMX Letter, supra note 57, at 18; Letter from Manisha Kimmel, Chief Policy Officer, MayStreet, Inc., to Vanessa Countryman, Secretary, Commission, at 13 (‘‘MayStreet Letter II’’) (stating that fees based on cost are the best approach to achieve robust competition for consolidated market data and meet Regulation NMS and other standards under the Exchange Act); SIFMA Letter II, supra note 57, at 2. 59 See MIAX Letter, supra note 57, at 3; MayStreet Letter I, supra note 57, at 6; BlackRock Letter, supra note 57, at 2, 4–5; IEX Letter, supra note 57, at 4; Proof Services Letter, supra note 57, at 3; MEMX Letter, supra note 57, at 8, 11–12. 60 See MIAX Letter, supra note 57, at 4; SIFMA Letter I, supra note 57, at 4–5 (stating that the exchanges’ ‘‘platform competition’’ argument—that competition for order flow constrains pricing for market data—does not demonstrate that the fees are reasonable and that studies the commenter has submitted to the Commission in the past bolster the commenter’s argument); IEX Letter, supra note 57, at 4; SIFMA Letter II, supra note 57, at 2. 61 See MIAX Letter, supra note 57, at 4. 62 See id. at 3 (stating ‘‘the [p]roposals do not provide a cost based justification to support that the fees are reasonable despite the Commission directly stating in the MDI Rule[s Release] that any proposed fees must be reasonably related to cost’’); SIFMA Letter I, supra note 57, at 4, 5 (citing the statement in the MDI Rules Release that ‘‘a VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 states that without fair and reasonable pricing for the underlying content of consolidated market data, implementation of the MDI Rules cannot proceed, nor can improvements to price transparency and best execution, because the use of top-ofbook proprietary feeds provided by exchanges—often marketed as SIP alternatives and widely used in place of the SIP due to both direct and administrative costs—deprives retail investors of a complete view of the NMS marketplace, which is required to fulfill the Congressional mandate in the 1975 amendments to the Act.63 Some commenters also disagree with the Filing Participants’ statements in the Proposed Amendment that a cost-based justification is not required because the Act does not require a showing of costs and that cost analysis has not been provided in past equity market data plan proposals.64 These commenters state that the Commission has stated that a reasonable relation to cost is a primary basis for justifying core data fees.65 One commenter states that specific information, including quantitative information, should be provided to support the Filing Participants’ claims that the proposed fees are fair and reasonable because they will permit the recovery of SRO costs or will not result in excessive pricing or profits.66 Additionally, some commenters disagree with the Filing Participants’ statement in the proposal that the Plan’s Operating Committee ‘‘has no knowledge of any costs associated with consolidated market data,’’ stating that the Filing Participants know how much it costs to collect and disseminate market data because they already perform this function, including in connection with proprietary feeds.67 One commenter states that a costbased approach is best for achieving robust competition for consolidated market data and reducing administrative plan costs.68 According to the commenter, pricing of the underlying content for the creation of consolidated market data should be based on the marginal cost of supporting competing consolidators, a cost that the commenter states is quantiÉable and Éxed for each participant. The commenter states that the lowest cost approach would be for each Participant to offer competing consolidators and self-aggregators a depth-of-book feed at their current proprietary feed prices, with added access fees and redistribution fees but not usage fees.69 The commenter states that a comparison of total annual revenues that the plans would receive under a cost-based model (using current depth-of-book proprietary feeds pricing as a proxy for costs of supplying proprietary feeds to a single entity) to total annual revenues currently received by the plans would serve to demonstrate that current fees for consolidated market data are unrelated to cost.70 One Filing Participant states that a demonstration of costs is not required because neither the Exchange Act nor Commission rules require market data fees to be supported by a showing of costs.71 This commenter states that the Commission’s standard for evaluating consolidated market data fees has not required a showing of the relationship between the proposed fees and the cost of producing the data, as illustrated by past equity market data plan proposals for consolidated market data fees that were not justified on the basis of cost.72 This commenter argues that it is not clear how the Plan could support the fee proposals based on costs, because the reasonable relation to cost has . . . been the principal method discussed by the Commission for assessing the fairness and reasonableness of . . . fees for core data.’’); IEX Letter, supra note 57, at 1, 2–3 (arguing that the methodology used to set fees is faulty and inconsistent with MDI Rules Release). 63 See MayStreet Letter II, supra note 58, at 2–4. 64 See MIAX Letter, supra note 57, at 3; SIFMA Letter I, supra note 57, at 5. 65 See IEX Letter, supra note 57, at 1, 2–3; SIFMA Letter I, supra note 57, at 5; MIAX Letter, supra note 57, at 3 (stating that the vast majority of equity market data plan fees were adopted prior to issuance of the Commission’s staff fee guidance and that multiple SROs have more recently included cost based analysis when proposing fees for a market data product). 66 See MIAX Letter, supra note 57, at 3. 67 See SIFMA Letter I, supra note 57, at 5; MIAX Letter, supra note 57, at 3; MayStreet Letter I, supra note 57, at 6; Letter from Katie Adams, Chief Product Officer, Polygon.io, Inc., to Vanessa Countryman, Secretary, Commission, at 1–2 (Mar. 22, 2022) (‘‘Polygon.io Letter II’’). 14. 68 See PO 00000 Frm 00146 Fmt 4703 Sfmt 4703 MayStreet Letter II, supra note 58, at 10– 69 The commenter states that depth-of-book feed pricing is an adequate proxy for the cost of supplying a proprietary feed to a single entity since it is unlikely that the Filing Participants lose money on supplying their proprietary depth of book feeds to subscribers. See id. 70 See MayStreet Letter II, supra note 58, at 10– 13. 71 See Letter from Hope M. Jarkowski, General Counsel, NYSE Group, Inc., to Vanessa Countryman, Secretary, Commission, at 3 (Jan. 22, 2022) (‘‘NYSE Letter’’) (stating that the legislative history of the 1975 amendments to the Exchange Act, and particularly Section 11A, reflects that Congress’s principal concern was promoting competition between exchanges, not regulating market data pricing, and that economic studies have demonstrated that separating out the costs of producing market data from the other costs of operating an SRO is an impossible task that would enmesh the Commission in a continuous ratemaking process that would produce arbitrary results). 72 See id. at 3–4. E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices Operating Committee plays no role in the creation or dissemination of core data under Rule 603(b) and thus has no information about how each exchange would generate core data under that rule.73 The commenter argues that it remains impossible to separate the costs of producing market data from other costs of operating an exchange.74 Another Filing Participant also opposes the use of cost as a basis for setting the proposed fees.75 This commenter dismisses other commenters’ suggestions that fees should be based on costs, rather than value, because, according to the commenter, the Commission has not offered guidance with respect to such a cost-based ratemaking system,76 and because any cost allocation between joint products would therefore be unworkable, inherently arbitrary, and inconsistent with the Congressional mandate that the Commission rely on competition whenever possible in meeting its regulatory responsibilities.77 The commenter states that the proposed fees have been tested by competition and that ‘‘Commission staff have indicated that they would look at factors beyond the competitive environment, such as cost, only if a ‘proposal lacks persuasive evidence that the proposed fee is constrained by significant competitive forces.’ ’’ 78 Some commenters oppose the use of the value-based methodology used to determine the fees under the Proposed 73 See id. at 4. id. 75 See Letter from Erika Moore, Vice President and Corporate Secretary, Nasdaq Stock Market LLC, to Vanessa Countryman, Secretary, Commission, at 3 (Dec. 17, 2021) (‘‘Nasdaq Letter I’’); Letter from Erika Moore, Vice President and Corporate Secretary, Nasdaq Stock Market LLC, to Vanessa Countryman, Secretary, Commission, at 4 (Mar. 29, 2022) (‘‘Nasdaq Letter II’’). 76 See Nasdaq Letter I, supra note 75, at 3; Nasdaq Letter II, supra note 75, at 4. 77 See Nasdaq Letter I, supra note 75, at 3; Nasdaq Letter II, supra note 75, at 4. 78 See Nasdaq Letter I, supra note 75, at 5–6 (citing to ‘‘Staff Guidance on SRO Rule Filings Relating to Fees’’ (May 19, 2019)). The Staff Guidance on SRO Rule Filings Relating to Fees in fact states: ‘‘If a Fee Filing proposal lacks persuasive evidence that the proposed fee is constrained by significant competitive forces, the SRO must provide a substantial basis, other than competitive forces, demonstrating that the fee is consistent with the Exchange Act. One such basis may be the production of related revenue and cost data, as discussed further below.’’ See ‘‘Staff Guidance on SRO Rule Filings Relating to Fees’’ (May 19, 2019), available at https://www.sec.gov/tm/staff-guidancesro-rule-filings-fees. Staff documents represent the views of Commission staff and are not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved the content of this staff document and, like all staff statements, it has no legal force or effect, does not alter or amend applicable law, and creates no new or additional obligations for any person. jspears on DSK121TN23PROD with NOTICES 74 See VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 Amendment.79 One commenter states that comments suggesting that a costbased approach is not possible or not supported by precedent should take into account that introducing competition to consolidated market data is also without precedent and that to rely on past interpretations of the Exchange Act with respect to what is fair and reasonable will threaten the viability of establishing a vibrant competing consolidator marketplace.80 One commenter states that, if the objective is to have the SIPs provide a service that is more affordable and accessible than the data products offered by individual exchanges, then the ‘‘value to subscribers’’ should not be sole determinant of SIP fees, because the current fees for exchange proprietary data products are not a reasonable gauge of the value of core data offered under the Plan.81 Another commenter states that basing the proposed fees on value instead of cost does not work because the mandate under the Exchange Act is to price SIP data at levels that maximize its availability.82 One commenter states that there can be no fair and reasonable fee structure with value-based pricing of core data because certain market participants are required by regulation to display consolidated data, which requires having core data from all exchanges.83 Because those participants will always be required to obtain this data regardless of the cost, this commenter argues, a value-based approach will never lead to fees that are fair, reasonable, and not unreasonably discriminatory.84 One commenter states that if valuebased pricing is the only feasible approach, value should be assessed based on the value of the data to competing consolidators—specifically, the ability of competing consolidators to compete against comparable proprietary feed offerings.85 The commenter states that a value-based approach to pricing the underlying content associated with consolidated top-of-book market data must work backwards and first consider the prices that competing consolidators will charge for Level 1 data and then the 79 See Proof Services Letter, supra note 57; Letter from Emil Framnes and Simon Emrich, Norges Bank Investment Management, to Vanessa Countryman, Secretary, Commission (Jan. 5, 2022) (‘‘NBIM Letter’’); MayStreet Letter I, supra note 57; MayStreet Letter II, supra note 58, at 1; SIFMA Letter II, supra note 57, at 2. 80 See MayStreet Letter II, supra note 58, at 14. 81 See Proof Services Letter, supra note 57, at 3. 82 See MayStreet Letter I, supra note 57, at 6. 83 See Polygon.io Letter II, supra note 67, at 1. 84 See id. 85 See MayStreet Letter II, supra note 58, at 15– 16. PO 00000 Frm 00147 Fmt 4703 Sfmt 4703 58619 value of the underlying content to the competing consolidator.86 Two Filing Participants argue that the proposed fees are fair and reasonable and not unreasonably discriminatory because they are reasonably related to the value that subscribers gain from the data, and that the proposed fees achieve the Commission’s objective in Regulation NMS that prices for consolidated market data be set by market forces.87 One Filing Participant argues that the pricing for exchange proprietary data feeds—including the depth-of-book data, top-of-book data, and auction information on which the proposed fees are based—is constrained by competitive forces, in that they have a history of being constrained by direct competition and by platform competition among the exchanges.88 This commenter states that pricing for exchange proprietary data feeds is constrained by the highly competitive markets for exchange trading and exchange market data,89 and that the proposed fees meet the Commission’s objective for market forces to determine the overall level of fees.90 Another Filing Participant also argues that basing fees on the value of the underlying data is the fairest and most economically efficient method for setting fees, because setting fees according to the value of the data leads to optimal consumption: fees that are too low do not allow for producers to remain profitable, while fees that are too high lead to underutilization.91 The commenter states that NMS Plans have historically used value as a fair and 86 See id. NYSE Letter, supra note 71, at 5; Nasdaq Letter I, supra note 75, at 5. 88 See NYSE Letter, supra note 71, at 5. 89 See id. The commenter further argues that exchanges compete against each other as platforms and that, as such, no exchange can raise its prices to supra competitive levels on one side of the platform, such as market data, without losing sales on the other, such as trading volume. The commenter argues that given this inter-exchange platform competition, the exchanges’ filed prices for depth-of-book data and auction information are constrained by market forces. See id. at 6–7. 90 See id. at 5. The commenter states that by applying that established ratio to the current prices for consolidated top-of-book data, the fee proposals thus reflect the market forces that drive the pricing of depth-of-book information in relation to top-of book information and the value that the data has to market participants. Id. This commenter argues that the ratio between these filed proprietary depth-ofbook fees and proprietary top-of-book data therefore provides the Commission with a benchmark for evaluating the proposed fees, which are fair, reasonable, and not unreasonably discriminatory because they are based on this ratio, which is reflective of market forces. See id. at 7. 91 See Nasdaq Letter I, supra note 75, at 2; Nasdaq Letter II, supra note 75, at 2. 87 See E:\FR\FM\27SEN1.SGM 27SEN1 58620 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices jspears on DSK121TN23PROD with NOTICES efficient basis for setting fees.92 The commenter argues that the best basis for determining the value of core data are the fees currently charged for proprietary data fees, which, according to the commenter, have been ‘‘tested by market competition’’ and therefore provide a good starting point for estimating the value of new core data and for setting fees at efficient levels.93 The commenter states that exchanges cannot overprice the total price of their services without potentially losing order flow and damaging their overall ability to compete.94 According to this commenter, exchanges that produce more valuable market data generally charge higher fees, and those with less valuable data charge lower fees,95 so fees vary according to the underlying value of the data, as measured by the liquidity available at the exchange.96 This commenter also argues that 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 discriminatory.97 The commenter argues that, because they are tested by market competition, proprietary data fees provide a good and indicative starting point for estimating the value of new core data and setting fees at their efficient level.98 This, according to the commenter, provides a substantial basis for showing that current proprietary fees—and, by extension, the proposed fees for new core data—are equitable, fair, reasonable, and not unreasonably discriminatory.99 Under Section 11A of the Act and Rule 603(a) of Regulation NMS, the Commission must assess whether the fees for content underlying consolidated data are offered on terms that are ‘‘fair and reasonable’’ and ‘‘not unreasonably discriminatory.’’ 100 And a threshold issue presented by the Proposed Amendment—and debated by many of the commenters, including Filing Participants, Non-Supporting Participants, and others—is whether the fees for consolidated data must be costbased or whether they may be based on the value of the data to subscribers. 92 See Nasdaq Letter I, supra note 75, at 2; Nasdaq Letter II, supra note 75, at 2. 93 Nasdaq Letter I, supra note 75 at 6. 94 See id. at 4. 95 See id. 96 See id. 97 See id. at 5–6. 98 See id. at 6. 99 See id. 100 Sections 11A(c)(1)(C)–(D) of the Act, 15 U.S.C. 78k–1(c)(1)(C)–(D); Rule 603(a) of Regulation NMS, 17 CFR 242.603. VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 Several commenters, including NonSupporting Participants, have argued that cost-based pricing must be used with respect to the fees in the Proposed Amendment.101 While the Commission has stated that a ‘‘reasonable relation to costs’’ has been the ‘‘principal method discussed by the Commission for assessing the fairness and reasonableness’’ of fees for core data,102 the Commission has also acknowledged that ‘‘[t]his does not preclude the Commission from considering in the future the appropriateness of another guideline to assess the fairness and reasonableness of core data fees in a manner consistent with the Exchange Act.’’ 103 The Commission, therefore, does not believe that a cost-based methodology is the only acceptable method for setting the fees for consolidated data under the MDI Rules. It does not follow, however, that costbased pricing could not be used here. The Proposed Amendment, supported by comments from Filing Participants, argues that using cost-based pricing is not required by statute, has not been used historically for consolidated data, and, further, is not possible because the Operating Committee of the Plan has no knowledge of any of the costs associated with consolidated market data.104 Further, a Filing Participant argues that, because the Commission has not offered guidance for cost-based pricing, allocating costs would be unworkable, arbitrary, and inconsistent with relying on competition when possible, and states that, according to Staff Guidance, cost factors are relevant only in the absence of persuasive evidence that prices are constrained by significant competition.105 While cost-based pricing is not required by statute, a ‘‘reasonable relation to costs’’ is, as stated above, the principal method discussed by the Commission for assessing the fairness and reasonableness of fees for core data.106 Moreover, the argument that the Operating Committee of the Plan cannot use cost-based pricing because it has no knowledge of relevant costs 107 rests on the questionable proposition that a group of exchanges acting jointly lacks information that each of the exchanges would possess individually. If cost 101 See supra notes 57–70 and accompanying text. Rules Release, supra note 11, 86 FR at 18685 (citing Bloomberg Order, supra note 43, 2018 WL 3640780, at *9). 103 MDI Rules Release, supra note 11, 86 FR at 18685 (citing Bloomberg Order, supra note 43, 2018 WL 3640780, at *9 n.63). 104 See Notice, supra note 6, 86 FR at 67519. 105 See supra notes 77–78 and accompanying text. 106 See supra note 102 and accompanying text. 107 See Notice, supra note 6, 86 FR at 67519. 102 MDI PO 00000 Frm 00148 Fmt 4703 Sfmt 4703 information is unavailable, that is because the exchanges on the Operating Committee have not shared it. And while one Filing Participant argues that the Commission has failed to provide guidance on cost-based pricing,108 the Filing Participants have not attempted to show that the proposed fees are reasonably related to those costs, and they have not demonstrated that a costbased approach is infeasible. Instead, the Filing Participants have elected to file the proposed fees for the content underlying consolidated market data using what they term a ‘‘valuebased’’ methodology, and in Section IV.C. below the Commission examines whether the fees proposed by the Filing Participants through the application of this methodology meet the requirement of being fair, reasonable, and not unreasonably discriminatory.109 As an initial matter, however, the Filing Participants have failed to demonstrate that value-based pricing is appropriate for content underlying consolidated market data offerings. The Filing Participants argue that the value of the data to subscribers is a fair and reasonable basis for setting the fees for consolidated data. They calculate that value by comparison to the prices of certain proprietary data feeds,110 and they argue that the prices for those proprietary data feeds are constrained by both direct competition and ‘‘platform’’ competition (i.e., the theory that the exchanges compete as unified platforms for both order flow and data revenue).111 In authorizing the Commission to establish a national market system for the trading of securities, Congress found that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to ensure the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities.112 In furtherance of these purposes, the Commission has sought through its rules and regulations to ensure that certain core data is widely available for reasonable fees.113 And as 108 See Nasdaq Letter I, supra note 75, at 3. Sections 11A(c)(1)(C)–(D) of the Act; Rule 603(a) of Regulation NMS. 110 As discussed throughout Section IV.C, infra, the proprietary data feeds differ in material ways from consolidated depth-of-book data under the MDI Rules. 111 See NYSE Letter, supra note 71, at 5–7; Nasdaq Letter I, supra note 75, at 4–6; Nasdaq Letter II, supra note 75, at 1, 2. 112 15 U.S.C. 78k–1(a)(1)(C); see also MDI Rules Release, supra note 11, 86 FR at 18598. 113 See MDI Rules Release, supra note 11, 86 FR at 18598; see also, e.g., Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 109 See E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices the Commission has recognized, core data differ from proprietary data feeds in a critical way: ‘‘[B]ecause core data must be purchased, their fees are less sensitive to competitive forces.’’ 114 Here, the Filing Participants propose to base prices for the data content underlying consolidated market data on an estimate of the value of the data to subscribers, and to estimate that value from the prices for selected proprietary market data products, which they argue are constrained by competitive forces. The Filing Participants, however, have not demonstrated that prices for core data that are based on an estimated value of the data to subscribers are consistent with the statutory standard of being fair, reasonable, and not unreasonably discriminatory.115 Additionally, as discussed in detail below, the proprietary market data products used by the Filing Participants to derive their ‘‘value based’’ pricing are not comparable to consolidated market data offerings pursuant to the MDI Rules.116 And while one Filing Participant argues that value-based fees are the most economically efficient,117 this argument too does not address whether basing prices for core data on an estimated value of the data to the subscribers is consistent with the statutory standard. Moreover, even if value-based prices were efficient, the Filing Participants have not established that they would not be unreasonably discriminatory. With respect to the specific proposed fees for various categories of data, in Section IV.C. below, this Order discusses how the Filing Participants have failed to demonstrate that those fees are fair, reasonable, and not unreasonably discriminatory. jspears on DSK121TN23PROD with NOTICES C. The Plan’s Proposed Fees for Data Content Underlying Consolidated Market Data As described above, the Filing Participants propose to amend the Plan to adopt fees for the receipt of the expanded content of consolidated 37560 (June 29, 2005) (Regulation NMS Adopting Release) (‘‘In the Proposing Release, the Commission emphasized that one of its primary goals with respect to market data is to assure reasonable fees that promote the wide public availability of consolidated market data.’’). 114 Securities Exchange Act Release No. 59039 (Dec. 2, 2008), 73 FR 74770, 74782 (Dec. 9, 2008) (File No. SR–NYSEArca–2006–21); see also MDI Rules Release, supra note 11, 86 FR at 18685. 115 See Sections 11A(c)(1)(C)–(D) of the Act; Rule 603(a) of Regulation NMS. 116 See infra Section IV.C.2 (discussing, among other things, the ways in which the data content of proprietary depth-of-book feeds differs from the data content underlying consolidated market data offerings pursuant to the MDI Rules). 117 See supra note 91, and accompanying text. VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 market data pursuant to the Commission’s MDI Rules.118 Specifically, the Filing Participants propose to charge separately for each of the three categories of consolidated equity market data that collectively constitute the amended definition of core data under Rule 600(b)(21) of Regulation NMS: 119 Level 1 Core Data (Top-of-book Data), Depth of Book Service, and Auction Information. In addition to the fees for the receipt of the three categories of data, the Filing Participants propose to charge subscribers certain additional fees, including, as applicable, Professional and Non Professional Charges, NonDisplay Use Fees, Access Fees, and Redistribution Fees.120 1. Fees for Top-of-Book Data As noted above, the Filing Participants propose to apply the current fees for Level 1 Core Data to the data content underlying consolidated market data in the new Level 1 Core Data offering and to add odd-lot information (as defined in Rule 600(b)(59)) to the data provided.121 Accordingly the Filing Participants propose to amend the fee schedule to provide that the new Level 1 Core Data would include Top of Book Quotation Information, Last Sale Price Information, odd-lot information, administrative data, regulatory data, and self-regulatory organization program data.122 The Filing Participants state they are not proposing to change the following fees for the Level 1 Core Data currently set forth in the CTA/CQ Plans: the Professional Subscriber and Nonprofessional Subscriber fees, the Non-Display Use Fees, and Access 118 See, e.g., MDI Rules Release, supra note 11, 86 FR at 18680; Rule 614(e) of Regulation NMS, 17 CFR 242.614(e). 119 17 CFR 242.600(b)(26). 120 In the Proposed Amendments, the Filing Participants also propose to make certain other changes to the Plan’s fee schedules in connection with the expanded data content. See Notice, supra note 6, 86 FR at 67518–19. The Commission agrees that these changes are non-substantive. 121 The Filing Participants state that current Plan fees for Level 1 Core Data are for Top of Book Quotations and Last Sale Price Information, as well as administrative data (as defined in Rule 600(b)(2)), regulatory data (as defined in Rule 600(b)(78)), and self-regulatory organizationspecific program data (as defined in Rule 600(b)(85)). The Filing Participants propose that the new Level 1 Core Data under the distributed consolidation model would continue to include all information that subscribers receive for current fees and would add odd lot information. See Notice, supra note 6, 86 FR at 67517. 122 The Filing Participants state that the Proposed Amendments would use terms defined in Rule 600(b) to reflect both current data made available to data subscribers and the additional odd-lot information that would be included at no additional charge. See Notice, supra note 6, 86 FR at 67518. PO 00000 Frm 00149 Fmt 4703 Sfmt 4703 58621 Fees.123 The Filing Participants are proposing that the existing Redistribution Fees 124 would apply to all three categories of core data, including the new Level 1 Core Data, and any subset thereof. The Filing Participants are also proposing that the existing Redistribution Fees would apply to competing consolidators. Several commenters, including certain Non-Supporting Participants, state that the proposed fees for the new Level 1 Core Data are too high.125 Several commenters also argue that the proposed fees do not account for the transfer of costs from the SROs to market participants under the decentralized consolidation model.126 With respect to comments that the proposal should ‘‘back out’’ fees for the current Processors from the proposed fee structure, however, one Filing Participant states that the MDI Rules require the current Processors to continue operating for at least several more years and that, therefore, there are no savings to back out of any proposed fee structure at this time.127 One commenter states that the Proposed Amendment conflates the prices that competing consolidators and self-aggregators pay the SROs for the underlying NMS information with the prices that competing consolidators would charge for the consolidated data they generate.128 This commenter states that the proposals do not make clear that the proposed fees are for the content underlying the consolidated market data, as opposed to the consolidated market data itself.129 The commenter argues that the Filing Participants confuse the content of consolidated market data with the 123 The Filing Participants propose that access to odd-lot information would be made available to Level 1 Core Data Professional and Nonprofessional Subscribers at no additional charge. See Notice, supra note 6, 86 FR at 67518. 124 See infra Section IV.C.8. discussing the proposed Redistribution Fees with respect to the proposed Auction Data and all other categories of data underlying consolidated market data. 125 See Letter from Luc Burgun, President and CEO, NovaSparks S.A.S., to Vanessa Countryman, Secretary, Commission, at 1 (Dec. 17, 2021) (‘‘NovaSparks Letter’’); IEX Letter, supra note 57; MayStreet Letter I, supra note 57; MEMX Letter, supra note 57, at 7; BlackRock Letter, supra note 57; MIAX Letter, supra note 57; MayStreet Letter II, supra note 58. 126 See MEMX Letter, supra note 57, at 18; MIAX Letter, supra note 57, at 2; BlackRock Letter, supra note 57, at 2–3; Letter from Quinton Pike, CEO, Polygon.io, Inc., to Vanessa Countryman, Secretary, Commission, at 1 (Nov. 30, 2021) (‘‘Polygon.io Letter I’’); MayStreet Letter II, supra note 58, at 1– 2, 4–5. 127 See NYSE Letter, supra note 71, at 7. 128 See MayStreet Letter I, supra note 57, at 2. 129 See id. at 2. E:\FR\FM\27SEN1.SGM 27SEN1 58622 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices consolidated market data itself,130 and states that the Proposed Amendment sets prices at levels that the SIPs currently charge for consolidated market data.131 One commenter states that the proposed fees for top-of-book data should be substantially lower to allow competing consolidators to operate their business.132 This commenter states that the proposed fees should be lower in the new decentralized model because exchanges will no longer have to pay for the current processors and will not have the burden of maintaining custom feeds in specific formats.133 Another commenter opposes the proposal and asks the Commission to disapprove it because it represents an overall increase in costs, including access fees, to end users as well as competing consolidators, thereby making market data less accessible and putting competing consolidators at a disadvantage.134 One commenter states that any value-based approach must acknowledge that competing consolidators will be competing against exchange-provided top-of-book feeds that are marketed as SIP alternatives.135 The commenter states that fees for competing consolidators would need to be a fraction of the amounts currently charged to allow for a sustainable proÉ t margin for competing consolidators.136 One commenter supports certain aspects of the proposal, including its a la carte fee structure and the inclusion of odd-lot quotations free of charge.137 Moreover, some commenters, including a Non-Supporting Participant, express support for the proposed inclusion of odd-lot information free of charge in the expanded Level 1 Core Data,138 with one commenter stating that this would result in top-of-book information that is more comprehensive, which should, in turn, strengthen best execution and enhance transparency and price discovery.139 The Commission finds that the Filing Participants have not demonstrated that the proposed fees for Level 1 core data 130 See id. at 3. id. at 6. 132 See NovaSparks Letter, supra note 125, at 1. 133 See id. 134 See Letter from Jonathan Hill, CEO, Anand Prakash, CTO, Nader Sharabati, CFO, and Doug Patterson, CCO, Cutler Group, LP, to Vanessa Countryman, Secretary, Commission, at 1–2 (Dec. 16, 2021) (‘‘Cutler Group Letter’’). 135 See MayStreet Letter II, supra note 58, at 15. 136 See id. at 16–17. 137 See BlackRock Letter, supra note 57, at 1, 3. 138 See MIAX Letter, supra note 57, at 2; BlackRock Letter, supra note 57, at 1, 3; MayStreet Letter I, supra note 57, at 2, 3, 6; Polygon.io Letter II, supra note 67, at 2. 139 See BlackRock Letter, supra note 57, at 1, 3. jspears on DSK121TN23PROD with NOTICES 131 See VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 are fair, reasonable, and not unreasonably discriminatory. Including in the new Level 1 Service the odd-lot quotation data that would be of the most interest to investors and other market participants—namely, odd-lot quotations that offer pricing at or superior to the NBBO—will help investors and other market participants to trade in a more informed and effective manner and to achieve better executions and reduce the information asymmetries that currently exist between subscribers to SIP data and subscribers to proprietary data,140 consistent with the objectives of the MDI Rules. But the Filing Participants have not demonstrated how their approach for pricing the new Level 1 Core Data (which consists of data content underlying consolidated market data for several elements of core data under the decentralized consolidator model 141) based on fees for the current Level 1 Core Data (which consists solely of already consolidated data content 142) can be reconciled with the new Level 1 Core Data the Filing Participants are purporting to price. The fees proposed by the Filing Participants are for a product independent from, and differing in content and function from, the current Level 1 Core Data under the Plan. Unlike the current Level 1 Core Data, the new Level 1 Core Data would include, in addition to top-of-book information, expanded data elements that form part of the definition of ‘‘core data,’’ such as information about better priced quotations in higher-priced 140 See MDI Rules Release, supra note 11, 86 FR at 18612. 141 The Filing Participants propose that Level 1 Core Data would include Top of Book Quotation Information, Last Sale Price Information, odd-lot information, administrative data, regulatory data, and self-regulatory organization program data. See Notice, supra note 6, 86 FR at 67517. 142 For each NMS stock, the Equity Data Plans currently provide for the dissemination of top-ofbook data and transaction information, generally defining consolidated market information (or ‘‘‘core data’’’) as consisting of: (1) the price, size, and exchange of the last sale; (2) each exchange’s current highest bid and lowest offer and the shares available at those prices; and (3) the national best bid and national best offer (‘‘NBBO’’) (i.e., the highest bid and lowest offer currently available on any exchange). In addition to disseminating core data, the exclusive SIPs collect, calculate, and disseminate certain regulatory data—including information required by the National Market System Plan to Address Extraordinary Market Volatility (‘‘LULD Plan’’), information relating to regulatory halts and market-wide circuit breakers, and information regarding the short-sale price test pursuant to Rule 201 of Regulation SHO. They also collect and disseminate other NMS information and disseminate certain administrative messages. Together with core data, the Commission refers to this broader set of data for purposes of this release as ‘‘SIP data.’’ See MDI Rules Release, supra note 11, 86 FR at 18599. PO 00000 Frm 00150 Fmt 4703 Sfmt 4703 stocks (implemented through a new definition of ‘‘round lot’’ and the inclusion of certain odd-lot information). In addition, and unlike the current Level 1 Core Data, the data content underlying consolidated data for the new Level 1 Core Data would not be collected, consolidated, or disseminated by the exclusive SIP for the Plan, but instead by competing consolidators and self-aggregators. And unlike current Level 1 Core Data, which bundles several consolidated data elements into one product, the core data elements contained in the new Level 1 Core Data could have been, in a manner not inconsistent with the MDI Rules, unbundled and offered as separate data underlying consolidated data offerings by the Filing Participants. Moreover, the proposed enhanced data content underlying consolidated data for the new Level 1 Core Data would not be implemented upon approval of the Proposed Amendments, nor would it be implemented under the current centralized model, but rather would be implemented in accordance with the phased implementation of the new decentralized consolidation model, as required by the Commission.143 The Filing Participants do not analyze or otherwise justify the proposed fees for the new Level 1 Core Data in a manner that is consistent with these facts. In addition, the Filing Participants have not demonstrated how, if at all, the proposed fees have taken into account the transfer of costs for collection, consolidation, and dissemination of data content underlying consolidated market data in the new Level 1 Core Data to other market participants under the decentralized consolidation model. Similarly, the Filing Participants do not justify or otherwise explain how the proposed fees have been adjusted so as to exclude other operating costs or profits of the exclusive SIPs, as some commenters, including a NonSupporting Participant, point out.144 Though one Filing Participant argues that, because the MDI Rules require the current Processors to continue operating for at least several more years, there are no savings to back out of any proposed fee structure at this time,145 this argument presents a false choice. This commenter ignores that the Plan could retain one price for the existing Level 1 Core Data, for as long as the current Processors continue to operate, and 143 See MDI Rules Release, supra note 11, 86 FR at 18698–701. 144 See BlackRock Letter, supra note 57, at 2, 3– 4; MayStreet Letter II, supra note 58, at 8–9; NovaSparks Letter, supra note 125, at 1; MEMX Letter, supra note 57, at 15–17. 145 See NYSE Letter, supra note 71, at 7. E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices propose new fees that would apply only to the data content underlying consolidated data in the new Level 1 Core Data under the decentralized model. The Filing Participants have not demonstrated that the proposed fees for the new Level 1 Core Data are fair, reasonable, and not unreasonably discriminatory consistent with Rule 603(a) of Regulation NMS. Thus, the Commission cannot find that, consistent with Rule 608 of Regulation NMS, the Proposed Amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.146 2. Fees for Depth-of-Book Data The Filing Participants propose to set fees for depth-of-book data, as that term is defined in Rule 600(b)(26) of Regulation NMS.147 With respect to depth-of-book data, the Filing Participants propose that Professional Subscribers would pay $99.00 per device per month for each Network’s data, and that Nonprofessional Subscribers would pay $4.00 per subscriber per month for each Network’s depth of book data.148 The Filing Participants are also proposing a monthly charge for Non-Display Use of depth-of-book data of $12,477 for each of three types of Non-Display Use,149 as 146 See 17 CFR 242.608(b)(2). 17 CFR 242.600(b)(26) (‘‘Depth of book data means all quotation sizes at each national securities exchange and on a facility of a national securities association at each of the next five prices at which there is a bid that is lower than the national best bid and offer that is higher than the national best offer. For these five prices, the aggregate size available at each price, if any, at each national securities exchange and national securities association shall be attributed to such exchange or association.’’). 148 The Filing Participants state they applied the 3.94x ratio described in the Proposed Amendments to the current fees charged to Professional Subscribers taking all three Networks ($75.00). This resulted in the total fee level for depth of book data for Professional Subscribers equaling $296.00 (i.e., $75.00 × 3.94 = $295.50, rounded to $296.00). This fee was then split evenly among the three Networks, resulting in a proposed Professional Subscriber fee of $99.00 per Network. The Filing Participants applied the 3.94x ratio to the current fees charged for Nonprofessional Subscribers taking all three Networks ($3.00). This resulted in the total fee level for depth of book data for Nonprofessional Subscribers equaling $12.00 (i.e., $3.00 × 3.94 = $11.82, rounded to $12.00). This fee was then split evenly among the three Networks, resulting in a proposed Nonprofessional Subscriber fee of $4.00 per Network. See Notice, supra note 6, 86 FR at 67520. 149 See supra note 32 (describing the three types of Non-Display Use recognized under Exhibit E to the CTA Plan). The Filing Participants applied the jspears on DSK121TN23PROD with NOTICES 147 See VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 well as an Access Fee of $9,850.00 per month.150 The Filing Participants further propose to add language to the Plan’s fee schedule in connection with the expanded content, including: (1) that the existing Redistribution Fees 151 would apply to all three categories of core data, including Depth-of-Book Data, and any subset thereof, and (2) that the existing Redistribution Fees would apply to competing consolidators. While one commenter supports the methodology selected by the Filing Participants, arguing that pricing for proprietary data feeds is a reasonable gauge of value because those fees are constrained by competition,152 another commenter disagrees with that view,153 and several commenters, including NonSupporting Participants, have expressed concern about the use of prices for exchange proprietary data products as the basis for setting the proposed fees on several grounds.154 Commenters state that the method used presupposes that fees for proprietary data products are fair and reasonable and not unreasonably discriminatory,155 and they state that Filing Participants have not shown that pricing for proprietary data feeds are a reasonable gauge of value or that proprietary data feeds are appropriate proxies for data content underlying consolidated market data 156 3.94x ratio described in the Proposed Amendments to the current fees charged for Non-Display Use for all three Networks ($9,500.00). This resulted in the total fee level for depth-of-book data for NonDisplay Use equaling $37,430.00 (i.e., $9,500.00 × 3.94 = $37,430.00). This fee was then split evenly among the three Networks, resulting in a proposed Non-Display Use Fee of $12,477.00 per Network (including rounding). See Notice, supra note 6, 86 FR at 67520. 150 The Filing Participants applied the 3.94x ratio described in the Proposed Amendments to the current fees charged for direct Data Access for all three Networks ($7,500.00). This resulted in the total fee level for depth of book data for Data Access Fees equaling $29,550.00 (i.e., $7,500.00 × 3.94 = $29,550.00). This fee was then split evenly among the three Networks, resulting in a proposed Data Access Fees of $9,850.00 per Network. See Exhibit A to the Notice, supra note 6, 86 FR at 67521. 151 See infra Section IV.C.7. discussing the proposed Redistribution Fees with respect to the proposed Auction Data and all other categories of data underlying consolidated market data. 152 See Nasdaq Letter I, supra note 75, at 2. 153 See SIFMA Letter I, supra note 57, at 6. 154 See MIAX Letter, supra note 57, at 4; SIFMA Letter I, supra note 57, at 4, 5; IEX Letter, supra note 57, at 4; SIFMA Letter II, supra note 57, at 2; NBIM Letter, supra note 79, at 1–2. 155 See SIFMA Letter I, supra note 57, at 5. 156 See IEX Letter, supra note 57, at 3–4; MEMX Letter, supra note 57, at 11–12; BlackRock Letter, supra note 57, at 4–5; Letter from Marcia E. Asquith, Executive Vice President, Board and External Relations, Financial Industry Regulatory Authority, Inc., to Vanessa Countryman, Secretary, Commission, at 6 (Dec. 17, 2021) (‘‘FINRA Letter’’); MayStreet Letter II, supra note 58, at 17; Proof Services Letter, supra note 57, at 3. PO 00000 Frm 00151 Fmt 4703 Sfmt 4703 58623 Some commenters, including NonSupporting Participants, argue that the calculation used by the Filing Participants to determine the proposed depth-of-book fees is flawed and inconsistent with the MDI Rules Release because the proprietary data feeds used by the Filing Participants were inappropriate references for the calculation.157 These commenters point out that while the proprietary market data depth-of-book feeds used to calculate fees for the depth-of-book information include top-of-book data as part of those offerings, the depth-ofbook data product under the Proposed Amendment does not include top-ofbook data.158 Consequently, some of these commenters argue, subscribers to the new core data would need to pay an additional fee to receive top-of-book data at current rates to obtain the same data content that is available today through proprietary feeds.159 Some commenters, including NonSupporting Participants, state that an additional problem with the proposed approach is that the proprietary depthof-book products used in the calculation are primarily structured as comprehensive order-by-order feeds, which do not aggregate orders at each price level.160 According to these commenters, the depth-of-book elements prescribed by the MDI Rules warrant a lower price because they would contain only the aggregated quotes available at the next five price levels away from the NBBO and would thus include less content than the proprietary feeds.161 One commenter states that complete, disaggregated order-by-order depth-of-book feeds, such as those used in the calculation, are likely to be associated with ‘‘additional operational costs because of increased message traffic with order by order data at all price levels.’’ 162 Accordingly, the commenter argues that an aggregated feed with only five levels of depth should have been priced at a discount relative to the corresponding 157 See IEX Letter, supra note 57, at 3–4; MEMX Letter, supra note 57, at 11–12; BlackRock Letter, supra note 57, at 4–5; FINRA Letter, supra note 156, at 6; MayStreet Letter II, supra note 58, at 17. 158 See IEX Letter, supra note 57, at 3–4; MEMX Letter, supra note 57, at 11–12; BlackRock Letter, supra note 57, at 4–5; FINRA Letter, supra note 156, at 6; MayStreet Letter II, supra note 58, at 17. 159 See IEX Letter, supra note 57, at 4; MEMX Letter, supra note 57, at 6, 11–12; BlackRock Letter, supra note 57, at 4–5. 160 See IEX Letter, supra note 57, at 4; MEMX Letter, supra note 57, at 11–12; BlackRock Letter, supra note 57, at 4–5; FINRA Letter, supra note 156, at 6. 161 See IEX Letter, supra note 57, at 4; MEMX Letter, supra note 57, at 11–12; BlackRock Letter, supra note 57, at 4–5. 162 See BlackRock Letter, supra note 57, at 4–5. E:\FR\FM\27SEN1.SGM 27SEN1 58624 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices jspears on DSK121TN23PROD with NOTICES exchange offerings to compensate for differences in both information content and costs.163 A Non-Supporting Participant argues that the proposal fails to consider pricing for other proprietary depth-ofbook feeds that are aggregated by price level and would therefore serve as a more logical proxy for setting core data fees.164 Another commenter states that while the Proposed Amendment compared the aggregated depth-of-book data set with order-by-order data, the more appropriate comparison would be with Cboe One Premium, which offers top-of-book, last sale, and Éve levels of depth.165 This commenter states that the proposed user fees for underlying market data content are not in line either with Cboe One Premium on its own or with a scaled charge based on Cboe’s market share, even though the Cboe charges are for a product sold to end users, whereas the proposed Plan fees are only for underlying content.166 One Non-Supporting Participant states that the proposal fails to acknowledge or account for the fact that the proposed methodology relies on this commenter’s equity market data fees as one of the comparison points, notwithstanding that, unlike the other exchanges’ market data prices, the commenter’s proprietary data fees do not include individual per user fees but apply only on a per firm basis for firms subscribing to ‘‘real time data.’’ 167 Some commenters, including NonSupporting Participants, question the determination of the ratio (or multiplier) used by the Filing Participants to set the depth-of-book feeds.168 Several 163 See BlackRock Letter, supra note 57, at 4–5. See also IEX Letter, supra note 57, at 4; MEMX Letter, supra note 57, at 11–12. 164 See IEX Letter, supra note 57, at 4. 165 See MayStreet Letter II, supra note 58, at 17. 166 See id. at 18. 167 See IEX Letter, supra note 57, at 4. The commenter also points out that its proprietary market data fees do not vary depending on the type of use made by those firms, do not apply to data that is redistributed with a delay of as little as 15 milliseconds (whereas other exchanges typically require a 15-minute delay to avoid charges for realtime data), and were determined and justified based on costs. The commenter further states that, to the extent the commenter’s fees are relevant at all, a more consistent approach would have been to reflect the commenter’s fees as zero, since the commenter does not charge any fees on an individual per user basis for either of its two proprietary market data products. According to the commenter, the latter approach would substantially reduce the average ratio and multiplier, and thus substantially reduce the fees proposed to be charged for core data. See id. 168 See IEX Letter, supra note 57; MEMX Letter, supra note 57; MIAX Letter, supra note __; BlackRock Letter, supra note 57; FINRA Letter, supra note 156; Letter from James Angel, Ph.D., CFP, CFA, Associate Professor of Finance, Georgetown University, to Vanessa Countryman, VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 commenters state that the ratio used by the Filing Participants to determine the fees for accessing depth-of-book data is too high.169 One commenter states that fees for depth-of-book information ‘‘should be adjusted to use a multiplier of 2.94x to eliminate the overcharging from double counting top-of-book data’’; otherwise, those who subscribe to both the new Level 1 Core Data and depthof-book data offering ‘‘would be paying twice for top of book content.’’ 170 Another commenter states that the Filing Participants have created a completely unreasonable standard to justify the proposed fees and that the ratio used to calculate the proposed fees, ‘‘is completely arbitrary and in no way shows that the proposed fees are fair, reasonable, and not unreasonably discriminatory as required under the Exchange Act.’’ 171 Several commenters state that, while the Filing Participants sought to demonstrate that the proposed fees were related to the value of the data, the method employed by the Filing Participants does not align the proposed fees for the new depth-of-book data to the value of that data to subscribers.172 One Non-Supporting Participant states that calculating the proposed fee levels based on prices charged by the exchanges for their existing market data product is not the right starting point for setting the proposed fees and is inconsistent with the MDI Rules’ goal of expanding access to consolidated data.173 Two Filing Participants state that the proposed fees are fair and reasonable and not unreasonably discriminatory because they are reasonably related to the value that subscribers gain from the data and because they achieve the Commission’s objective in Regulation NMS that prices for consolidated market data be set by market forces.174 One Filing Participant argues that the pricing for exchange proprietary data feeds— including the depth-of-book data, topof-book data, and auction information Secretary, Commission, at 9–10 (Dec. 21, 2021) (‘‘Angel Letter’’); NovaSparks Letter, supra note 125; SIFMA Letter I, supra note 57; SIFMA Letter II, supra note 57. 169 See NovaSparks Letter, supra note 125, at 1; BlackRock Letter, supra note 57, at 4–5; FINRA Letter, supra note 156, at 5–6; MayStreet Letter II, supra note 58, at 3, 19. 170 BlackRock Letter, supra note 57, at 4–5. See also IEX Letter, supra note 57, at 4; MEMX Letter, supra note 57, at 6, 11–12. 171 SIFMA Letter II, supra note 57, at 5. 172 See BlackRock Letter, supra note 57, at 4. See also IEX Letter, supra note 57, at 4; MEMX Letter, supra note 57, at 6, 11–12; BlackRock Letter, supra note 57, at 4–5. 173 See MIAX Letter, supra note 57, at 4. 174 See NYSE Letter, supra note 71, at 5; Nasdaq Letter I, supra note 75, at 5. PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 on which the proposed fees are based— is constrained by competitive forces, in that they have a history of being constrained by direct competition and by platform competition among the exchanges.175 This commenter argues that, because they are tested by market competition, proprietary data fees provide a good and indicative starting point for estimating the value of new core data and for setting fees at their efficient level.176 This, according to the commenter, provides a substantial basis for showing that current proprietary fees—and, by extension, the proposed fees for new core data—are equitable, fair, reasonable, and not unreasonably discriminatory.177 The Filing Participants’ methodology to justify the proposed fees is flawed, and the Commission concludes that, as a result, the Filing Participants have failed to demonstrate that the proposed fees are fair, reasonable, and not unreasonably discriminatory. The Filing Participants have chosen to justify the proposed fees by multiplying the existing fees for SIP data (which is topof-book data) by a number derived from the ratio of the fees of several exchanges’ proprietary depth-of-book feeds to the fees for the exchanges’ proprietary top-of-book feeds. As a number of commenters, including NonSupporting Participants, point out,178 however, the proprietary depth-of-book products used as part of this methodology are materially different products from the new data content underlying consolidated data offerings, making the proprietary products an inappropriate simple benchmark for pricing. Unlike the new data content underlying consolidated data offerings, the proprietary depth-of-book data products typically include: (1) top-ofbook data, for which the Filing Participants propose to charge separately; (2) auction data, for which the Filing Participants also propose to charge separately; (3) comprehensive order-by-order depth information, rather than just aggregated orders at each price level;179 and (4) full depth information at all price levels, rather than just the five price levels outside the NBBO as prescribed under the MDI Rules. Notably, the Commission considered but declined to expand the definition of depth-of-book data to include complete, 175 See NYSE Letter, supra note 71, at 5. id. at 6. 177 See id. 178 See IEX Letter, supra note 57, at 3–4; MEMX Letter, supra note 57, at 11–12; BlackRock Letter, supra note 57, at 4–5; FINRA Letter, supra note 156, at 6; MayStreet Letter II, supra note 58, at 17. 179 See supra notes 160–163 and accompanying text. 176 See E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices jspears on DSK121TN23PROD with NOTICES order-by-order depth of book information at all price levels, noting that the objectives of providing useful additional information to a broad crosssection of market participants and reducing informational asymmetries between users of proprietary data and SIP data must be balanced against the risk of, among other things, ‘‘additional operational costs and latency because of increased message traffic with order by order data at all price levels.’’ 180 While the Filing Participants have described the methodology used to set the proposed fees and have made certain arguments about their consistency with statutory standards for assessing fees for NMS Plans, they have not adequately explained: (1) how setting the proposed fees based on the ratio of fees for depth-of-book and topof-book proprietary data is an appropriate method for setting the proposed fees; (2) how the ratio used in the calculation adequately represents the difference in value between top-ofbook data and the five levels of additional depth that would be required under the MDI Rules; (3) how calculating the ratio based on proprietary depth-of-book data products that include content that would not be part of the consolidated depth-of-book product prescribed under the MDI Rules did not result in a ratio that is excessively high; or (4) how the fees generated by applying that ratio to the fees for current consolidated market data resulted in proposed depth-of-book fees that are fair, reasonable, and not unreasonably discriminatory. And while the Filing Participants state that alternative methodologies resulted in ratios greater than 3.94x and were thus not selected by the Filing Participants, the Filing Participants do not specify which other data feeds were considered in those methodologies or how feeds other than those considered—such as a proprietary feed with aggregated, rather than the more comprehensive order-byorder depth-of-book information—might have served as better proxies for the data content required under the MDI Rules. Several commenters, including NonSupporting Participants, state that the proposed fees, including the proposed fees for depth-of-book data, are too high.181 One commenter states that 180 See MDI Rules Release, supra note 11, 86 FR at 18627. 181 See FINRA Letter, supra note 156, at 5–7; BlackRock Letter, supra note 57, at 1–5; MIAX Letter, supra note 57, at 2; Angel Letter, supra note 168, at 9; NovaSparks Letter, supra note 125, at 1; BMO Letter, supra note 57, at 2–3; IEX Letter, supra note 57, at 1, 5; SIFMA Letter I, supra note 57, at 1, 4–5; IEX Letter, supra note 57, at 4; MEMX Letter, VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 retail investors should get free or verylow-cost depth-of-book data because it is in the best interest of retail investors, the industry, and the Commission.182 This commenter states that displaying depth-of-book data can give investors a better understanding of how prices are formed.183 The commenter states that the ability for an investor to see buying and selling interest at various price levels makes it easier for the investor to understand what determines the price of a particular security by seeing the interaction of market and limit orders.184 The commenter argues that making depth-of-book data ‘‘cheap’’ would allow brokers to give the data to retail clients for no or low cost and that this, in turn, would increase retail participation in the securities markets because investors will not only understand markets better, but they will participate more in the markets.185 According to this commenter, if depthof-book data is expensive, it will not help most retail investors because they will not be able to afford to see it.186 One commenter states that depth-ofbook data should be priced higher than top-of-book data, but adds that charges for depth-of-book data from the Plans should be much lower than charges for consuming the market data directly from the exchanges, because the information provided under the Plan would still be a subset of what is provided by the proprietary data feeds.187 One commenter opposes the proposed depth-of book data fees, because they, as well as the other proposed fees, represent an overall increase in costs to end users, making market data less accessible, contrary to ‘‘the core precept of the’’ MDI Rules.188 Another commenter states that the value of the depth-of-book data should focus on greater access and availability of this kind of data, and that the Operating Committee should thus consider what price point would increase availability of depth-of-book information, rather than charging a multiple of proprietary data feeds.189 One commenter expresses support for the proposed and supra note 57, at 11–12. See also MayStreet Letter II, supra note 58, at 18. 182 See Angel Letter, supra note 168, at 3. 183 See id. at 7. 184 See id. 185 See id. at 8. 186 See id. 187 See NovaSparks Letter, supra note 125, at 1. 188 See Cutler Group Letter, supra note 134, at 1. This commenter further states that the level of the proposed fees would make it difficult for competing consolidators to offer products at prices competitive to those of proprietary feeds thereby placing competing consolidators at a disadvantage. See id. 189 See MayStreet Letter I, supra note 57, at 7. PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 58625 ‘‘moderately priced’’ non-professional rate for depth-of-book information, because, in the commenter’s view, this aspect of the proposal ‘‘levels the playing field’’ for retail investors by providing them with access to the same information that is available to professionals traders at an affordable price, which will help broaden adoption of this new category of data.190 One commenter states that it is concerning that the Proposed Amendment, without explanation, precludes the redistribution of delayed depth-of-book data, adding that it sees no reason for prohibiting the redistribution of depthof-book data on a delayed basis and that it does not object to offering snapshot pricing.191 The Commission acknowledges the concerns raised by some commenters that the proposed fees for depth-of-book data are too high and thus do not serve the goals of Section 11A of the Exchange Act or help to ensure broad availability to brokers, dealers, and investors of information with respect to quotations for and transactions in NMS stocks that is prompt, accurate, reliable, and fair. Here, however, as discussed above, the Commission has concluded that the Filing Participants have not demonstrated that the proposed fees for depth-of-book data are fair, reasonable, and not unreasonably discriminatory. Because the Filing Participants have not justified either the proposed fees or the methodology behind them, the Commission does not have a basis to make a finding in this Order as to what fair, reasonable, and not unreasonably discriminatory level of fees would be. The Filing Participants have not demonstrated that the proposed fees for the content underlying consolidated depth-of-book data provide for the distribution of information with respect to quotations for and transactions in NMS stocks on terms that are fair, reasonable, and not unreasonably discriminatory consistent with Rule 603(a) of Regulation NMS. Thus, the Commission cannot find that, consistent with Rule 608 of Regulation NMS, the Proposed Amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.192 190 See BlackRock Letter, supra note 57, at 3, 5. MayStreet Letter II, supra note 58, at 3, 19. 192 See 17 CFR 242.608(b)(2). 191 See E:\FR\FM\27SEN1.SGM 27SEN1 58626 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices jspears on DSK121TN23PROD with NOTICES 3. Fees for Auction Data The Filing Participants have proposed fees for Auction information (as defined in Rule 600(b)(5)).193 The Filing Participants propose that, with respect to auction information, both Professional Subscribers and Nonprofessional Subscribers would pay $10.00 per device/subscriber per month for each Network’s auction information.194 The Filing Participants state that, with respect to the fees for auction information, the Filing Participants looked to the number of trades that occur during the auction process as compared to the trading day and determined that roughly 10% of daily trading volume is concentrated in auctions.195 The Filing Participants state that, consequently, a fee that is 10% of the fee charged for depth-of-book data is an appropriate proxy for determining the value of auction information. As a result, the Filing Participants have proposed a $10.00 fee per Network for auction information, which the Filing Participants state is fair and reasonable and not unreasonably discriminatory.196 Three commenters, including a NonSupporting Participant, state that information about auction order imbalances is included with the proprietary depth-of-book data products that the Filing Participants used to calculate the consolidated depth-ofbook fees. Therefore, these commenters argue, the proposed consolidated depthof-book fees already incorporate the fees for auction imbalance data, and the proposed auction information fees would result in double charging consumers who purchase both auction information and depth-of-book products from competing consolidators.197 One commenter states that proprietary depth-of-book product pricing is also inappropriately used to derive the value of auction data, because auction information is more closely aligned with 193 The Filing Participants state that they propose to price subsets of data that constitute core data separately so that data subscribers have flexibility in how much consolidated market data content they wish to purchase. For example, the Filing Participants state that they understand that certain data subscribers may not wish to add depth-of-book data or auction information, or may want to add only depth-of-book information, but not auction information. Accordingly, the Filing Participants are proposing to price subsets of data to provide flexibility to data subscribers. However, the Filing Participants state that they expect that competing consolidators would purchase all core data. See Notice, supra note 6, 86 FR at 67517 n.10. 194 See id. at 67518. 195 See id. at 67520. 196 See id. 197 See BlackRock Letter, supra note 57, at 4–5; MEMX Letter, supra note 57, at 11–13; FINRA Letter, supra note 156, at 6. VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 top-of-book content, which provides only high-level information about aggregate order imbalances and does not include the order-by-order details or the data about multiple price levels that proprietary depth-of-book feeds include.198 One commenter states that, while the pricing rationale in the proposal uses the ratio of auction volume to total trading volume to price the auction information feed, the Filing Participants incorrectly apply this ratio to the fees for the depth-of-book feed, which conveys information about displayed liquidity, not trading activity. According to this commenter, (1) it would have been more congruent with the Filing Participants’ proposition to use Level 1 core data as the basis for pricing auction content as this feed is more closely associated with trade volume, and (2) the fees for auction information should be set to 10% of Level 1 core data prices.199 One commenter states that the best proxy for the value of auction data is the NYSE Order Imbalance feed, given that NYSE has the biggest auction market share.200 The commenter recommends eliminating auction usage fees from the proposal because the most valuable auction data available today does not have such usage charges.201 The commenter also states that it sees no reason for prohibiting the redistribution of auction data on a historical basis.202 The Filing Participants have not shown that the proposed fees for auction data meet the statutory standard that fees for consolidated market data must be fair, reasonable, and not unreasonably discriminatory. The Filing Participants state that, to determine the proposed fees for auction data, they looked to the number of trades that occur during the auction process as compared to the trading day and determined that roughly 10% of the trading volume is concentrated in auctions. The Filing Participants then applied the 10% figure to the fees charged for depth-of-book data to determine the value of auction information. However, as several commenters, including Non-Supporting Participants, have pointed out, because information about auction order imbalances is included with the proprietary depth-of-book data products used as a benchmark for both the proposed depth-of-book fees and the 198 See BlackRock Letter, supra note 57, at 5. id. 200 See MayStreet Letter II, supra note 58, at 19. 201 See id. at 4, 19. 202 See id. at 19. 199 See PO 00000 Frm 00154 Fmt 4703 Sfmt 4703 proposed auction information fees,203 the proposed auction information fee would essentially result in double charging subscribers who purchase both auction and depth-of-book information. Moreover, the Filing Participants have failed to respond to criticisms raised by a commenter that proprietary depth-ofbook pricing was inappropriately used as a benchmark to derive the value of auction data because auction information is more closely aligned with top-of-book content, which only provides high-level information about aggregate order imbalances and does not include the order-by-order details or data about multiple price levels typically included in proprietary depthof-book information products.204 The Filing Participants, who have argued that their proposed fees are based on the value of the data products to subscribers, have failed to justify the assumption that the relative value of two materially different data products is based on the relative volume of trades during different periods of the day, without reference to the content of the two feeds. Because the rationale offered by the Filing Participants to support their methodology with respect to auction information fees is arbitrary, and because the methodology uses as a benchmark proprietary depth-of-book products that contain auction data along with a significant amount of other data, the Commission cannot find that the proposed fees are fair, reasonable, and not unreasonably discriminatory. Some commenters argue that the fees for auction information under the Proposed Amendment should be lower.205 One commenter states that retail investors should get free or moderately priced auction data because it is in the interest of retail investors, the industry, and the Commission.206 The commenter states that opening and closing auction data is important in the securities markets and that providing auction data to retail investors will increase retail investor participation in the market.207 Another commenter states that the filing should not be 203 See MEMX Letter, supra note 57, at 11–12. BlackRock Letter, supra note 57, at 4–5; FINRA Letter, supra note 156, at 6. 204 See BlackRock Letter, supra note 57, at 5 (arguing that it would have been more congruent to use Level 1 core data fees as the benchmark). One commenter also argues that certain proprietary auction imbalance feeds, rather that the proprietary depth-of-book products selected, are a better proxy for the value of auction data. See MayStreet Letter II, supra note 58, at 19. 205 See Angel Letter, supra note 168; Cutler Group Letter, supra note 134; BlackRock Letter, supra note 57. 206 See Angel Letter, supra note 168, at 3. 207 See id. at 9. E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices approved because the price levels do not contribute to a level playing field between competing consolidators and the current plan administrators, such that competing consolidators will be at a disadvantage because they will not be able to offer products at prices competitive with those of proprietary feeds.208 As noted above, the Commission has found that the Filing Participants have not justified the rationale they have used to set the proposed fees for auction information, and therefore it is not necessary for the Commission to make a finding about the absolute level of the proposed fees. The Filing Participants have not demonstrated that the proposed fees for Auction Data provide for the distribution of information with respect to quotations for and transactions in NMS stocks on terms that are fair, reasonable, and not unreasonably discriminatory consistent with Rule 603(a) of Regulation NMS. Thus, the Commission cannot find that, consistent with Rule 608 of Regulation NMS, the Proposed Amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.209 4. Fees for Professional and NonProfessional Users For each of the three categories of data described above, the Filing Participants propose a Professional Subscriber Charge and a Nonprofessional Subscriber Charge. With respect to Level 1 Core Data, the Filing Participants propose to charge the same Professional Subscriber and Nonprofessional Subscriber fees for the new Level 1 Core Data product under the distributed consolidation model as are charged for the existing Level 1 Core Data SIP data product that the Plans generate and disseminate. With respect to depth-ofbook data, Professional Subscribers would pay $99.00 per device per month for each Network’s data,210 and Nonprofessional Subscribers would pay $4.00 per subscriber per month for each Network’s depth-of-book data.211 The jspears on DSK121TN23PROD with NOTICES 208 See Cutler Group Letter, supra note 134, at 1– 2. 209 See 17 CFR 242.608(b)(2). Notice, supra note 6, 86 FR at 67518. 211 See id. The Filing Participants applied the 3.94x ratio to the current fees charged for Nonprofessional Subscribers taking all three Networks ($3.00). This resulted in the total fee level for depth-of-book data for Nonprofessional Subscribers equaling $12.00 (i.e., $3.00 × 3.94 = 210 See VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 Filing Participants are not proposing per-quote packet charges or enterprise rates for either Professional Subscribers or Nonprofessional Subscribers use of depth-of-book data.212 With respect to auction information, both Professional Subscribers and Nonprofessional Subscribers would pay $10.00 per device/subscriber per month for each Network’s auction information data.213 Some commenters, including a NonSupporting Participant, question the classification of fees by professional or non-professional user type under the Proposed Amendments.214 One commenter states that it is unreasonably discriminatory to charge nonprofessional users the same fees as professional users for auction data because professionals make far more use of the data,215 and that the filing contains no justification as to why the Filing Participants propose to charge professionals the same as nonprofessionals for auction data.216 One commenter opposes non-professional and professional user classifications on the grounds that they prevent competing consolidators from being able to offer products at competitive prices compared to the proprietary data feeds.217 One commenter states that the inclusion of multiple tiers, user types with bespoke definitions, and high compliance costs does not amount to fair and reasonable terms and in fact unreasonably discriminates against competing consolidators who seek to bring competition, innovation, and broader access to consolidated market data.218 According to the commenter, simplifying the pricing structure to allow for enterprise caps at multiple tiers should be considered, along with easier-to-track proxies for usage based on data already reported by firms or other existing regulatory reporting.219 Another commenter suggests slowing down the data feeds by 15 milliseconds to mitigate the risk of professionals ‘‘masquerading’’ as non-professionals utilizing the cheaper data.220 $11.82, rounded to $12.00). This fee was then split evenly among the three Networks, resulting in a proposed Nonprofessional Subscriber fee of $4.00 per Network. See id. at 67520. 212 See id. at 67518. 213 See id. 214 See Angel Letter, supra note 168; BlackRock Letter, supra note 57; MIAX Letter, supra note 57; Polygon.io Letter I, supra note 126, at 2–3; MayStreet Letter I, supra note 57. 215 See Angel Letter, supra note 168, at 9–10. 216 See id. at 10. 217 See Polygon.io Letter I, supra note 126, at 2– 3. 218 See MayStreet Letter I, supra note 57, at 8. 219 See id. 220 See Angel Letter, supra note 168, at 11. PO 00000 Frm 00155 Fmt 4703 Sfmt 4703 58627 Some commenters support moderately priced or free nonprofessional user fees. Two NonSupporting Participants support the proposed low fees for non-professional users.221 One commenter supports the proposed ‘‘moderately priced’’ nonprofessional rate for depth-of-book information because this aspect of the proposal ‘‘levels the playing field’’ for retail investors by providing them with access to the same information that is available to professionals traders at an affordable price, which will help broaden adoption of this new category of data.222 Another commenter states that free or moderately priced nonprofessional data, including depth-ofbook and auction data, is in the best interest of brokers and exchanges because it may increase retail order flow and thus profits into the industry.223 The commenter further states that free or moderately priced non-professional data is in the best interest of the Commission as well, because providing ‘‘better data to retail investors at low cost will reduce the amount of SEC resources devoted to dealing with complaints based on misunderstandings of market function.’’ 224 One Filing Participant states that distinguishing between professional and non-professional subscribers is fair, as well as efficient.225 According to this commenter, professional fees are higher than those for non-professionals because professionals realize greater value from the data than non-professionals.226 The commenter states that applying the same fees to both categories would result either in low-value users subsidizing high-value users, or in fees that are not economically sustainable for producers.227 According to the commenter, setting professional and non-professional fees based on the value of the data is efficient, fair, and well established by the industry, and setting those fees based on cost is likely to be unworkable.228 Another Filing Participant states that it is fair, reasonable, and not unreasonable discriminatory for ‘‘Wall Street to pay higher fees than Main Street.’’ 229 With respect to the specific fees proposed, one Non-Supporting 221 See MIAX Letter, supra note 57, at 2; MEMX Letter, supra note 57, at 3. 222 BlackRock Letter, supra note 57, at 1, 3. 223 See Angel Letter, supra note 168, at 11. 224 Id. 225 See Nasdaq Letter II, supra note 75, at 3. 226 See id. The commenter further states that NonProfessionals are provided a discount to encourage their use of the data. See id. 227 See Nasdaq Letter II, supra note 75, at 3. 228 See id. 229 NYSE Letter, supra note 71, at 8. E:\FR\FM\27SEN1.SGM 27SEN1 58628 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices Participant states that the proposed professional user fees are based on a flawed methodology that results in excessive fee levels that would discourage firms from registering as competing consolidators and would hinder the formation of the decentralized consolidation model that the MDI Rules seeks to create.230 Another Non-Supporting Participant states that the proposed fees are ‘‘plagued by double counting and other significant issues’’ that raise questions about the process used to design the Proposed Amendments.231 For example, this commenter states that, as proposed, the $70 Professional User fee for depthof-book information comes with access only to aggregated depth-of-book information and does not include topof-book information, even though the calculation of that fee is based on a depth-of book product that includes topof-book information.232 This, the commenter states, ‘‘is straightforward double counting, plain and simple.’’ 233 The commenter also states that while auction information is included in the depth-of-book feed used to calculate the proposed fees, the proposal also charges additional fees, including Professional and Non-Professional Fees, for auction information.234 The commenter states that even exchanges that offer separate feeds for auction information generally do not charge Professional user fees.235 One Non-Supporting Participant states that the proposed nonprofessional user fees were a step in the right direction, but points out that, while the proposed fees would be lower for the limited subset of NonProfessional users that consume depthof-book quotation information, the proposed fees are higher than the fees currently charged for proprietary data products that offer similar information.236 This commenter adds that, even where the proposed fees are lower than the fees charged for comparable proprietary data—as is the case for Non-Professional users—the fact that the other fees are higher than proprietary offerings is likely to reduce incentives for competing consolidators to actually offer that data content to their customers.237 According to the commenter, there is unlikely to be any 230 See jspears on DSK121TN23PROD with NOTICES MIAX Letter, supra note 57, at 4. 231 See MEMX Letter, supra note 57, at 10. 232 See id. at 12. According to the commenter, the value of top-of-book information is therefore already embedded in the cost proposed for depthof-book information. See id. 233 See id. 234 See id. at 13–14. 235 See id. 236 See id. at 7. 237 See id. at 9. demand for the new data elements included in consolidated market data at prices that exceed the fees charged for proprietary data feeds today.238 In response to this commenter, a Filing Participant argues that this analysis does not account for the fact that purchasers of the new data would be receiving a consolidated data product that aggregates all exchanges’ data together to determine an NBBO and the five best levels of depth among all the exchanges and that the analysis disregards that the Proposed Amendment includes much lower fees for non-professionals.239 The Commission finds that the Filing Participants have not demonstrated that the proposed fees for professional and non-professional subscribers are fair, reasonable, and not unreasonably discriminatory. With respect to Level 1 Core Data, the Filing Participants state they are not proposing to change the Professional Subscriber and Nonprofessional Subscriber fees currently set forth in the Plans. But, as discussed above,240 in the context of the MDI Rules, the Proposed Amendment is in fact proposing fees applicable to a new data product—the data content underlying the top-of-book data product to be collected, consolidated, and disseminated by competing consolidators—that differs both with respect to content and administrative expense from the existing top-of-book product generated and disseminated by the exclusive SIP. In taking the position that they are not proposing to do more than add content to the existing Level 1 Core Data product offered by the exclusive SIP, however, the Filing Participants have not even attempted to explain or justify how the proposed Professional and Non Professional Fees for the new Level 1 Core Data satisfy the statutory standard of being fair, reasonable and not unreasonably discriminatory.’’ 241 Significantly, the Filing Participants have not taken into account that the current consolidation, processing, and dissemination expenses incurred by the Equity Data Plans would be inapplicable to the data content underlying consolidated data offered through the new Level 1 Core Data product to be collected, consolidated, VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 238 See id. at 17. The commenter further states that the Operating Committees should analyze whether it is fair and reasonable to continue to charge professional and non-professional user fees that exceed the fees charges for similar proprietary market data. See id. 239 See NYSE Letter, supra note 71, at 8. 240 See supra Section IV.C.1. 241 See MDI Rules Release, supra note 11, 86 FR at 18684. PO 00000 Frm 00156 Fmt 4703 Sfmt 4703 and disseminated by competing consolidators.242 With respect to depth-of-book data, the Filing Participants have not demonstrated that the proposed Professional and Non Professional depth-of-book fees are fair, reasonable, and not unreasonably discriminatory. The Filing Participants have attempted to justify the proposed Professional and Non-Professional fees for depth-of-book data by using the same multiplier (i.e., 3.94x) employed to calculate the proposed fees for data content underlying consolidated depth-of-book offerings,243 but, as explained in detail above, the Filing Participants have not demonstrated that the use of this multiplier is appropriate in the first place because, among other things, the proprietary depth-of-book feeds contain top-of-book data and auction information, which the data content underlying consolidated depth-of-book feed would lack, leading to ‘‘doublecounting,’’ as several commenters have pointed out.244 In addition, with respect to auction information, other than describing the proposal, explaining the methodology used to generate the proposed fees,245 and arguing that the resulting fees are fair, reasonable, and not unreasonably discriminatory, the Filing Participants have not attempted to explain or otherwise justify why it is fair, reasonable, and not unreasonably discriminatory to set both the Professional Subscribers and Nonprofessional Subscribers fee at the same rate of $10.00 per device per month. The Filing Participants have not demonstrated that the proposed fees for professional and non-professional users provide for the distribution of information with respect to quotations for and transactions in NMS stocks on terms that are fair, reasonable, and not unreasonably discriminatory consistent with Rule 603(a) of Regulation NMS. Thus, the Commission cannot find that, consistent with Rule 608 of Regulation NMS, the Proposed Amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and 242 See id. at 18682 (stating that ‘‘the proposed new fees [filed pursuant to Rule 614(e)] will need to reflect . . . that the effective national market system plan(s) is no longer operating the exclusive SIPs and is no longer performing collection, consolidation, and dissemination functions’’). 243 See supra note 211. 244 See supra Section IV.C.2 for a discussion on issues associated with the application of the multiplier used by the Filing Participants to generate certain proposed fees. 245 See Notice, supra note 6, 86 FR at 67517–18, 67520–21. E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.246 5. Fees for Non-Display Use The Filing Participants propose NonDisplay Use fees relating to the three categories of data described above: (1) Level 1 Core Data; (2) depth-of-book data; and (3) auction information. With respect to Level 1 Core Data, the Filing Participants propose to apply the NonDisplay Use fees currently set forth in the Plans to the data content underlying consolidated market data in the new Level 1 Core Data data product to be offered by the competing consolidators 247 for each of the three categories of Non-Display Use.248 With respect to depth-of-book data, Subscribers would pay Non-Display Use Fees of $12,477.00 per month for each category of Non-Display Use per Network.249 With respect to auction information, Subscribers would pay Non-Display Use fees of $1,248.00 per month for each category of Non-Display Use per Network.250 Some commenters, including a NonSupporting Participant, state that the proposed Non-Display Use fees result in excessive fee levels that would discourage firms from registering as competing consolidators, thereby hindering the formation of the decentralized consolidation model that the MDI Rules seeks to create.251 One commenter states that the fees in the Proposed Amendment, including the non-display fees, would place competing consolidators at a disadvantage because they will not be able to offer products at prices competitive with those of proprietary feeds.252 One commenter asks that the Commission reject the Proposed Amendment and any future proposal that maintains display/non-display classifications.253 The commenter states 246 See 17 CFR 242.608(b)(2). Exhibit E to the CTA Plan; Section IX(b)(ii) of the CQ Plan. 248 The Filing Participants propose that access to odd-lot information would be made available to Level 1 Core Data subscribers for the same fees currently charged for Level 1 Core Data provided by the exclusive SIP. See Notice, supra note 6, 86 FR at 67518. See also supra note 35 (describing the three categories of Non-Display Use recognized under Exhibit E to the CTA Plan). 249 See Notice, supra note 6, 86 FR at 67518. 250 The Filing Participants state that, as is the case today, Subscribers would be charged for each category of use of depth-of-book data and auction information. See Notice, supra note 6, 86 FR at 67518. 251 See MIAX Letter, supra note 57, at 3; Polygon.io Letter I, supra note 126, at 2–3. 252 See Cutler Group Letter, supra note 134, at 1– 2. 253 See Polygon.io Letter I, supra note 126, at 2. jspears on DSK121TN23PROD with NOTICES 247 See VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 that, if the Proposed Amendment is not rejected, competing consolidators will not be able to offer products at competitive prices to proprietary data feeds.254 One Filing Participant states that distinguishing between Display and Non-Display use is fair, as well as efficient.255 According to this commenter, algorithms, dark pools, and electronic traders pay higher fees than human professionals because they realize greater value from the data.256 The commenter argues that, because Non-Display users realize greater value from the use of market data than Display users, applying the same fees to both categories would result either in lowvalue users subsidizing high-value users or fees that are not economically sustainable for producers.257 The commenter states that the Proposed Amendment thus sets the Display Fee and Non-Display Fee according to the value of the data, which is efficient, fair, and well-established in the industry both nationally and globally.258 According to the commenter, any alternative based solely on cost is likely to be unworkable.259 The Filing Participants have not explained or justified how the proposed Non-Display Fees are fair, reasonable, and not unreasonably discriminatory. With respect to the new Level 1 Core Data, the Filing Participants state they are proposing to charge the same fees for Non-Display Use of Level 1 data that are currently set forth in the Plans with respect to data disseminated by the exclusive SIP. But, as discussed above,260 in the context of the MDI Rules the Proposed Amendment is in fact proposing fees applicable to a new data product—the top-of-book data product to be collected, consolidated, and disseminated by competing consolidators—that differs both with respect to content and administrative expense from the existing top-of-book product generated and disseminated by the exclusive SIP. In taking the position that they have not proposed to do more than add content to the existing Level 1 product offered by the exclusive SIP, however, the Filing Participants have not even attempted to explain how the proposed Non-Display Use fees for Level 1 Core Data satisfy the statutory standard of being fair, reasonable, and 254 See id. Nasdaq Letter II, supra note 75, at 3. 256 See id. 257 See id. 258 See id. at 2. 259 See id. 260 See supra Section IV.C.1. 255 See PO 00000 Frm 00157 Fmt 4703 Sfmt 4703 58629 not unreasonably discriminatory.261 Significantly, the Filing Participants have not taken into account that the current consolidation, processing, and dissemination expenses incurred by the Equity Data Plans would be inapplicable to the data content underlying the new Level 1 products to be offered by competing consolidators.262 With respect to the content underlying depth-of-book data, the Filing Participants state that they applied the 3.94x multiplier to the current fees charged for Non-Display Use for all three Networks, resulting in a proposed Non-Display Use fee of $12.477.00 per Network.263 With respect to depth-of-book data, the Filing Participants have not demonstrated that the proposed Non-Display Use fees are fair, reasonable, and not unreasonably discriminatory. The Filing Participants have attempted to justify the proposed Non-Display Use fees for depth-of-book data by using the same multiplier (i.e., 3.94x) employed to calculate the proposed fees for the data underlying the consolidated depth-of-book feed, but, as explained in detail above, the Filing Participants have not demonstrated that the use of this multiplier is appropriate in the first place because, among other things, the proprietary depth-of-book feeds contain top-of-book data and auction information, which the consolidated depth-of-book feed would lack, leading to ‘‘double-counting,’’ as several commenters have pointed out.264 With respect to auction information, Filing Participants propose that Subscribers would pay Non-Display Use fees of $1,248.00 per month for each category of Non-Display Use per Network.265 The Filing Participants state that, as is the case today, Subscribers would be charged for each category of non-display use of auction information.266 The Filing Participants, however, have not explained the basis for the proposed Non-Display Use fees for auction information, and the Commission therefore has no basis on which it can find that the proposed fees are fair, reasonable, and not unreasonably discriminatory. And even if the unstated rationale is that the 261 See MDI Rules Release, supra note 11, 86 FR at 18684. 262 See supra note 242 and accompanying text. 263 See Notice, supra note 6, 86 FR at 67520. 264 See supra Section IV.C.2. 265 The Filing Participants state that, as is the case today, Subscribers would be charged for each category of use of depth-of-book data and auction information. See Notice supra note 6, 86 FR at 67518. 266 See supra note 35 (describing the categories of Non-Display Uses recognized under Exhibit E to the CTA Plan). E:\FR\FM\27SEN1.SGM 27SEN1 58630 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices jspears on DSK121TN23PROD with NOTICES proposed fees are 10% of the proposed Non-Display Use fees for depth-of-book data—consistent with the derivation of auction information fees from the fees for the content underlying depth-ofbook data—that rationale would suffer from the same weaknesses as the rationale underlying the proposed fees for Non-Display Use of depth-of-book data and for the content underlying depth-of-book data. The Filing Participants have not demonstrated that is fair, reasonable, and not unreasonably discriminatory to calculate the fees by comparison to the current charges for proprietary depth-of-book products, which are substantially different products than those at issue in the Proposed Amendment.267 The Filing Participants have not demonstrated that the proposed fees for Non-Display Use provide for the distribution of information with respect to quotations for and transactions in NMS stocks on terms that are fair, reasonable, and not unreasonably discriminatory consistent with Rule 603(a) of Regulation NMS. Thus, the Commission cannot find that, consistent with Rule 608 of Regulation NMS, the Proposed Amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.268 6. Access Fees The Filing Participants propose to charge Access Fees to all subscribers for the use of the three categories of data: (1) Level 1 Core Data; (2) depth-of-book data; and (3) auction information. With respect to Level 1 Core Data, the Filing Participants to apply the same Access Fees that currently set forth in the Plans with respect to data disseminated by the exclusive SIP. With respect to depth-ofbook data, the Filing Participants propose to charge Subscribers a monthly Access Fee of $9,850.00 per Network. With respect to auction information, the Filing Participants propose to charge Subscribers a monthly Access Fee of $985.00 per Network. Some commenters oppose the access fees in the proposed fee schedule. One Non-Supporting Participant states that the proposed access fees result in excessive fee levels that would discourage firms from registering as competing consolidators and would 267 See supra Section IV.C.2 for a discussion on issues associated with the application of the multiplier used by the Filing Participants to generate certain proposed fees. 268 See 17 CFR 242.608(b)(2). VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 hinder the formation of the decentralized consolidation model that the MDI Rules seeks to create.269 Another Non-Supporting Participant states that the proposed access fees are not fair and reasonable because they are more expensive than those charged by exchanges for their proprietary products.270 The Filing Participants have not demonstrated that the proposed access fees for depth-of-book information are fair, reasonable, and not unreasonably discriminatory. With respect to Level 1 Core Data, the Filing Participants are proposing to charge the same Access Fees for Non-Display Use of Level 1 Core Data that are currently set forth in the Plans with respect to data disseminated by the exclusive SIP. But, as discussed above,271 in the context of the MDI Rules, the Proposed Amendment is in fact proposing fees applicable to a new data product—the top-of-book data product to be generated and disseminated by competing consolidators—that differs both with respect to content and administrative expense from the existing top-of-book product generated and disseminated by the exclusive SIP. In taking the position that they have not proposed to do more than add content to the existing Level 1 Core Data product offered by the exclusive SIP, however, the Filing Participants have not even attempted to explain or justify how the proposed Access Fees for Level 1 Core Data satisfy the statutory standard of being fair, reasonable and not unreasonably discriminatory.’’ 272 Significantly, the Filing Participants have not taken into account that the current consolidation, processing, and dissemination expenses incurred by the Equity Data Plans would be inapplicable to the data content underlying the new Level 1 Core Data products to be offered by competing consolidators. With respect to Access Fees for the content underlying depth-of-book data, the Filing Participants have attempted to justify the proposed Access Fees by using the same multiplier (i.e., 3.94x) to the Access Fees charged for all three Networks, resulting in a proposed Access Fee of $9,850.00 per Network.273 But, as explained in detail above, the Filing Participants have not 269 See MIAX Letter, supra note 57, at 3. MEMX Letter, supra note 57, at 6, 8. See also Cutler Group Letter, supra note 134, at 1–2 (noting that it supports the comment letter written by MEMX and that the Proposed Amendments make market data less accessible). 271 See supra Section IV.C.1. 272 See MDI Rules Release, supra note 11, 86 FR at 18684. 273 See Notice, supra note 6, 86 FR at 67520. 270 See PO 00000 Frm 00158 Fmt 4703 Sfmt 4703 demonstrated that the use of this multiplier is appropriate in the first place because, among other things, the proprietary depth-of-book feeds contain top-of-book data and auction information, which the consolidated depth-of-book feed would lack, leading to ‘‘double-counting,’’ as several commenters have pointed out.274 Finally, with respect to auction information, the Filing Participants have not explained the basis for the proposed Access Fees for auction information, and the Commission therefore has no basis on which it can find that the proposed fees are fair, reasonable, and not unreasonably discriminatory. And even if the unstated rationale is that the proposed fees are 10% of the proposed Access Fees for depth-of-book data, consistent with the derivation of auction information fees from the fees for the content underlying depth-of-book data, that rationale would suffer from the same weaknesses as the rationale for Non-Display Use of depth-of-book data and for the content underlying depth-ofbook data. The Filing Participants have not demonstrated that is fair, reasonable, and not unreasonably discriminatory to calculate the fees by comparison to the current charges for proprietary depth-of-book products, which are substantially different products than those at issue in the Proposed Amendment.275 The Filing Participants have not demonstrated that the proposed Access Fees provide for the distribution of information with respect to quotations for and transactions in NMS stocks on terms that are fair, reasonable, and not unreasonably discriminatory consistent with Rule 603(a) of Regulation NMS. Thus, the Commission cannot find that, consistent with Rule 608 of Regulation NMS, the Proposed Amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.276 7. Redistribution Fees The Filing Participants propose that the existing Redistribution Fees would apply to all three categories of core data (i.e., Level 1 Core Data, depth-of-book, and auction information), including any 274 See supra Section IV.C.2 (discussing issues associated with the application of the multiplier used by the Filing Participants to generate certain proposed fees). 275 See id. 276 See 17 CFR 242.608(b)(2). E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices jspears on DSK121TN23PROD with NOTICES subset thereof.277 The Filing Participants are not proposing to change the amount of the Redistribution Fees. The Filing Participants also specify that Redistribution Fees would be charged to competing consolidators. In support of their proposal to charge Redistribution Fees to competing consolidators, the Filing Participants argue: (1) that the comparison the Commission made in the MDI Rules Release between self-aggregators (which would not pay Redistribution Fees) and competing consolidators is not appropriate in determining whether a redistribution fee is not unreasonably discriminatory; and (2) that the Commission’s comparison is not consistent with the current longstanding practice of the Plan that redistribution fees are charged to any entity that distributes data externally.278 The Filing Participants state that a selfaggregator, by definition, would not be distributing data externally and would therefore not be subject to such fees, which, according to the Filing Participants, is consistent with current Plan practice that a subscriber to consolidated data that only uses data for internal use is not charged a Redistribution Fee. The Filing Participants argue that the more appropriate comparison would be between competing consolidators and downstream vendors, both of which would be selling consolidated market data directly to market data subscribers. The Filing Participants state that 277 The Filing Participants state that, currently, Redistribution Fees are charged to any entity that makes last sale information or quotation information available to any other entity or to any person other than its employees, irrespective of the means of transmission or access. The Filing Participants propose to amend this description to make it applicable to core data, as that term is defined in Rule 600(b)(21). See Notice, supra note 6, 86 FR at 67518. 278 See, e.g., Cover Letter, supra note 1, at 4; Notice, supra note 6, 86 FR at 67518. The Filing Participants state that the current exclusive SIP is not charged a Redistribution Fee. The Filing Participants state, however, that unlike competing consolidators, the processor has been retained by the Plans to serve as an exclusive SIP, is subject to oversight by both the Plans and the Commission, and neither pays for the data nor engages with data subscriber customers. The Filing Participants state that, by contrast, under the competing consolidator model: The Plans would have no role in either overseeing or determining which entities choose to be a competing consolidator; a competing consolidator would need to purchase consolidated market data just as any other vendor would; and competing consolidators would be responsible for competing for data subscriber clients. Accordingly, the Filing Participants argue, competing consolidators would be more akin to vendors than to the current exclusive SIPs. The Filing Participants state that if any entity that is currently an exclusive SIP chooses to register as a competing consolidator, that entity would be subject to the Redistribution Fee. See Cover Letter, supra note 1, at 4 n.7; Notice, supra note 6, 86 FR at 67518 n.12. VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 vendors are and would still be subject to Redistribution Fees when redistributing data to market data subscribers and argue that it would be unreasonably discriminatory and would impose a burden on competition if competing consolidators—which would be competing with downstream market data vendors for the same data subscriber customers—are not charged a Redistribution Fee for exactly the same activity. One commenter states that the Proposed Amendment should treat competing consolidators as replacements to the exclusive SIPs, not as data vendors.279 The commenter states that subjecting competing consolidators to the same fees as data vendors and subscribers that receive consolidated market data from the exclusive SIP fails to recognize that competing consolidators are SIPs and are not similarly situated to today’s data vendors.280 This commenter further states that competing consolidators should not be charged redistribution fees because they are not redistributing consolidated market data, but are instead generating and distributing consolidated data for the first time.281 According to this commenter, redistribution fees should not be charged by the Plan because the Plan would no longer govern the distribution of consolidated market data.282 The commenter states that not recognizing competing consolidators as SIPs places competing consolidators at a competitive disadvantage relative to data vendors, given that they take on expenses and risks that data vendors do not, such as the costs for generating consolidated market data, disclosing operational and performance metrics, registering with the Commission, and complying with Rule 614 of Regulation NMS.283 One Non-Supporting Participant states that the redistribution fee for competing consolidators is inconsistent with the MDI Rules, is not fair and reasonable, and is unreasonably discriminatory.284 This commenter 279 See MayStreet Letter I, supra note 57, at 3. id. at 3–4. 281 See id. 282 See id. at 5. 283 See id. 284 See MIAX Letter, supra note 57, at 2 (citing the MDI Rules Release statements that ‘‘imposing redistribution fees on data content underlying consolidated market data that will be disseminated by competing consolidators would be difficult to reconcile with the standards of being fair and reasonable and not unreasonably discriminatory in the new decentralized model,’’ and that ‘‘fees proposed by the SROs should not contain redistribution fees for competing consolidators because this would hinder their ability to compete.’’). 280 See PO 00000 Frm 00159 Fmt 4703 Sfmt 4703 58631 states that the proposal’s attempt to justify the redistribution fee based on the current centralized model that charges fees to downstream vendors is unsound because, under the decentralized MDI Rules, competing consolidators would be ‘‘stepping into the role that the SIPs hold today as the primary sources of consolidated market data.’’ 285 According to this commenter, to charge a redistribution fee on top of the other proposed fees would ‘‘unquestionably put competing consolidators at a further competitive disadvantage as compared to aggregated proprietary data products offered by exchanges,’’ thus targeting them in an unfair and unreasonable manner.286 One commenter states the Proposed Amendment directly contradicts the Commission’s directive in the MDI Rules that competing consolidators not be treated the same as market data vendors.287 The commenter states that the Filing Participants are ‘‘engaged in a strategy to undermine the Commission’s authority over market data as enumerated in the CT Plan and MDI Rule[s] in order to preserve their current revenues from proprietary and SIP data.’’ 288 The commenter further states that the Filing Participants’ position that the competing consolidators should be charged redistribution fees just like any market data vendor undermines the efforts of the MDI Rules.289 The commenter cites the Commission’s statement in the MDI Rules Release that the fees for the data content underlying consolidated market data should not include redistribution fees for competing consolidators.’’ 290 The commenter argues that by treating competing consolidators differently than the exclusive SIPs, the Filing Participants are acting in an unreasonably discriminatory manner, effectively disregarding the Exchange Act mandates in addition to the Commission’s directive in the MDI Rules.291 The commenter argues that imposing redistribution fees on competing consolidators imposes an undue burden on competition.292 Other commenters also suggest that the imposition of redistribution fees on 285 Id. 286 Id. 287 See 288 Id. SIFMA Letter I, supra note 57, at 4–5. at 6; see also SIFMA Letter II, supra note 57, at 3. 289 See SIFMA Letter I, supra note 57, at 7; SIFMA Letter II, supra note 57, at 2. 290 See SIFMA Letter I, supra note 57, at 7; SIFMA Letter II, supra note 57, at 2. 291 See SIFMA Letter I, supra note 57, at 7; SIFMA Letter II, supra note 57, at 2. 292 See SIFMA Letter I, supra note 57, at 7; SIFMA Letter II, supra note 57, at 2. E:\FR\FM\27SEN1.SGM 27SEN1 58632 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices jspears on DSK121TN23PROD with NOTICES competing consolidators would place competing consolidators at a competitive disadvantage.293 One commenter states that by charging redistribution fees to competing consolidators, the Proposed Amendment creates a barrier to entry to technology solution vendors becoming competing consolidators.294 Two other commenters, including a NonSupporting Participant, also argue that the redistribution fees charged to competing consolidators are in contravention of the Commission’s express direction in the MDI Rules.295 Another Non-Supporting Participant states that the proposed redistribution fee that would be charged to competing consolidators is inconsistent with the purposes and structure of the MDI Rules, and that this aspect of the proposal represents a ‘‘further indication that the intent of the majority [of the exchanges] was to subvert the purpose of the Commission’s order.’’ 296 One Filing Participant states that, although the Commission in the MDI Rules Release compared competing consolidators to self-aggregators, a more appropriate comparison would be between competing consolidators and downstream vendors.297 According to this commenter, because these vendors would be subject to redistribution fees when redistributing data to their subscribers, it would impose a burden on competition and be unfair to vendors not to charge a redistribution fee for exactly the same activity by competing consolidators.298 As the Commission stated in the MDI Rules Release, ‘‘the fees for the data content underlying consolidated data should not include redistribution fees for competing consolidators,’’ 299 and imposing redistribution fees on competing consolidators ‘‘would be difficult to reconcile with statutory standards of being fair and reasonable and not unreasonably discriminatory in the new decentralized model.’’ 300 The Filing Participants’ attempt to justify the Redistribution Fee—basing it on the long-standing practice within a centralized model that charges fees to ‘‘any entity that distributes data’’—is misplaced. Unlike current vendors that take consolidated data generated by the 293 See NBIM Letter, supra note 79, at 2; Cutler Group Letter, supra note 134, at 1–2. 294 See NovaSparks Letter, supra note 125, at 1. 295 See FINRA Letter, supra note 156, at 5; MEMX Letter, supra note 57, at 21. 296 IEX Letter, supra note 57, at 5. 297 See NYSE Letter, supra note 71, at 7. 298 See id. 299 MDI Rules Release, supra note 11, 86 FR at 18685. 300 Id. VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 exclusive SIP, distribute it, and pay redistribution fees, the competing consolidators will ‘‘take the place of the exclusive SIP, which is not charged a redistribution fee.’’ 301 The competing consolidators will take underlying data content from the exchanges and will themselves generate the consolidated data. Thus, there is no ‘‘redistribution’’ when a competing consolidator sells consolidated data—at fees set forth in the Plan—to a subscriber. Moreover, like the exclusive SIPs, competing consolidators will take on expenses, risks, and obligations that data vendors do not, such as the costs for collecting, consolidating, generating, and disseminating consolidated equity market data.302 Additionally, like the exclusive SIPs and unlike vendors, competing consolidators will be subject to the registration, disclosure, and other regulatory requirements under Rule 614 and Form CC of Regulation NMS,303 as well as to the requirements of Regulation SCI.304 Thus, the Filing Participants have not adequately explained or justified how the proposal to impose Redistribution Fees reflects, consistent with the MDI Rules, that ‘‘that the effective national market system plan(s) is no longer operating the exclusive SIPs and is no longer performing collection, consolidation, and dissemination functions.’’ 305 The Filing Participants have not explained how keeping the proposed Redistribution Fees unchanged from the current fees under the Plans is an appropriate means of establishing the proposed fees, or how the resulting fee levels are fair and reasonable and not unreasonably discriminatory. Additionally, the Filing Participants have not explained how charging Redistribution Fees—layered atop the other fees described above—to competing consolidators (thus subjecting them to the same fees as vendors and subscribers) is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect 301 Id. 302 See id. at 18603–04, 18662–76 (discussing registration and responsibilities of competing consolidators). 303 See id. at 18603–04, 18662–76 (discussing registration and responsibilities competing consolidators). 304 In the MDI Rules Release, the Commission amended Regulation SCI to expand the definition of ‘‘SCI entities’’ to include ‘‘SCI competing consolidators’’ that are subject to the requirements of Regulation SCI after an initial transition period if they meet a threshold based on certain share of gross consolidated market data revenues. See id. at 18604–05. 305 Id. at 18682. PO 00000 Frm 00160 Fmt 4703 Sfmt 4703 the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.306 The Filing Participants have not demonstrated that the proposed Redistribution Fees provide for the distribution of information with respect to quotations for and transactions in NMS stocks on terms that are fair, reasonable, and not unreasonably discriminatory consistent with Rule 603(a) of Regulation NMS. Thus, the Commission cannot find that, consistent with Rule 608 of Regulation NMS, the Proposed Amendment is necessary or appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.307 8. Other Comments Regarding the Proposed Fees 308 One commenter states that the proposed fees for the content underlying consolidated market data would be too high whether a cost-basis or value-basis were used as a justification by the Filing Participants.309 A Non-Supporting Participant states that any analysis of current SIP fees should include a discussion of what structural changes could be made to SIP fees to eliminate or reduce the incentives that firms have today to avoid providing SIP data to their customers.310 One commenter favors expanding the broker-dealer enterprise cap that is part of the current fee schedule of the Plan, stating that the Proposed Amendment provides no depth-of-book enterprise cap and that the Level 1 enterprise caps are out of reach for most market participants.311 Another commenter states that it supports the proposed a la carte fee structure for the expanded elements of consolidated data because, in the commenter’s view, market participants should be able to select from a variety of market data products and pay only for the content they consume.312 One Non-Supporting Participant compares the proposed fees for content underlying consolidated data to fees currently charged for proprietary data fees and argues that at any given price 306 See 17 CFR 242.608(b)(2). 17 CFR 242.608(b)(2). 308 In addition to the other comments discussed in this Order, the Commission also received a letter in the comment file that is not germane to the Proposed Amendments. See Letter from Charles L. Groothoff (Apr. 13, 2022). 309 See MayStreet Letter I, supra note 57, at 6. 310 See MEMX Letter, supra note 57, at 20. 311 See MayStreet Letter I, supra note 57, at 8. 312 See BlackRock Letter, supra note 57, at 2–3. 307 See E:\FR\FM\27SEN1.SGM 27SEN1 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices a subscriber would be better off subscribing to the proprietary data fees listed instead of purchasing data from the Plan, given the additional information included on those feeds.313 This commenter states that, because the proposed fees are generally more expensive than current proprietary data offerings, the Proposed Amendments clearly fail the ‘‘fair and reasonable’’ test required by the Exchange Act.314 This commenter further argues that it is unlikely that there will be any demand for the new data elements included in consolidated market data at prices that exceed the fees charged for proprietary data feeds today.315 The Commission in this Order is not taking a position on what structure or level of fees—either on an absolute basis or in comparison to existing proprietary data products—would be appropriate, but finds that the Filing Participants have failed to demonstrate that the proposed fees provide for the distribution of information with respect to quotations for and transactions in NMS stocks on terms that are fair and reasonable and not unreasonably discriminatory.316 Some commenters, including NonSupporting Participants, also argue that the proposed fees would have an adverse impact on competition, and on competing consolidators in particular.317 One Non-Supporting Participant states that, even where the proposed fees are lower than the fees charged for comparable proprietary data, the fact that other fees are higher than proprietary offerings is likely to reduce incentives for competing consolidators to actually offer that data content to their customers and would limit the potential customer base for competing consolidators and inappropriately impede the viability of competing consolidators under the infrastructure rule.318 Another commenter expresses concern that if the Proposed Amendment were approved, the exchanges would entrench a high cost for market data that has no relation 313 See MEMX Letter, supra note 57, at 7. id. at 8. 315 See id. at 17. 316 See Sections 11A(c)(1)(C)–(D) of the Exchange Act, 15 U.S.C 78k–1(c)(1)(C)–(D); Rule 603(a) of Regulation NMS, 17 CFR 242.603. 317 See MIAX Letter, supra note 57, at 1, 3; MEMX Letter, supra note 57, at 2, 9, 10–17, 21–22, 25; NBIM Letter, supra note 79, at 2; NovaSparks Letter, supra note 125, at 1; IEX Letter, supra note 57, at 5; SIFMA Letter I, supra note 57, at 8; FINRA Letter, supra note 156, at 5; MayStreet Letter I, supra note 57, at 5; BlackRock Letter, supra note 57, at 1–4; Polygon.io Letter I, supra note 126, at 3; Proof Services Letter, supra note 57, at 3; Cutler Group Letter, supra note 134, at 1. 318 See MEMX Letter, supra note 57, at 9, 17. jspears on DSK121TN23PROD with NOTICES 314 See VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 to underlying expenses, is not subject to effective competitive forces, and serves as a formidable barrier to entry for newer firms.319 One commenter states that the current proposal will favor current market data vendors who already pay for these fees and have large customer bases, but will not necessarily use the most efficient data consolidation solutions.320 This commenter states that all of the equity market data plans should have a unified feed and price list because most end users today consume all of the plans’ feeds.321 The Commission has considered these comments regarding the competitive challenges of the current market environment and the role the Plan and these proposed fees would play under the competing consolidator regime. As discussed above, the Commission has found that the Filing Participants have not demonstrated that the proposed fees for content underlying consolidated market data are fair, reasonable and not unreasonably discriminatory. The Commission agrees that unfair, unreasonable, or unreasonably discriminatory fees for this data content would decrease the likelihood that it would be economically feasible for firms to become competing consolidators. That in turn would undermine the Commission’s goals in ‘‘fostering a competitive environment for the provision and dissemination of critical market data to investors and other market participants’’ that will ‘‘better achieve the goals of Section 11A of the Exchange Act and help to ensure broad availability to brokers, dealers, and investors of information with respect to quotations for and transactions in NMS stocks that is prompt, accurate, reliable, and fair.’’ 322 D. NMS Plan Governance Some commenters, including NonSupporting Participants, state that the MDI Rules should be implemented through the new CT Plan,323 rather than through the existing equity market data plans (i.e., the CTA/CQ Plans and the Nasdaq/UTP Plan).324 One commenter reiterated its continued support for the provisions of the CT Plan overall.325 The commenter states that the real and potential conflicts of interest that 319 See Proof Services Letter, supra note 57, at 1. NovaSparks Letter, supra note 125, at 1. 321 See id. at 1–2. 322 MDI Rules Release, supra note 11, 86 FR at 18605–06. 323 See supra note 18 (describing CT Plan). 324 See BMO Letter, supra note 57; MEMX Letter, supra note 57; MIAX Letter, supra note 57; IEX Letter, supra note 57; and Polygon.io Letter I, supra note 126; Polygon.io Letter II, supra note 67. 325 See BMO Letter, supra note 57, at 1. 320 See PO 00000 Frm 00161 Fmt 4703 Sfmt 4703 58633 currently exist relating to the provision of market data directly relate to the decision-making problems at the Plan’s Operating Committee.326 One commenter states that the conflicts of interest that led to the creation of the Proposed Amendment are apparent from the resounding lack of support it has received from anyone but the exchange groups that stand to benefit from creating a system where competing consolidators are not viable.327 According to this commenter, the exchange groups are disincentivized to create a fair and reasonable fee structure, so additional attempts under the same system are unlikely to create better results.328 Another commenter supports expanding the voting representation under the CT Plan to non-SROs and having them participate as full voting members of the Operating Committee.329 The commenter states that the Commission cannot approve the Proposed Amendment given the inherent conflicts of interests of the Filing Participants that developed the proposals.330 The commenter states that, if the Commission approves the Proposed Amendment, it would be giving tacit approval to the shortcomings in the governance structure of the current Plans.331 This commenter also states that the proposed fee amendments are explicitly stated by the Filing Participants to be unrelated to the cost of providing the data, but instead related to subscriber value.332 The commenter states that this is a clear example of the Plan’s Operating Committee failing to ensure that the public service mandates of the SIPs are achieved and is a failure in governance through the unmitigated conflicts of interest by voting members who just want to maximize profits.333 The commenter states that further evidence of the failure of the governance structure of the Operating Committee is that the fee proposals have been proposed while the remaining reforms of the CT Plan are stayed pending resolution of challenges in federal court.334 The commenter states that it is ‘‘somewhat shocking’’ that the Proposed Amendment was filed notwithstanding that other members of the Operating Committee ‘‘have stated publicly that the proposals contradict 326 See id. at 2. id. 328 See Polygon.io Letter II, supra note 67, at 2. 329 See BMO Letter, supra note 57, at 2. 330 See id. 331 See id. 332 See id. 333 See id. at 2–3. 334 See id. at 3. 327 See E:\FR\FM\27SEN1.SGM 27SEN1 58634 Federal Register / Vol. 87, No. 186 / Tuesday, September 27, 2022 / Notices jspears on DSK121TN23PROD with NOTICES the Exchange Act standards for consolidated data, which require that the fees be fair, reasonable, and not unreasonably discriminatory.’’ 335 A Non-Supporting Participant also encourages the Commission to consider whether the CT Plan is a more appropriate body for setting fees for consolidated market data.336 This commenter states that placing the responsibility for setting fees in the hands of the CT Plan would allow SIP fees to be set by an operating committee that better reflects the constituencies affected by the Proposed Amendment, including non-SRO representatives.337 Another Non-Supporting Participant states that the fee proposals are ‘‘the result of a conflicted and unbalanced voting process,’’ adding that it agrees with the recommendation that the responsibility for setting the proposed fees should be placed on the CT Plan.338 Another Non-Supporting Participant recommends that the Commission disapprove the proposal and reassign responsibility for the filing to the operating committee for the CT Plan, which the commenter states would have a ‘‘broader set of voting stakeholders and a fairer and less conflicted governance structure,’’ and argues that the Proposed Amendment shows that this change is ‘‘badly’’ needed.339 One commenter asks the Commission to reevaluate the process that led to the creation of the Proposed Amendment and to make substantive changes to avoid the amendment process being used to derail timely implementation of the MDI Rules.340 While some commenters suggest that the CT Plan is the appropriate mechanism for implementing the changes required by the MDI Rules, that mechanism is not available at this time because the D.C. Circuit has vacated the Commission order approving the CT Plan.341 And additional discussion on this topic in this Order is unnecessary, as it does not bear on the basis for the Commission’s decision to disapprove the Proposed Amendment. On the record before us, for the independently sufficient reasons discussed in more detail above, we have concluded that the Filing Participants have not demonstrated that approval of the proposed NMS plan amendment is necessary or appropriate in the public 335 Id. 336 See MEMX Letter, supra note 57, at 23–24. id. 338 MIAX Letter, supra note 57, at 5. 339 IEX Letter, supra note 57, at 5. 340 See Polygon.io Letter I, supra note 126, at 3. 341 See The Nasdaq Stock Market LLC, et al. v. Securities and Exchange Commission, supra note 18. interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act. action, rather than on the basis for the Commission’s decision to disapprove the Proposed Amendment, further discussion on these topics is unnecessary in this Order. E. Consideration of Other Actions Under Rule 608 of Regulation NMS For the reasons set forth above, the Commission does not find, pursuant to Section 11A of the Act, and Rule 608(b)(2) thereunder, that the Proposed Amendment is consistent with the requirements of the Act and the rules and regulations thereunder applicable to an NMS plan amendment. It is therefore ordered, pursuant to Section 11A of the Act, and Rule 608(b)(2) thereunder, that the Proposed Amendment (File No. S7–24–89) be, and hereby is, disapproved. In connection with recommending disapproval of the Proposed Amendment, one commenter states the Commission could consider potential action under Rule 608(a)(2) of Regulation NMS, which allows the Commission to directly propose amendments to effective national market system plans.342 The commenter states that in connection with a Commission disapproval of the Proposed Amendment, it would ‘‘support the Commission’s efforts to ensure that the newly expanded consolidated market data (i.e., new core data) under the Commission’s Infrastructure Rule is disseminated in a manner consistent with the Exchange Act standards to ensure the investing public and all market participants have fair and reasonable access to it.’’ 343 One Filing Commenter states that it would be inconsistent with the Exchange Act and Rule 608 of Regulation NMS for the Commission to change sua sponte any or all of the proposed fees, as any such change would be material to the Proposed Amendment.344 This commenter states that, if the Commission intends to revise the Proposed Amendment in any material way, it must do so through rulemaking under Rule 608(b)(2) of Regulation NMS, by providing public notice of the specific changes it proposes and giving the Plan’s participants and the general public an opportunity to comment.345 One commenter states that the Commission should provide guidance in terms of the requirements of the MDI Rules as well as the application of the terms ‘‘fair and reasonable’’ and ‘‘not unfairly discriminatory’’ in the context of supplying competing consolidators with the underlying content of consolidated market data, adding that, without such guidance, any refiling of the amendments will result in proposals that do not meet standards under the Exchange Act.346 To the extent that these comments bear on potential future Commission 337 See VerDate Sep<11>2014 17:51 Sep 26, 2022 Jkt 256001 342 See SIFMA Letter I, supra note 57, at 2. 343 Id. 344 See NYSE Letter, supra note 71, at 8. id. 346 See MayStreet Letter II, supra note 58, at 1– 2, 4, 20. 345 See PO 00000 Frm 00162 Fmt 4703 Sfmt 4703 V. Conclusion By the Commission. J. Matthew DeLesDernier, Deputy Secretary. [FR Doc. 2022–20833 Filed 9–26–22; 8:45 am] BILLING CODE 8011–01–P SMALL BUSINESS ADMINISTRATION Reporting and Recordkeeping Requirements Under OMB Review Small Business Administration. 30-Day notice. AGENCY: ACTION: The Small Business Administration (SBA) is seeking approval from the Office of Management and Budget (OMB) for the information collection described below. In accordance with the Paperwork Reduction Act and OMB procedures, SBA is publishing this notice to allow all interested member of the public an additional 30 days to provide comments on the proposed collection of information. SUMMARY: Submit comments on or before October 27, 2022. ADDRESSES: Written comments and recommendations for this information collection request should be sent within 30 days of publication of this notice to www.reginfo.gov/public/do/PRAMain. Find this particular information collection request by selecting ‘‘Small Business Administration’’; ‘‘Currently Under Review,’’ then select the ‘‘Only Show ICR for Public Comment’’ checkbox. This information collection can be identified by title and/or OMB Control Number. FOR FURTHER INFORMATION CONTACT: You may obtain a copy of the information collection and supporting documents from the Agency Clearance Office at Curtis.Rich@sba.gov; (202) 205–7030, or DATES: E:\FR\FM\27SEN1.SGM 27SEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 87, Number 186 (Tuesday, September 27, 2022)]
[Notices]
[Pages 58613-58634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-20833]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95851; File No. SR-CTA/CQ-2021-03]


Consolidated Tape Association; Order Disapproving the Twenty-
Fifth Charges Amendment to the Second Restatement of the CTA Plan and 
Sixteenth Charges Amendment to the Restated CQ Plan

September 21, 2022.

I. Introduction

    On November 5, 2021,\1\ certain participants in the Second 
Restatement of the Consolidated Tape Association (``CTA'') Plan and 
Restated Consolidated Quotation (``CQ'') Plan (collectively ``CTA/CQ 
Plans'' or ``Plans'') \2\ filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission''), pursuant to Section 11A of the 
Securities Exchange Act of 1934 (``Act'') \3\ and Rule 608 of 
Regulation National Market System (``NMS'') thereunder,\4\ a proposal 
(the ``Proposed Amendments'') to amend the Plans.\5\ The Proposed 
Amendments were published for comment in the Federal Register on 
November 26, 2021.\6\
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    \1\ See Letter from Robert Books, Chair, CTA/CQ Operating 
Committee, to Vanessa Countryman, Secretary, Commission (Nov. 5, 
2021) (``Cover Letter''), available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/110000392367/CTA%20MDIR%20Fee%20Filing%20-%2011.5.21.pdf.
    \2\ The CTA Plan, pursuant to which markets collect and 
disseminate last-sale price information for non-Nasdaq-listed 
securities, is a ``transaction reporting plan'' under Rule 601 of 
Regulation NMS, 17 CFR 242.601, and a ``national market system 
plan'' under Rule 608 of Regulation NMS, 17 CFR 242.608. The CQ 
Plan, pursuant to which markets collect and disseminate bid/ask 
quotation information for non-Nasdaq-listed securities, is a 
``national market system plan'' under Rule 608 under the Act, 17 CFR 
242.608. See Securities Exchange Act Release Nos. 10787 (May 10, 
1974), 39 FR 17799 (May 20, 1974) (declaring the CTA Plan 
effective); 15009 (July 28, 1978), 43 FR 34851 (Aug. 7, 1978) 
(temporarily authorizing the CQ Plan); and 16518 (Jan. 22, 1980), 45 
FR 6521 (Jan. 28, 1980) (permanently authorizing the CQ Plan).
    \3\ 15 U.S.C 78k-1.
    \4\ 17 CFR 242.608.
    \5\ The Proposed Amendments were, as required by the Plans, 
approved and executed by at least two-thirds of the self-regulatory 
organizations (``SROs'') that are participants of the Plans. The 
participants that approved and executed the amendments (the ``Filing 
Participants'') are: Cboe BYX Exchange, Inc.; Cboe BZX Exchange, 
Inc.; Cboe EDGA Exchange, Inc.; Cboe EDGX Exchange, Inc.; Cboe 
Exchange, Inc.; Nasdaq ISE, LLC; Nasdaq PHLX LLC; The Nasdaq Stock 
Market LLC; New York Stock Exchange LLC; NYSE American LLC; NYSE 
Arca, Inc.; NYSE Chicago, Inc.; and NYSE National, Inc. The other 
SROs that are participants in the Plans and that did not approve or 
execute the amendments are (the ``Non-Supporting Participants''): 
Financial Industry Regulatory Authority, Inc.; Investors Exchange 
LLC; Long-Term Stock Exchange, Inc.; MEMX LLC; MIAX PEARL, LLC; and 
Nasdaq BX, Inc.
    \6\ See Securities Exchange Act Release No. 93625 (Nov. 19, 
2021), 86 FR 67517 (Nov. 26, 2021) (``Notice''). Comments received 
in response to the Proposed Amendments are available at https://www.sec.gov/comments/sr-ctacq-2021-03/srctacq202103.htm.
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    On February 24, 2022, the Commission instituted proceedings 
pursuant to Rule 608(b)(2)(i) of Regulation NMS,\7\ to determine 
whether to disapprove the Proposed Amendments or to approve the 
Proposed Amendments with any changes or subject to any conditions the 
Commission deems necessary or appropriate after considering public 
comment.\8\ On May 19, 2022, the Commission designated a longer period 
within which to conclude proceedings regarding the Proposed 
Amendments.\9\ On July 21, 2022, the Commission again designated a 
longer period within which to conclude proceedings regarding the 
Proposed Amendments.\10\
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    \7\ 17 CFR 242.608(b)(2)(i).
    \8\ See Securities Exchange Act Release No. 94309 (Feb. 24, 
2022), 87 FR 11763 (Mar. 2, 2022).
    \9\ See Securities Exchange Act Release No. 94952 (May 19, 
2022), 87 FR 31921 (May 25, 2022).
    \10\ See Securities Exchange Act Release No. 95346 (July 21, 
2022), 87 FR 45142 (July 27, 2022).
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    The Proposed Amendment seeks to set fees for the data content 
underlying consolidated market data offerings pursuant to the 
Commission's Market Data Infrastructure Rules (``MDI Rules''),\11\ 
which expand the content of consolidated market data and require the 
introduction of a competitive decentralized consolidation model. The 
Filing Participants propose what they characterize as ``value-based'' 
fees for top-of-book data, depth-of-book data, auction data, 
professional and non-professional users, non-display use, access, and 
redistribution. Below, the Commission provides an overview of the MDI 
Rules requirement pursuant to which the Proposed Amendment was

[[Page 58614]]

filed and then examines the proposed ``value-based'' methodology 
underlying the proposed fees and each of the proposed fees in turn, 
finding that, in each case, the Filing Participants have not 
demonstrated that the proposed fees are fair, reasonable, and not 
unreasonably discriminatory.
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    \11\ The ``MDI Rules'' as used in this Order, and as relevant to 
the Proposed Amendments, are Rules 600, 603, and 614 of Regulation 
NMS. 17 CFR 242.600, 603, 614. See also Securities Exchange Act 
Release No. 90610 (Dec. 9 2020), 86 FR 18596 (Apr. 9, 2021) (File 
No. S7-03-20) (``MDI Rules Release''); Securities Exchange Act 
Release No. 90610A (May 24, 2021), 86 FR 29195 (June 1, 2021) (File 
No. S7-03-20) (technical correction to MDI Rules Release). Several 
exchanges filed petitions for review challenging the MDI Rules 
Release in the U.S. Court of Appeals for the District of Columbia 
Circuit, which were denied on May 24, 2022. See The Nasdaq Stock 
Market LLC, et al. v. SEC, No. 21-1100 (D.C. Cir. May 24, 2022).
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    This order disapproves the Proposed Amendments.\12\
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    \12\ The Filing Participants have filed similar amendments to 
the Joint Self-Regulatory Organization Plan Governing the 
Collection, Consolidation and Dissemination of Quotation and 
Transaction Information for Nasdaq-Listed Securities Traded on 
Exchanges on an Unlisted Trading Privileges Basis (``Nasdaq/UTP 
Plan''), which the Commission is also disapproving. See Securities 
Exchange Act Release No. 95849 (Sep. 21, 2022) (File No. S7-24-89). 
Further, the participants of the CTA/CQ Plans and the Nasdaq/UTP 
Plan have also filed amendments to implement the non-fee-related 
aspects of the Commission's MDI Rules. See Securities Exchange Act 
Release Nos. 93615 (Nov. 19, 2021), 86 FR 67800 (Nov. 29, 2021) 
(File No. SR-CTA/CQ-2021-02); 93620 (Nov. 19, 2021), 86 FR 
67541(File No. S7-24-89) (``Proposed Non-Fee Amendments''). The 
Commission is, by separate orders, also disapproving the Proposed 
Non-Fee Amendments. See Securities Exchange Act Release Nos. 95848 
(Sep. 21, 2022) (File No. S7-24-89); 95850 (Sep. 21, 2022) (File No. 
SR-CTA/CQ-2021-02).
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II. Overview

    Pursuant to Regulation NMS and the Equity Data Plans,\13\ the 
national securities exchanges and national securities association 
(``self-regulatory organizations'' or ``SROs'') must provide certain 
information with respect to quotations for and transactions in for each 
NMS stock (``NMS information'') to an exclusive plan securities 
information processor (``exclusive SIP''), which consolidates this 
information and makes it available to market participants on the 
consolidated tapes. The purpose of the Equity Data Plans is to 
facilitate the collection and dissemination of SIP data so that the 
public has ready access to a ``comprehensive, accurate, and reliable 
source of information for the prices and volume of any NMS stock at any 
time during the trading day.'' \14\ Because the infrastructure for the 
collection, consolidation, and dissemination of this data had not been 
significantly updated since its initial implementation in the 1970s, 
the Commission adopted amendments to Regulation NMS that increase the 
content of NMS information and amend the manner in which such NMS 
information is collected, consolidated, and disseminated by the Equity 
Data Plans.\15\ In the MDI Rules Release, the Commission stated, 
``[w]idespread availability of timely market information promotes fair 
and efficient markets and facilitates the ability of brokers and 
dealers to provide best execution to their customers.'' \16\
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    \13\ The three effective national market system plans that 
govern the collection, consolidation, processing, and dissemination 
of certain NMS information are: (1) the CTA Plan; (2) the CQ Plan; 
and (3) the Nasdaq/UTP Plan (collectively, the ``Equity Data 
Plans''). Each of the Equity Data Plans is an effective national 
market system plan under 17 CFR 242.608 (Rule 608) of Regulation 
NMS. See also Securities Exchange Act Release Nos. 10787 (May 10, 
1974), 39 FR 17799 (May 20, 1974) (declaring the CTA Plan 
effective); 15009 (July 28, 1978), 43 FR 34851 (Aug. 7, 1978) 
(temporarily authorizing the CQ Plan); and 16518 (Jan. 22, 1980), 45 
FR 6521 (Jan. 28, 1980) (permanently authorizing the CQ Plan).
    \14\ Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3593 (Jan. 21, 
2010).
    \15\ See MDI Rules Release, supra note 11, 86 FR at 18598-600.
    \16\ See id. at 18599.
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    The adoption of the MDI Rules increases the content of NMS 
information and modifies the manner in which NMS information is 
collected, consolidated, and disseminated by the Plans. Significantly, 
under the MDI Rules, the Commission required the introduction of a 
competitive decentralized consolidation model under which competing 
consolidators and self-aggregators will replace the exclusive SIPs that 
collect, consolidate, and disseminate equity market data under the 
existing NMS plans for equity market data. Although the exclusive SIPs 
will no longer disseminate all consolidated information for an 
individual NMS stock, the Plans will continue to play an important 
role--they will develop and propose fees for the data content 
underlying consolidated market data, collect and allocate revenues 
collected for this data, develop the monthly performance metrics for 
competing consolidators, and provide an annual assessment of the 
competing consolidator model.
    Rule 614(e)(1) directs the participants of the effective national 
market system plan(s) for NMS stocks to file an amendment pursuant to 
Rule 608 of Regulation NMS to conform the Plans to reflect the 
provision of information with respect to quotations for and 
transactions in NMS stocks that is necessary to generate consolidated 
market data by the SROs to competing consolidators and self-
aggregators. As the MDI Rules Release states, this means that the 
operating committees of the plan(s) will ``need to propose the new fees 
that will be charged for the quotation and transaction information that 
is necessary to generate consolidated market data that is required to 
be made available by the SROs under Rule 603(b) to competing 
consolidators and self-aggregators.'' \17\ The Proposed Amendment was 
filed by the Filing Participants pursuant to this requirement.\18\
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    \17\ See MDI Rules Release, supra note 11, 86 FR at 18682.
    \18\ Rule 614(e) requires the participants to ``the effective 
national market system plan(s) for NMS stocks'' to file an amendment 
to implement the MDI Rules. 17 CFR 242.614(e). The Filing 
Participants have filed the required amendment under the existing 
CTA/CQ Plans and the Nasdaq/UTP Plan. See supra note 12. While the 
Commission issued an order on August 6, 2020, approving, as 
modified, a new national market system plan regarding equity market 
data--the CT Plan--to replace the existing CTA/CQ Plans and Nasdaq/
UTP Plan, that order was stayed on October 13, 2021, see Nasdaq 
Stock Mkt. LLC v. SEC, No. 21-1167 (D.C. Cir. Oct. 13, 2021), which 
was before the Filing Participants filed this amendment. The 
Commission's order approving the CT Plan was subsequently vacated. 
See The Nasdaq Stock Market LLC, et al. v. Securities and Exchange 
Commission, Nos. 21-1167, 21-1168, 21-1169 (D.C. Cir., July 5, 2022) 
(vacating Securities Exchange Act Release No. 92586 (Aug. 6, 2021), 
86 FR 44142 (Aug. 11, 2021) (Order Approving, as Modified, a 
National Market System Plan Regarding Consolidated Market Data)).
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    As explained below, the Filing Participants have not demonstrated 
that the proposed ``value-based'' fee methodology, or the specific 
proposed fees themselves, meet the statutory standard of being fair, 
reasonable, and not unreasonably discriminatory.\19\ The Commission is 
thus disapproving the Proposed Amendment under Rule 608(b)(2) of 
Regulation NMS because it cannot find that the proposed fees are 
necessary or appropriate in the public interest, for the protection of 
investors and the maintenance of fair and orderly markets, to remove 
impediments to, and perfect the mechanisms of, a national market 
system, or otherwise in furtherance of the purposes of the Act.\20\
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    \19\ See Sections 11A(c)(1)(C)-(D) of the Act, 15 U.S.C 78k-
1(c)(1)(C)-(D); see also Rule 603(a) of Regulation NMS, 17 CFR 
242.603.
    \20\ 17 CFR 242.608(b)(2).
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III. Summary of the Proposed Amendments \21\
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    \21\ The full text of the Proposed Amendments appear as 
Attachment A to the Notice. See Notice, supra note 6, 86 FR 67521-
23.
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    Under the Proposed Amendments, the Filing Participants propose to 
amend the Plans to adopt fees for the data content underlying 
consolidated market data offerings pursuant to the Commission's MDI 
Rules. All of the SROs that are participants in the Plans have also 
filed a separate amendment to implement the non-fee-related aspects of 
the MDI Rules.\22\
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    \22\ See Proposed Non-Fee Amendments, supra note 12.
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    The Filing Participants propose a fee structure for the following 
three categories of data content underlying consolidated market data 
offerings, which would collectively constitute the amended definition 
of core data, as that

[[Page 58615]]

term is defined in Rule 600(b)(21) of Regulation NMS: \23\
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    \23\ 17 CFR 242.600(b)(21).

    (1) Level 1 Core Data, which would include Top of Book 
Quotations, Last Sale Price Information, and odd-lot information (as 
defined in Rule 600(b)(59)).\24\ Currently, Plan fees for Level 1 
Core Data include the provision of Top of Book Quotations and Last 
Sale Price Information, as well as administrative data (as defined 
in Rule 600(b)(2)),\25\ regulatory data (as defined in Rule 
600(b)(78)),\26\ and SRO-specific program data (as defined in Rule 
600(b)(85)).\27\ The Filing Participants propose that Level 1 Core 
Data would include all information that subscribers currently 
receive via the exclusive SIP and would add odd-lot quotation 
information to that content; \28\
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    \24\ 17 CFR 242.600(b)(59).
    \25\ 17 CFR 242.600(b)(2).
    \26\ 17 CFR 242.600(b)(78).
    \27\ 17 CFR 242.600(b)(85).
    \28\ Transactions in odd-lots are already reported via the 
consolidated feeds.
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    (2) Depth of book data (as defined in Rule 600(b)(26)); \29\ and
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    \29\ 17 CFR 242.600(b)(26).
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    (3) Auction information (as defined in Rule 600(b)(5)).\30\
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    \30\ The Filing Participants state that they propose to price 
the three subsets of data that constitute core data separately so 
that data subscribers have flexibility to choose how much 
consolidated market data content they wish to purchase. For example, 
the Filing Participants state that they understand that certain data 
subscribers may not wish to add depth-of-book data or auction 
information, or may want to add only depth-of-book information but 
not auction information. The Filing Participants state, however, 
that they expect that competing consolidators would purchase all 
core data. See Notice, supra note 6, 86 FR at 67517 n.10.
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Professional and Nonprofessional Fee Structure

    For each of the three categories of data described above, the 
Filing Participants propose a Professional Subscriber Charge and a 
Nonprofessional Subscriber Charge.\31\
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    \31\ The terms Professional Subscriber and Nonprofessional 
Subscriber are currently defined in the Plan, and the Filing 
Participants do not propose to amend those definitions. See Notice, 
supra note 6, 86 FR at 67518.
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    With respect to Level 1 Core Data, the Filing Participants propose 
to apply the Professional Subscriber and Nonprofessional Subscriber 
fees currently set forth in the Plans to the data content underlying 
Level 1 Service under the distributed consolidation model. Access to 
odd-lot information would be made available to Level 1 Core Data 
Professional and Nonprofessional Subscribers at no additional charge.
    With respect to depth-of-book data, Professional Subscribers would 
pay $99.00 per device per month for each Network's data, and 
Nonprofessional Subscribers would pay $4.00 per subscriber per month 
for each Network's depth-of-book data. The Filing Participants do not 
propose to offer per-quote packet charges or enterprise rates for the 
use of depth-of-book data by either Professional Subscribers or 
Nonprofessional Subscribers.
    Finally, with respect to auction information, the Filing 
Participants propose that both Professional Subscribers and 
Nonprofessional Subscribers would pay $10.00 per device/subscriber per 
month for each Network's auction information data.

Non-Display Use Fees

    The Filing Participants propose to apply Non-Display Use Fees 
relating to the three categories of data described above: (1) Level 1 
Core Data; (2) depth-of-book data; and (3) auction information.
    With respect to Level 1 Core Data, the Filing Participants propose 
to apply the Non-Display Use fees currently set forth in the Plans.
    With respect to non-display use of depth-of-book data, subscribers 
would pay Non-Display Use Fees of $12,477.00 per month for each 
category of Non-Display Use per Network.\32\
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    \32\ The three categories of Non-Display Use are as follows: 
Category 1 applies when a datafeed recipient's Non-Display Use is on 
its own behalf. Category 2 applies when a datafeed recipient's Non-
Display Use is on behalf of its clients. Category 3 applies when a 
datafeed recipient's Non-Display Use is for the purpose of 
internally matching buy and sell orders within an organization. 
Matching buy and sell orders includes matching customer orders on 
the data recipient's own behalf and/or on behalf of its clients. 
Category 3 includes, but is not limited to, use in trading 
platform(s), such as exchanges, alternative trading systems 
(``ATS''), broker crossing networks, broker crossing systems not 
filed as ATS's, dark pools, multilateral trading facilities, and 
systematic internalization systems. See Exhibit E (Schedule of 
Market Data Charges) to the CTA Plan; Section IX(b)(ii) to the CQ 
Plan.
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    With respect to non-display auction information, subscribers would 
pay Non-Display Use fees of $1,248.00 per month for each category of 
Non-Display Use per Network.

Access Fees

    Finally, in addition to the charges described above, the Filing 
Participants propose to charge Access Fees to all subscribers for the 
use of the three categories of data: (1) Level 1 Core Data; (2) depth-
of-book data; and (3) auction information.
    With respect to Level 1 Core Data, the Filing Participants propose 
to apply the Access Fees currently set forth in the Plans.
    With respect to depth-of-book data, subscribers would pay a monthly 
Access Fee of $9,850.00 per Network.
    With respect to auction information, subscribers would pay a 
monthly Access Fee of $985.00 per Network.
    The Filing Participants also propose to add language to the fee 
schedules for the Plans regarding the applicability of various fees to 
the expanded market data content required by the MDI Rules.\33\ First, 
the Filing Participants propose to specify that the Per-Quote-Packet 
Charges and the Broker-Dealer Enterprise Cap will not apply to the 
expanded content of core data, and will only be available for the 
receipt and use of Level 1 Core Data. The Filing Participants state 
that, under the current Price List, the Per-Quote-Packet Charges and 
Enterprise Cap serve as alternative fee schedules to the normally 
applied Professional and Nonprofessional Subscriber Charges, and, 
further, that the proposed changes to the fee schedules are designed to 
clarify that these alternative fee schedules are only available with 
respect to the use of Level 1 Core Data, and that the fees for the use 
of depth-of-book data and auction information must be determined 
pursuant to the Professional and Nonprofessional fees described above.
---------------------------------------------------------------------------

    \33\ See proposed Exhibit E to the CTA Plan; proposed Section 
IX(b)(ii) of the CQ Plan.
---------------------------------------------------------------------------

    Second, the Filing Participants propose to add language to the fee 
schedule to specify that Level 1 Core Data would include Top of Book 
Quotation Information, Last Sale Price Information, odd-lot 
information, administrative data, regulatory data, and SRO program 
data. The Filing Participants state that this proposed change would use 
terms defined in Rule 600(b) to reflect both data currently made 
available to subscribers and the additional odd-lot information that 
would be included at no additional charge.
    Third, the Filing Participants propose to add language to the fee 
schedule to provide that the existing Redistribution Fees would apply 
to all three categories of core data (i.e., Level 1 Core Data, depth-
of-book, and auction information), including any subset thereof. 
According to the Filing Participants, Redistribution Fees are currently 
charged to any entity that makes last-sale information or quotation 
information available to any other entity or to any person other than 
its employees, irrespective of the means of transmission or access. The 
Filing Participants propose to amend this description to make it 
applicable to core data, as that term is defined in Rule 600(b)(21). 
The Filing Participants do not propose to change the amount of the 
existing Redistribution Fees. The Filing Participants also propose that 
the existing Redistribution Fees would be charged to competing 
consolidators.

[[Page 58616]]

    Finally, the Filing Participants propose to make non-substantive 
changes to language in the fee schedules to take into account the 
expanded content of core data. For example, the Filing Participants are 
proposing to add headings referencing Level 1 Core Data. Additionally, 
under Data Access Charges and Multiple Feed Charges, the Participants 
are proposing to amend ``Bid-Ask'' to refer to ``Top of Book and odd-
lot information.'' \34\
---------------------------------------------------------------------------

    \34\ The Filing Participants further state that they are not 
proposing any changes to the Multiple Feed Charges, Late/Clearly 
Erroneous Reporting Charges, and Consolidated Volume Data Non-
Compliance Fee. According to the Participants, these current fees 
are administrative fees and would continue to apply to any data 
usage. See Notice, supra note 6, 86 FR at 67519.
---------------------------------------------------------------------------

    The Filing Participants state that the Proposed Amendments would be 
implemented to coincide with the phased implementation of the MDI Rules 
as required by the Commission.
    With respect to the method used to develop the proposed fees, the 
Filing Participants state that in the absence of cost information being 
available to the Operating Committee, fees for consolidated market data 
are fair and reasonable and not unreasonably discriminatory if they are 
related to the value of the data to subscribers. The Filing 
Participants state that the value of depth-of-book data and auction 
information is well established, as this content has been available to 
market participants directly from the exchanges for years, and in some 
cases decades, at prices constrained by direct and platform 
competition. According to the Filing Participants, exchanges have filed 
fees for this data pursuant to the standards specified in Section 
6(b)(5) of the Act.
    The Filing Participants state that, to determine the value of 
depth-of-book data, the Filing Participants considered a number of 
methodologies, based on the current fees charged for depth-of-book data 
products offered by exchanges, to determine the appropriate level at 
which to set fees for the expanded data content. The Filing 
Participants state they reviewed (1) an ISO Trade-Based Model; \35\ (2) 
a Depth to Top-Of-Book Ratio Model (``Depth-to-TOB Model''); and (3) a 
Message-Based Model.\36\ Ultimately, the Filing Participants selected a 
Depth-to-TOB Model to determine the appropriate fees for the expanded 
data content.
---------------------------------------------------------------------------

    \35\ According to the Filing Participants, the ISO-Based model 
analyzed the number of intermarket sweep orders executing through 
the NBBO, looking at the number of intermarket sweep orders executed 
in the first five levels of depth as compared to all ISOs executed. 
See Notice, supra note 6, 86 FR at 67520 n.18.
    \36\ According to the Filing Participants, the Message-based 
model looked at the total number of orders displayable in the first 
five levels of depth as compared to all displayable orders. See 
Notice, supra note 6, 86 FR at 67520 n.19.
---------------------------------------------------------------------------

    The Filing Participants state that they reviewed the depth to top-
of-book ratios of Professional device rates on Nasdaq (Nasdaq TotalView 
compared to Nasdaq Basic), Cboe (Cboe Full Depth compared to Cboe One) 
and NYSE (NYSE Integrated compared to NYSE BQT). The Filing 
Participants state that they also reviewed the ratio proposed by IEX 
between its proposed fees for real-time top-of-book and depth feeds 
(TOPS compared to DEEP). The Filing Participants state that using the 
ratios calculated for Nasdaq, NYSE, and IEX resulted in an average 
ratio of 3.94x between the prices of depth-of-book and top-of-book 
feeds.\37\ The Filing Participants then applied this 3.94x ratio to the 
current fees charged for consolidated market as more specifically 
described below.
---------------------------------------------------------------------------

    \37\ The Filing Participants state that they also conducted 
alternative calculations by including a broader range of products or 
those products offering more robust depth fees. These alternative 
calculations resulted in ratios greater than 3.94x and were not 
selected by the Filing Participants. The Filing Participants state 
that the 3.94x ratio represents the difference in value between top-
of-book and five levels of depth that would be required to be 
included in consolidated market data under Rule 603(b) Because the 
alternate methodologies, which focused on only the top five levels 
of depth, resulted in higher ratios, the Filing Participants state 
that the more conservative 3.94x ratio would be a fair and 
reasonable ratio between the proposed fees for depth-of-book data 
required to be included in the consolidated market data and the 
current fees for the existing Top of Book Quotation information. See 
Notice, supra note 6, 86 FR at 67520.
---------------------------------------------------------------------------

    With respect to the fees for auction information, the Filing 
Participants state that they looked to the number of trades that occur 
during the auction process as compared to the trading day and 
determined that roughly 10% of daily trading volume takes place during 
auctions. Consequently, the Filing Participants concluded that charging 
a fee that was 10% of the fee charged for depth-of-book data was an 
appropriate proxy for determining the value of auction information. As 
a result, the Filing Participants have proposed a $10.00 fee per 
Network for auction information, which the Filing Participants state is 
fair and reasonable and not unreasonably discriminatory.
    With respect to the fees for Level 1 Core Data, the Filing 
Participants state that it is fair and reasonable and not unreasonably 
discriminatory to include access to odd-lot information at no charge in 
addition to the current fees, which the Filing Participants state they 
are not proposing to change.
    Finally, as described above, the Filing Participants propose that 
the existing Redistribution Fees would apply to the amended core data 
and that Redistribution Fees would also apply to competing 
consolidators.

IV. Discussion

A. The Applicable Standard of Review

    Under Rule 608(b)(2) of Regulation NMS, the Commission shall 
approve a national market system plan or proposed amendment to an 
effective national market system plan, with such changes or subject to 
such conditions as the Commission may deem necessary or appropriate, if 
it finds that such plan or amendment is necessary or appropriate in the 
public interest, for the protection of investors and the maintenance of 
fair and orderly markets, to remove impediments to, and perfect the 
mechanisms of, a national market system, or otherwise in furtherance of 
the purposes of the Act.\38\ The Commission shall disapprove a national 
market system plan or proposed amendment if it does not make such a 
finding.\39\ Furthermore, under Rule 700(b)(3)(ii) of the Commission's 
Rules of Practice,
---------------------------------------------------------------------------

    \38\ 17 CFR 242.608(b)(2).
    \39\ Id.

    The burden to demonstrate that a NMS plan filing is consistent 
with the Exchange Act and the rules and regulations issued 
thereunder that are applicable to NMS plans is on the plan 
participants that filed the NMS plan filing. Any failure of the plan 
participants that filed the NMS plan filing to provide such detail 
and specificity may result in the Commission not having a sufficient 
basis to make an affirmative finding that an NMS plan filing is 
consistent with the Exchange Act and the rules and regulations 
issued thereunder that are applicable to NMS plans.\40\
---------------------------------------------------------------------------

    \40\ 17 CFR 201.700(b)(3)(ii).

    In addition, the fees proposed in the Proposed Amendments for data 
content underlying consolidated market data offerings must be assessed 
against the statutory standard, including Sections 11A(c)(1)(C)-(D) of 
the Exchange Act and Rule 603(a) under Regulation NMS.\41\ Such fees 
must satisfy the statutory standards of being fair and reasonable and 
not unreasonably discriminatory.\42\ In making this assessment, the 
Commission must have

[[Page 58617]]

``sufficient information before it to satisfy its statutorily mandated 
review function'' to determine that the fees meet the standard.\43\
---------------------------------------------------------------------------

    \41\ See Sections 11A(c)(1)(C)-(D) of the Exchange Act, 15 U.S.C 
78k-1(c)(1)(C)-(D); Rule 603(a) of Regulation NMS, 17 CFR 242.603. 
See also MDI Rules Release, supra note 11, 86 FR at 18650.
    \42\ See Sections 11A(c)(1)(C)-(D) of the Act, 15 U.S.C 78k-
1(c)(1)(C)-(D); Rule 603(a) of Regulation NMS, 17 CFR 242.603. See 
also MDI Rules Release, Section III.E.2(c), supra note 11, 86 FR at 
18684-87 (discussing the statutory requirements applicable to 
consolidated market data and the standards the Commission has 
historically applied to assessing compliance with the statutory 
requirements).
    \43\ See MDI Rules Release, supra note 11, 86 FR at 18685 
(citing to In the Matter of the Application of Bloomberg L.P., 
Securities Exchange Act Release No. 83755 (July 31, 2018), 2018 WL 
3640780, at *9 (``Bloomberg Order'')).
---------------------------------------------------------------------------

    For the reasons discussed below, the Commission finds that the 
Filing Participants have not demonstrated that the Proposed Amendment 
is consistent with the Act.\44\ Accordingly, the Commission cannot find 
that the Proposed Amendment is necessary or appropriate in the public 
interest, for the protection of investors and the maintenance of fair 
and orderly markets, to remove impediments to, and perfect the 
mechanisms of, a national market system, or otherwise in furtherance of 
the purposes of the Act.\45\
---------------------------------------------------------------------------

    \44\ 17 CFR 201.700(b)(3).
    \45\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

    In the discussion that follows, the Commission analyzes the 
methodology selected by the Filing Participants to develop the proposed 
fees for data content underlying consolidated market data, as well as 
the implementation of that methodology, and discusses in turn each of 
the proposed fee categories for content underlying consolidated market 
data.

B. ``Cost-Based'' vs. ``Value-Based'' Fees for Data Content Underlying 
Consolidated Market Data

    The ``value-based'' fee methodology proposed by the Filing 
Participants, and opposed by certain commenters, would apply to each of 
the specific proposed fees,\46\ and the Commission therefore discusses 
this issue before addressing each of the proposed fees.
---------------------------------------------------------------------------

    \46\ See Notice, supra note 6, 86 FR at 67519-21.
---------------------------------------------------------------------------

    In the MDI Rules Release, the Commission stated that the Operating 
Committee of the Plan ``should continue to have an important role in 
the operation, development, and regulation of the national market 
system for the collection, consolidation, and dissemination of 
consolidated market data.'' \47\ The Commission further stated that 
``the fees for data content underlying consolidated market data, as now 
defined, are subject to the national market system process that has 
been established,'' and that the ``Operating Committee(s) have plenty 
of experience in developing fees for SIP data.'' \48\
---------------------------------------------------------------------------

    \47\ MDI Rules Release, supra note 11, 86 FR at 18682.
    \48\ MDI Rules Release, supra note 11, 86 FR at 18683.
---------------------------------------------------------------------------

    The Filing Participants state that the Operating Committee has 
brought this experience to bear to determine the fees for the new core 
data elements.\49\ In the Cover Letter,\50\ the Filing Participants 
also acknowledge that the fees established for consolidated market data 
must be fair and reasonable and not unreasonably discriminatory, and 
they state that they are proposing fees that are fair and reasonable 
and not unreasonably discriminatory. Additionally, the Filing 
Participants argue that, while the Commission has stated that one way 
to demonstrate that fees for consolidated market data are fair and 
reasonable is to show that they are reasonably related to costs, the 
Exchange Act does not require a showing of costs and historically the 
Plan has not demonstrated that its fees are fair and reasonable on the 
basis of cost data.\51\
---------------------------------------------------------------------------

    \49\ See Notice, supra note 6, 86 FR at 67519.
    \50\ See Cover Letter, supra note 1, at 6; see also Notice, 
supra note 6, 86 FR at 67519.
    \51\ See Notice, supra note 6, 86 FR at 67519.
---------------------------------------------------------------------------

    The Filing Participants further represent that, under the 
decentralized competing consolidator model, the Operating Committee has 
no knowledge of any of the costs associated with consolidated market 
data.\52\ According to the Filing Participants, under the current 
exclusive SIP model, the Operating Committee (1) specifies the 
technology that each Participant must use to provide the SIPs with 
data, and (2) contracts directly with a SIP to collect, consolidate, 
and disseminate consolidated market data, and the Operating Committee 
therefore has knowledge only of the costs associated with collecting 
and consolidating market data, as opposed to the costs associated with 
producing the data.\53\ By contrast, the Filing Participants state, 
under the decentralized competing consolidator model, the Plans will no 
longer have a role either in specifying the technology associated with 
exchanges providing data or in contracting with a SIP. Rather, the 
Filing Participants state, each national securities exchange will be 
responsible, as specified in Rule 603(b), for determining the methods 
of access to and format of data necessary to generate consolidated 
market data.\54\ Moreover, the Filing Participants argue, competing 
consolidators will be responsible for connecting to the exchanges to 
obtain data directly from each exchange, without any involvement of the 
Operating Committee, and the Operating Committee will not have access 
to information about how each exchange would generate the data it would 
be required to disseminate under Rule 603(b).\55\ Accordingly, the 
Filing Participants argue, the Operating Committee does not and will 
not have access to any information about the cost of providing 
consolidated market data under the decentralized competing consolidator 
model.\56\
---------------------------------------------------------------------------

    \52\ See id.
    \53\ See id.
    \54\ See id.
    \55\ See id.
    \56\ See id.
---------------------------------------------------------------------------

    The Filing Participants state that, in light of the absence of cost 
information available to the Operating Committee, fees for consolidated 
market data are fair and reasonable and not unreasonably discriminatory 
if they are related to the value of the data to subscribers. The Filing 
Participants argue that the value of depth-of-book data and auction 
information is well-established, as this content has been available to 
market participants directly from the exchanges for years, and in some 
cases decades, at prices constrained by direct and platform 
competition. The Filing Participants further state that exchanges have 
filed fees for this data pursuant to the standards specified in Section 
6(b)(5) of the Act and that the fees in the Proposed Amendment were 
filed using a value-based methodology.
    Some commenters oppose the Proposed Amendment, arguing that the 
proposed fees are based on a flawed methodology that, inconsistent with 
the MDI Rules, fails to provide a cost-based justification.\57\ These 
commenters state

[[Page 58618]]

that the proposed fees should bear a reasonable relationship to the 
cost of producing the market data, which, they argue, is the primary 
basis the Commission has identified for justifying the fees for core 
data.\58\
---------------------------------------------------------------------------

    \57\ See Letter from Christopher Solgan, Senior Counsel, MIAX 
Exchange Group, to Vanessa Countryman, Secretary, Commission, at 3 
(Jan. 12, 2022) (``MIAX Letter'') (comment from a Non-Supporting 
Participant); Letter from John Ramsay, Chief Market Policy Officer, 
Investors Exchange LLC, to Vanessa Countryman, Secretary, 
Commission, at 2-3 (Dec. 17, 2021) (``IEX Letter'') (comment from a 
Non-Supporting Participant). See also Letter from Joe Wald, Managing 
Director, Co-Head of Electronic Trading, and Ray Ross, Managing 
Director, Co-Head of Electronic Trading, BMO Capital Markets Group, 
to Vanessa Countryman, Secretary, Commission, at 2-3 (Dec. 17, 2021) 
(``BMO Letter''); Letter from Ellen Greene, Managing Director, 
Equity & Options Market Structure, and William C. Thum, Managing 
Director and Associate General Counsel, Asset Management Group, 
Securities Industry and Financial Markets Association, to Vanessa 
Countryman, Secretary, Commission, at 4-5 (Dec. 17, 2021) (``SIFMA 
Letter I'') (noting that the fees charged by monopolistic providers, 
such as exclusive SIPs, need to be tied to some type of cost-based 
standard in order to preclude excessive profits if fees are too high 
or underfunding or subsidization if fees are too low); Letter from 
Patrick Flannery, Chief Executive Officer, MayStreet, to Vanessa 
Countryman, Secretary, Commission, at 6 (Dec. 17, 2021) (``MayStreet 
Letter I''); Letter from Hubert De Jesus, Managing Director, Global 
Head of Market Structure and Electronic Trading, and Samantha DeZur, 
Director, Global Public Policy, BlackRock, to Vanessa Countryman, 
Secretary, Commission, at 2 (Dec. 16, 2021) (``BlackRock Letter''); 
Letter from Allison Bishop, President, Proof Services LLC, to 
Vanessa Countryman, Secretary, Commission, at 2-3 (Nov. 22, 2021) 
(``Proof Services Letter''); Letter from Adrian Griffiths, Head of 
Market Structure, MEMX LLC, to Vanessa Countryman, Secretary, 
Commission, at 18 (Nov. 8, 2021) (``MEMX Letter''); Letter from 
Ellen Greene, Managing Director, Equity & Options Market Structure, 
and William C. Thum, Managing Director and Associate General 
Counsel, Asset Management Group, Securities Industry and Financial 
Markets Association, to Vanessa Countryman, Secretary, Commission, 
at 2 (Apr. 27, 2022) (``SIFMA Letter II'').
    \58\ See IEX Letter, supra note 57, at 1, 2-3 (stating that the 
proposal fails to establish that the fees for the data content 
underlying consolidated market data meet the statutory standards of 
being fair, reasonable, and not unreasonably discriminatory); MIAX 
Letter, supra note 57, at 3. See also BMO Letter, supra note 57, at 
2-3; SIFMA Letter I, supra note 57, at 4-5 (stating that the fees 
charged by monopolistic providers, such as exclusive SIPs, need to 
be tied to some type of cost-based standard in order to preclude 
excessive profits if fees are too high or underfunding or 
subsidization if fees are too low); MayStreet Letter I, supra note 
57, at 6; BlackRock Letter, supra note 57, at 2; Proof Services 
Letter, supra note 57, at 2, 3; MEMX Letter, supra note 57, at 18; 
Letter from Manisha Kimmel, Chief Policy Officer, MayStreet, Inc., 
to Vanessa Countryman, Secretary, Commission, at 13 (``MayStreet 
Letter II'') (stating that fees based on cost are the best approach 
to achieve robust competition for consolidated market data and meet 
Regulation NMS and other standards under the Exchange Act); SIFMA 
Letter II, supra note 57, at 2.
---------------------------------------------------------------------------

    Some commenters also state that the methodology used has resulted 
in proposed fees that are unreasonably high.\59\ In making this 
argument, some commenters object to using the current prices for the 
exchanges' proprietary data products as the basis for calculating the 
proposed core data fees,\60\ stating that such a method is inconsistent 
with the MDI Rules' goal of expanding access to consolidated data \61\ 
and with statements in the MDI Rules Release that the proposed fees 
should bear a reasonable relationship to the cost of producing the 
data.\62\ One commenter states that without fair and reasonable pricing 
for the underlying content of consolidated market data, implementation 
of the MDI Rules cannot proceed, nor can improvements to price 
transparency and best execution, because the use of top-of-book 
proprietary feeds provided by exchanges--often marketed as SIP 
alternatives and widely used in place of the SIP due to both direct and 
administrative costs--deprives retail investors of a complete view of 
the NMS marketplace, which is required to fulfill the Congressional 
mandate in the 1975 amendments to the Act.\63\
---------------------------------------------------------------------------

    \59\ See MIAX Letter, supra note 57, at 3; MayStreet Letter I, 
supra note 57, at 6; BlackRock Letter, supra note 57, at 2, 4-5; IEX 
Letter, supra note 57, at 4; Proof Services Letter, supra note 57, 
at 3; MEMX Letter, supra note 57, at 8, 11-12.
    \60\ See MIAX Letter, supra note 57, at 4; SIFMA Letter I, supra 
note 57, at 4-5 (stating that the exchanges' ``platform 
competition'' argument--that competition for order flow constrains 
pricing for market data--does not demonstrate that the fees are 
reasonable and that studies the commenter has submitted to the 
Commission in the past bolster the commenter's argument); IEX 
Letter, supra note 57, at 4; SIFMA Letter II, supra note 57, at 2.
    \61\ See MIAX Letter, supra note 57, at 4.
    \62\ See id. at 3 (stating ``the [p]roposals do not provide a 
cost based justification to support that the fees are reasonable 
despite the Commission directly stating in the MDI Rule[s Release] 
that any proposed fees must be reasonably related to cost''); SIFMA 
Letter I, supra note 57, at 4, 5 (citing the statement in the MDI 
Rules Release that ``a reasonable relation to cost has . . . been 
the principal method discussed by the Commission for assessing the 
fairness and reasonableness of . . . fees for core data.''); IEX 
Letter, supra note 57, at 1, 2-3 (arguing that the methodology used 
to set fees is faulty and inconsistent with MDI Rules Release).
    \63\ See MayStreet Letter II, supra note 58, at 2-4.
---------------------------------------------------------------------------

    Some commenters also disagree with the Filing Participants' 
statements in the Proposed Amendment that a cost-based justification is 
not required because the Act does not require a showing of costs and 
that cost analysis has not been provided in past equity market data 
plan proposals.\64\ These commenters state that the Commission has 
stated that a reasonable relation to cost is a primary basis for 
justifying core data fees.\65\ One commenter states that specific 
information, including quantitative information, should be provided to 
support the Filing Participants' claims that the proposed fees are fair 
and reasonable because they will permit the recovery of SRO costs or 
will not result in excessive pricing or profits.\66\ Additionally, some 
commenters disagree with the Filing Participants' statement in the 
proposal that the Plan's Operating Committee ``has no knowledge of any 
costs associated with consolidated market data,'' stating that the 
Filing Participants know how much it costs to collect and disseminate 
market data because they already perform this function, including in 
connection with proprietary feeds.\67\
---------------------------------------------------------------------------

    \64\ See MIAX Letter, supra note 57, at 3; SIFMA Letter I, supra 
note 57, at 5.
    \65\ See IEX Letter, supra note 57, at 1, 2-3; SIFMA Letter I, 
supra note 57, at 5; MIAX Letter, supra note 57, at 3 (stating that 
the vast majority of equity market data plan fees were adopted prior 
to issuance of the Commission's staff fee guidance and that multiple 
SROs have more recently included cost based analysis when proposing 
fees for a market data product).
    \66\ See MIAX Letter, supra note 57, at 3.
    \67\ See SIFMA Letter I, supra note 57, at 5; MIAX Letter, supra 
note 57, at 3; MayStreet Letter I, supra note 57, at 6; Letter from 
Katie Adams, Chief Product Officer, Polygon.io, Inc., to Vanessa 
Countryman, Secretary, Commission, at 1-2 (Mar. 22, 2022) 
(``Polygon.io Letter II'').
---------------------------------------------------------------------------

    One commenter states that a cost-based approach is best for 
achieving robust competition for consolidated market data and reducing 
administrative plan costs.\68\ According to the commenter, pricing of 
the underlying content for the creation of consolidated market data 
should be based on the marginal cost of supporting competing 
consolidators, a cost that the commenter states is quanti[filig]able 
and [filig]xed for each participant. The commenter states that the 
lowest cost approach would be for each Participant to offer competing 
consolidators and self-aggregators a depth-of-book feed at their 
current proprietary feed prices, with added access fees and 
redistribution fees but not usage fees.\69\ The commenter states that a 
comparison of total annual revenues that the plans would receive under 
a cost-based model (using current depth-of-book proprietary feeds 
pricing as a proxy for costs of supplying proprietary feeds to a single 
entity) to total annual revenues currently received by the plans would 
serve to demonstrate that current fees for consolidated market data are 
unrelated to cost.\70\
---------------------------------------------------------------------------

    \68\ See MayStreet Letter II, supra note 58, at 10-14.
    \69\ The commenter states that depth-of-book feed pricing is an 
adequate proxy for the cost of supplying a proprietary feed to a 
single entity since it is unlikely that the Filing Participants lose 
money on supplying their proprietary depth of book feeds to 
subscribers. See id.
    \70\ See MayStreet Letter II, supra note 58, at 10-13.
---------------------------------------------------------------------------

    One Filing Participant states that a demonstration of costs is not 
required because neither the Exchange Act nor Commission rules require 
market data fees to be supported by a showing of costs.\71\ This 
commenter states that the Commission's standard for evaluating 
consolidated market data fees has not required a showing of the 
relationship between the proposed fees and the cost of producing the 
data, as illustrated by past equity market data plan proposals for 
consolidated market data fees that were not justified on the basis of 
cost.\72\ This commenter argues that it is not clear how the Plan could 
support the fee proposals based on costs, because the

[[Page 58619]]

Operating Committee plays no role in the creation or dissemination of 
core data under Rule 603(b) and thus has no information about how each 
exchange would generate core data under that rule.\73\ The commenter 
argues that it remains impossible to separate the costs of producing 
market data from other costs of operating an exchange.\74\
---------------------------------------------------------------------------

    \71\ See Letter from Hope M. Jarkowski, General Counsel, NYSE 
Group, Inc., to Vanessa Countryman, Secretary, Commission, at 3 
(Jan. 22, 2022) (``NYSE Letter'') (stating that the legislative 
history of the 1975 amendments to the Exchange Act, and particularly 
Section 11A, reflects that Congress's principal concern was 
promoting competition between exchanges, not regulating market data 
pricing, and that economic studies have demonstrated that separating 
out the costs of producing market data from the other costs of 
operating an SRO is an impossible task that would enmesh the 
Commission in a continuous ratemaking process that would produce 
arbitrary results).
    \72\ See id. at 3-4.
    \73\ See id. at 4.
    \74\ See id.
---------------------------------------------------------------------------

    Another Filing Participant also opposes the use of cost as a basis 
for setting the proposed fees.\75\ This commenter dismisses other 
commenters' suggestions that fees should be based on costs, rather than 
value, because, according to the commenter, the Commission has not 
offered guidance with respect to such a cost-based ratemaking 
system,\76\ and because any cost allocation between joint products 
would therefore be unworkable, inherently arbitrary, and inconsistent 
with the Congressional mandate that the Commission rely on competition 
whenever possible in meeting its regulatory responsibilities.\77\ The 
commenter states that the proposed fees have been tested by competition 
and that ``Commission staff have indicated that they would look at 
factors beyond the competitive environment, such as cost, only if a 
`proposal lacks persuasive evidence that the proposed fee is 
constrained by significant competitive forces.' '' \78\
---------------------------------------------------------------------------

    \75\ See Letter from Erika Moore, Vice President and Corporate 
Secretary, Nasdaq Stock Market LLC, to Vanessa Countryman, 
Secretary, Commission, at 3 (Dec. 17, 2021) (``Nasdaq Letter I''); 
Letter from Erika Moore, Vice President and Corporate Secretary, 
Nasdaq Stock Market LLC, to Vanessa Countryman, Secretary, 
Commission, at 4 (Mar. 29, 2022) (``Nasdaq Letter II'').
    \76\ See Nasdaq Letter I, supra note 75, at 3; Nasdaq Letter II, 
supra note 75, at 4.
    \77\ See Nasdaq Letter I, supra note 75, at 3; Nasdaq Letter II, 
supra note 75, at 4.
    \78\ See Nasdaq Letter I, supra note 75, at 5-6 (citing to 
``Staff Guidance on SRO Rule Filings Relating to Fees'' (May 19, 
2019)). The Staff Guidance on SRO Rule Filings Relating to Fees in 
fact states: ``If a Fee Filing proposal lacks persuasive evidence 
that the proposed fee is constrained by significant competitive 
forces, the SRO must provide a substantial basis, other than 
competitive forces, demonstrating that the fee is consistent with 
the Exchange Act. One such basis may be the production of related 
revenue and cost data, as discussed further below.'' See ``Staff 
Guidance on SRO Rule Filings Relating to Fees'' (May 19, 2019), 
available at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees. Staff documents represent the views of Commission staff and 
are not a rule, regulation, or statement of the Commission. The 
Commission has neither approved nor disapproved the content of this 
staff document and, like all staff statements, it has no legal force 
or effect, does not alter or amend applicable law, and creates no 
new or additional obligations for any person.
---------------------------------------------------------------------------

    Some commenters oppose the use of the value-based methodology used 
to determine the fees under the Proposed Amendment.\79\ One commenter 
states that comments suggesting that a cost-based approach is not 
possible or not supported by precedent should take into account that 
introducing competition to consolidated market data is also without 
precedent and that to rely on past interpretations of the Exchange Act 
with respect to what is fair and reasonable will threaten the viability 
of establishing a vibrant competing consolidator marketplace.\80\ One 
commenter states that, if the objective is to have the SIPs provide a 
service that is more affordable and accessible than the data products 
offered by individual exchanges, then the ``value to subscribers'' 
should not be sole determinant of SIP fees, because the current fees 
for exchange proprietary data products are not a reasonable gauge of 
the value of core data offered under the Plan.\81\
---------------------------------------------------------------------------

    \79\ See Proof Services Letter, supra note 57; Letter from Emil 
Framnes and Simon Emrich, Norges Bank Investment Management, to 
Vanessa Countryman, Secretary, Commission (Jan. 5, 2022) (``NBIM 
Letter''); MayStreet Letter I, supra note 57; MayStreet Letter II, 
supra note 58, at 1; SIFMA Letter II, supra note 57, at 2.
    \80\ See MayStreet Letter II, supra note 58, at 14.
    \81\ See Proof Services Letter, supra note 57, at 3.
---------------------------------------------------------------------------

    Another commenter states that basing the proposed fees on value 
instead of cost does not work because the mandate under the Exchange 
Act is to price SIP data at levels that maximize its availability.\82\ 
One commenter states that there can be no fair and reasonable fee 
structure with value-based pricing of core data because certain market 
participants are required by regulation to display consolidated data, 
which requires having core data from all exchanges.\83\ Because those 
participants will always be required to obtain this data regardless of 
the cost, this commenter argues, a value-based approach will never lead 
to fees that are fair, reasonable, and not unreasonably 
discriminatory.\84\
---------------------------------------------------------------------------

    \82\ See MayStreet Letter I, supra note 57, at 6.
    \83\ See Polygon.io Letter II, supra note 67, at 1.
    \84\ See id.
---------------------------------------------------------------------------

    One commenter states that if value-based pricing is the only 
feasible approach, value should be assessed based on the value of the 
data to competing consolidators--specifically, the ability of competing 
consolidators to compete against comparable proprietary feed 
offerings.\85\ The commenter states that a value-based approach to 
pricing the underlying content associated with consolidated top-of-book 
market data must work backwards and first consider the prices that 
competing consolidators will charge for Level 1 data and then the value 
of the underlying content to the competing consolidator.\86\
---------------------------------------------------------------------------

    \85\ See MayStreet Letter II, supra note 58, at 15-16.
    \86\ See id.
---------------------------------------------------------------------------

    Two Filing Participants argue that the proposed fees are fair and 
reasonable and not unreasonably discriminatory because they are 
reasonably related to the value that subscribers gain from the data, 
and that the proposed fees achieve the Commission's objective in 
Regulation NMS that prices for consolidated market data be set by 
market forces.\87\ One Filing Participant argues that the pricing for 
exchange proprietary data feeds--including the depth-of-book data, top-
of-book data, and auction information on which the proposed fees are 
based--is constrained by competitive forces, in that they have a 
history of being constrained by direct competition and by platform 
competition among the exchanges.\88\ This commenter states that pricing 
for exchange proprietary data feeds is constrained by the highly 
competitive markets for exchange trading and exchange market data,\89\ 
and that the proposed fees meet the Commission's objective for market 
forces to determine the overall level of fees.\90\
---------------------------------------------------------------------------

    \87\ See NYSE Letter, supra note 71, at 5; Nasdaq Letter I, 
supra note 75, at 5.
    \88\ See NYSE Letter, supra note 71, at 5.
    \89\ See id. The commenter further argues that exchanges compete 
against each other as platforms and that, as such, no exchange can 
raise its prices to supra competitive levels on one side of the 
platform, such as market data, without losing sales on the other, 
such as trading volume. The commenter argues that given this inter-
exchange platform competition, the exchanges' filed prices for 
depth-of-book data and auction information are constrained by market 
forces. See id. at 6-7.
    \90\ See id. at 5. The commenter states that by applying that 
established ratio to the current prices for consolidated top-of-book 
data, the fee proposals thus reflect the market forces that drive 
the pricing of depth-of-book information in relation to top-of book 
information and the value that the data has to market participants. 
Id. This commenter argues that the ratio between these filed 
proprietary depth-of-book fees and proprietary top-of-book data 
therefore provides the Commission with a benchmark for evaluating 
the proposed fees, which are fair, reasonable, and not unreasonably 
discriminatory because they are based on this ratio, which is 
reflective of market forces. See id. at 7.
---------------------------------------------------------------------------

    Another Filing Participant also argues that basing fees on the 
value of the underlying data is the fairest and most economically 
efficient method for setting fees, because setting fees according to 
the value of the data leads to optimal consumption: fees that are too 
low do not allow for producers to remain profitable, while fees that 
are too high lead to underutilization.\91\ The commenter states that 
NMS Plans have historically used value as a fair and

[[Page 58620]]

efficient basis for setting fees.\92\ The commenter argues that the 
best basis for determining the value of core data are the fees 
currently charged for proprietary data fees, which, according to the 
commenter, have been ``tested by market competition'' and therefore 
provide a good starting point for estimating the value of new core data 
and for setting fees at efficient levels.\93\ The commenter states that 
exchanges cannot overprice the total price of their services without 
potentially losing order flow and damaging their overall ability to 
compete.\94\ According to this commenter, exchanges that produce more 
valuable market data generally charge higher fees, and those with less 
valuable data charge lower fees,\95\ so fees vary according to the 
underlying value of the data, as measured by the liquidity available at 
the exchange.\96\
---------------------------------------------------------------------------

    \91\ See Nasdaq Letter I, supra note 75, at 2; Nasdaq Letter II, 
supra note 75, at 2.
    \92\ See Nasdaq Letter I, supra note 75, at 2; Nasdaq Letter II, 
supra note 75, at 2.
    \93\ Nasdaq Letter I, supra note 75 at 6.
    \94\ See id. at 4.
    \95\ See id.
    \96\ See id.
---------------------------------------------------------------------------

    This commenter also argues that 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 discriminatory.\97\ The commenter argues that, because 
they are tested by market competition, proprietary data fees provide a 
good and indicative starting point for estimating the value of new core 
data and setting fees at their efficient level.\98\ This, according to 
the commenter, provides a substantial basis for showing that current 
proprietary fees--and, by extension, the proposed fees for new core 
data--are equitable, fair, reasonable, and not unreasonably 
discriminatory.\99\
---------------------------------------------------------------------------

    \97\ See id. at 5-6.
    \98\ See id. at 6.
    \99\ See id.
---------------------------------------------------------------------------

    Under Section 11A of the Act and Rule 603(a) of Regulation NMS, the 
Commission must assess whether the fees for content underlying 
consolidated data are offered on terms that are ``fair and reasonable'' 
and ``not unreasonably discriminatory.'' \100\ And a threshold issue 
presented by the Proposed Amendment--and debated by many of the 
commenters, including Filing Participants, Non-Supporting Participants, 
and others--is whether the fees for consolidated data must be cost-
based or whether they may be based on the value of the data to 
subscribers.
---------------------------------------------------------------------------

    \100\ Sections 11A(c)(1)(C)-(D) of the Act, 15 U.S.C. 78k-
1(c)(1)(C)-(D); Rule 603(a) of Regulation NMS, 17 CFR 242.603.
---------------------------------------------------------------------------

    Several commenters, including Non-Supporting Participants, have 
argued that cost-based pricing must be used with respect to the fees in 
the Proposed Amendment.\101\ While the Commission has stated that a 
``reasonable relation to costs'' has been the ``principal method 
discussed by the Commission for assessing the fairness and 
reasonableness'' of fees for core data,\102\ the Commission has also 
acknowledged that ``[t]his does not preclude the Commission from 
considering in the future the appropriateness of another guideline to 
assess the fairness and reasonableness of core data fees in a manner 
consistent with the Exchange Act.'' \103\ The Commission, therefore, 
does not believe that a cost-based methodology is the only acceptable 
method for setting the fees for consolidated data under the MDI Rules.
---------------------------------------------------------------------------

    \101\ See supra notes 57-70 and accompanying text.
    \102\ MDI Rules Release, supra note 11, 86 FR at 18685 (citing 
Bloomberg Order, supra note 43, 2018 WL 3640780, at *9).
    \103\ MDI Rules Release, supra note 11, 86 FR at 18685 (citing 
Bloomberg Order, supra note 43, 2018 WL 3640780, at *9 n.63).
---------------------------------------------------------------------------

    It does not follow, however, that cost-based pricing could not be 
used here. The Proposed Amendment, supported by comments from Filing 
Participants, argues that using cost-based pricing is not required by 
statute, has not been used historically for consolidated data, and, 
further, is not possible because the Operating Committee of the Plan 
has no knowledge of any of the costs associated with consolidated 
market data.\104\ Further, a Filing Participant argues that, because 
the Commission has not offered guidance for cost-based pricing, 
allocating costs would be unworkable, arbitrary, and inconsistent with 
relying on competition when possible, and states that, according to 
Staff Guidance, cost factors are relevant only in the absence of 
persuasive evidence that prices are constrained by significant 
competition.\105\
---------------------------------------------------------------------------

    \104\ See Notice, supra note 6, 86 FR at 67519.
    \105\ See supra notes 77-78 and accompanying text.
---------------------------------------------------------------------------

    While cost-based pricing is not required by statute, a ``reasonable 
relation to costs'' is, as stated above, the principal method discussed 
by the Commission for assessing the fairness and reasonableness of fees 
for core data.\106\ Moreover, the argument that the Operating Committee 
of the Plan cannot use cost-based pricing because it has no knowledge 
of relevant costs \107\ rests on the questionable proposition that a 
group of exchanges acting jointly lacks information that each of the 
exchanges would possess individually. If cost information is 
unavailable, that is because the exchanges on the Operating Committee 
have not shared it. And while one Filing Participant argues that the 
Commission has failed to provide guidance on cost-based pricing,\108\ 
the Filing Participants have not attempted to show that the proposed 
fees are reasonably related to those costs, and they have not 
demonstrated that a cost-based approach is infeasible.
---------------------------------------------------------------------------

    \106\ See supra note 102 and accompanying text.
    \107\ See Notice, supra note 6, 86 FR at 67519.
    \108\ See Nasdaq Letter I, supra note 75, at 3.
---------------------------------------------------------------------------

    Instead, the Filing Participants have elected to file the proposed 
fees for the content underlying consolidated market data using what 
they term a ``value-based'' methodology, and in Section IV.C. below the 
Commission examines whether the fees proposed by the Filing 
Participants through the application of this methodology meet the 
requirement of being fair, reasonable, and not unreasonably 
discriminatory.\109\ As an initial matter, however, the Filing 
Participants have failed to demonstrate that value-based pricing is 
appropriate for content underlying consolidated market data offerings. 
The Filing Participants argue that the value of the data to subscribers 
is a fair and reasonable basis for setting the fees for consolidated 
data. They calculate that value by comparison to the prices of certain 
proprietary data feeds,\110\ and they argue that the prices for those 
proprietary data feeds are constrained by both direct competition and 
``platform'' competition (i.e., the theory that the exchanges compete 
as unified platforms for both order flow and data revenue).\111\
---------------------------------------------------------------------------

    \109\ See Sections 11A(c)(1)(C)-(D) of the Act; Rule 603(a) of 
Regulation NMS.
    \110\ As discussed throughout Section IV.C, infra, the 
proprietary data feeds differ in material ways from consolidated 
depth-of-book data under the MDI Rules.
    \111\ See NYSE Letter, supra note 71, at 5-7; Nasdaq Letter I, 
supra note 75, at 4-6; Nasdaq Letter II, supra note 75, at 1, 2.
---------------------------------------------------------------------------

    In authorizing the Commission to establish a national market system 
for the trading of securities, Congress found that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to ensure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities.\112\ In furtherance of 
these purposes, the Commission has sought through its rules and 
regulations to ensure that certain core data is widely available for 
reasonable fees.\113\ And as

[[Page 58621]]

the Commission has recognized, core data differ from proprietary data 
feeds in a critical way: ``[B]ecause core data must be purchased, their 
fees are less sensitive to competitive forces.'' \114\
---------------------------------------------------------------------------

    \112\ 15 U.S.C. 78k-1(a)(1)(C); see also MDI Rules Release, 
supra note 11, 86 FR at 18598.
    \113\ See MDI Rules Release, supra note 11, 86 FR at 18598; see 
also, e.g., Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37560 (June 29, 2005) (Regulation NMS Adopting 
Release) (``In the Proposing Release, the Commission emphasized that 
one of its primary goals with respect to market data is to assure 
reasonable fees that promote the wide public availability of 
consolidated market data.'').
    \114\ Securities Exchange Act Release No. 59039 (Dec. 2, 2008), 
73 FR 74770, 74782 (Dec. 9, 2008) (File No. SR-NYSEArca-2006-21); 
see also MDI Rules Release, supra note 11, 86 FR at 18685.
---------------------------------------------------------------------------

    Here, the Filing Participants propose to base prices for the data 
content underlying consolidated market data on an estimate of the value 
of the data to subscribers, and to estimate that value from the prices 
for selected proprietary market data products, which they argue are 
constrained by competitive forces. The Filing Participants, however, 
have not demonstrated that prices for core data that are based on an 
estimated value of the data to subscribers are consistent with the 
statutory standard of being fair, reasonable, and not unreasonably 
discriminatory.\115\ Additionally, as discussed in detail below, the 
proprietary market data products used by the Filing Participants to 
derive their ``value based'' pricing are not comparable to consolidated 
market data offerings pursuant to the MDI Rules.\116\ And while one 
Filing Participant argues that value-based fees are the most 
economically efficient,\117\ this argument too does not address whether 
basing prices for core data on an estimated value of the data to the 
subscribers is consistent with the statutory standard. Moreover, even 
if value-based prices were efficient, the Filing Participants have not 
established that they would not be unreasonably discriminatory.
---------------------------------------------------------------------------

    \115\ See Sections 11A(c)(1)(C)-(D) of the Act; Rule 603(a) of 
Regulation NMS.
    \116\ See infra Section IV.C.2 (discussing, among other things, 
the ways in which the data content of proprietary depth-of-book 
feeds differs from the data content underlying consolidated market 
data offerings pursuant to the MDI Rules).
    \117\ See supra note 91, and accompanying text.
---------------------------------------------------------------------------

    With respect to the specific proposed fees for various categories 
of data, in Section IV.C. below, this Order discusses how the Filing 
Participants have failed to demonstrate that those fees are fair, 
reasonable, and not unreasonably discriminatory.

C. The Plan's Proposed Fees for Data Content Underlying Consolidated 
Market Data

    As described above, the Filing Participants propose to amend the 
Plan to adopt fees for the receipt of the expanded content of 
consolidated market data pursuant to the Commission's MDI Rules.\118\ 
Specifically, the Filing Participants propose to charge separately for 
each of the three categories of consolidated equity market data that 
collectively constitute the amended definition of core data under Rule 
600(b)(21) of Regulation NMS: \119\ Level 1 Core Data (Top-of-book 
Data), Depth of Book Service, and Auction Information. In addition to 
the fees for the receipt of the three categories of data, the Filing 
Participants propose to charge subscribers certain additional fees, 
including, as applicable, Professional and Non Professional Charges, 
Non-Display Use Fees, Access Fees, and Redistribution Fees.\120\
---------------------------------------------------------------------------

    \118\ See, e.g., MDI Rules Release, supra note 11, 86 FR at 
18680; Rule 614(e) of Regulation NMS, 17 CFR 242.614(e).
    \119\ 17 CFR 242.600(b)(26).
    \120\ In the Proposed Amendments, the Filing Participants also 
propose to make certain other changes to the Plan's fee schedules in 
connection with the expanded data content. See Notice, supra note 6, 
86 FR at 67518-19. The Commission agrees that these changes are non-
substantive.
---------------------------------------------------------------------------

1. Fees for Top-of-Book Data
    As noted above, the Filing Participants propose to apply the 
current fees for Level 1 Core Data to the data content underlying 
consolidated market data in the new Level 1 Core Data offering and to 
add odd-lot information (as defined in Rule 600(b)(59)) to the data 
provided.\121\ Accordingly the Filing Participants propose to amend the 
fee schedule to provide that the new Level 1 Core Data would include 
Top of Book Quotation Information, Last Sale Price Information, odd-lot 
information, administrative data, regulatory data, and self-regulatory 
organization program data.\122\ The Filing Participants state they are 
not proposing to change the following fees for the Level 1 Core Data 
currently set forth in the CTA/CQ Plans: the Professional Subscriber 
and Nonprofessional Subscriber fees, the Non-Display Use Fees, and 
Access Fees.\123\ The Filing Participants are proposing that the 
existing Redistribution Fees \124\ would apply to all three categories 
of core data, including the new Level 1 Core Data, and any subset 
thereof. The Filing Participants are also proposing that the existing 
Redistribution Fees would apply to competing consolidators.
---------------------------------------------------------------------------

    \121\ The Filing Participants state that current Plan fees for 
Level 1 Core Data are for Top of Book Quotations and Last Sale Price 
Information, as well as administrative data (as defined in Rule 
600(b)(2)), regulatory data (as defined in Rule 600(b)(78)), and 
self-regulatory organization-specific program data (as defined in 
Rule 600(b)(85)). The Filing Participants propose that the new Level 
1 Core Data under the distributed consolidation model would continue 
to include all information that subscribers receive for current fees 
and would add odd lot information. See Notice, supra note 6, 86 FR 
at 67517.
    \122\ The Filing Participants state that the Proposed Amendments 
would use terms defined in Rule 600(b) to reflect both current data 
made available to data subscribers and the additional odd-lot 
information that would be included at no additional charge. See 
Notice, supra note 6, 86 FR at 67518.
    \123\ The Filing Participants propose that access to odd-lot 
information would be made available to Level 1 Core Data 
Professional and Nonprofessional Subscribers at no additional 
charge. See Notice, supra note 6, 86 FR at 67518.
    \124\ See infra Section IV.C.8. discussing the proposed 
Redistribution Fees with respect to the proposed Auction Data and 
all other categories of data underlying consolidated market data.
---------------------------------------------------------------------------

    Several commenters, including certain Non-Supporting Participants, 
state that the proposed fees for the new Level 1 Core Data are too 
high.\125\ Several commenters also argue that the proposed fees do not 
account for the transfer of costs from the SROs to market participants 
under the decentralized consolidation model.\126\ With respect to 
comments that the proposal should ``back out'' fees for the current 
Processors from the proposed fee structure, however, one Filing 
Participant states that the MDI Rules require the current Processors to 
continue operating for at least several more years and that, therefore, 
there are no savings to back out of any proposed fee structure at this 
time.\127\
---------------------------------------------------------------------------

    \125\ See Letter from Luc Burgun, President and CEO, NovaSparks 
S.A.S., to Vanessa Countryman, Secretary, Commission, at 1 (Dec. 17, 
2021) (``NovaSparks Letter''); IEX Letter, supra note 57; MayStreet 
Letter I, supra note 57; MEMX Letter, supra note 57, at 7; BlackRock 
Letter, supra note 57; MIAX Letter, supra note 57; MayStreet Letter 
II, supra note 58.
    \126\ See MEMX Letter, supra note 57, at 18; MIAX Letter, supra 
note 57, at 2; BlackRock Letter, supra note 57, at 2-3; Letter from 
Quinton Pike, CEO, Polygon.io, Inc., to Vanessa Countryman, 
Secretary, Commission, at 1 (Nov. 30, 2021) (``Polygon.io Letter 
I''); MayStreet Letter II, supra note 58, at 1-2, 4-5.
    \127\ See NYSE Letter, supra note 71, at 7.
---------------------------------------------------------------------------

    One commenter states that the Proposed Amendment conflates the 
prices that competing consolidators and self-aggregators pay the SROs 
for the underlying NMS information with the prices that competing 
consolidators would charge for the consolidated data they 
generate.\128\ This commenter states that the proposals do not make 
clear that the proposed fees are for the content underlying the 
consolidated market data, as opposed to the consolidated market data 
itself.\129\ The commenter argues that the Filing Participants confuse 
the content of consolidated market data with the

[[Page 58622]]

consolidated market data itself,\130\ and states that the Proposed 
Amendment sets prices at levels that the SIPs currently charge for 
consolidated market data.\131\
---------------------------------------------------------------------------

    \128\ See MayStreet Letter I, supra note 57, at 2.
    \129\ See id. at 2.
    \130\ See id. at 3.
    \131\ See id. at 6.
---------------------------------------------------------------------------

    One commenter states that the proposed fees for top-of-book data 
should be substantially lower to allow competing consolidators to 
operate their business.\132\ This commenter states that the proposed 
fees should be lower in the new decentralized model because exchanges 
will no longer have to pay for the current processors and will not have 
the burden of maintaining custom feeds in specific formats.\133\ 
Another commenter opposes the proposal and asks the Commission to 
disapprove it because it represents an overall increase in costs, 
including access fees, to end users as well as competing consolidators, 
thereby making market data less accessible and putting competing 
consolidators at a disadvantage.\134\ One commenter states that any 
value-based approach must acknowledge that competing consolidators will 
be competing against exchange-provided top-of-book feeds that are 
marketed as SIP alternatives.\135\ The commenter states that fees for 
competing consolidators would need to be a fraction of the amounts 
currently charged to allow for a sustainable pro[filig]t margin for 
competing consolidators.\136\
---------------------------------------------------------------------------

    \132\ See NovaSparks Letter, supra note 125, at 1.
    \133\ See id.
    \134\ See Letter from Jonathan Hill, CEO, Anand Prakash, CTO, 
Nader Sharabati, CFO, and Doug Patterson, CCO, Cutler Group, LP, to 
Vanessa Countryman, Secretary, Commission, at 1-2 (Dec. 16, 2021) 
(``Cutler Group Letter'').
    \135\ See MayStreet Letter II, supra note 58, at 15.
    \136\ See id. at 16-17.
---------------------------------------------------------------------------

    One commenter supports certain aspects of the proposal, including 
its a la carte fee structure and the inclusion of odd-lot quotations 
free of charge.\137\ Moreover, some commenters, including a Non-
Supporting Participant, express support for the proposed inclusion of 
odd-lot information free of charge in the expanded Level 1 Core 
Data,\138\ with one commenter stating that this would result in top-of-
book information that is more comprehensive, which should, in turn, 
strengthen best execution and enhance transparency and price 
discovery.\139\
---------------------------------------------------------------------------

    \137\ See BlackRock Letter, supra note 57, at 1, 3.
    \138\ See MIAX Letter, supra note 57, at 2; BlackRock Letter, 
supra note 57, at 1, 3; MayStreet Letter I, supra note 57, at 2, 3, 
6; Polygon.io Letter II, supra note 67, at 2.
    \139\ See BlackRock Letter, supra note 57, at 1, 3.
---------------------------------------------------------------------------

    The Commission finds that the Filing Participants have not 
demonstrated that the proposed fees for Level 1 core data are fair, 
reasonable, and not unreasonably discriminatory. Including in the new 
Level 1 Service the odd-lot quotation data that would be of the most 
interest to investors and other market participants--namely, odd-lot 
quotations that offer pricing at or superior to the NBBO--will help 
investors and other market participants to trade in a more informed and 
effective manner and to achieve better executions and reduce the 
information asymmetries that currently exist between subscribers to SIP 
data and subscribers to proprietary data,\140\ consistent with the 
objectives of the MDI Rules. But the Filing Participants have not 
demonstrated how their approach for pricing the new Level 1 Core Data 
(which consists of data content underlying consolidated market data for 
several elements of core data under the decentralized consolidator 
model \141\) based on fees for the current Level 1 Core Data (which 
consists solely of already consolidated data content \142\) can be 
reconciled with the new Level 1 Core Data the Filing Participants are 
purporting to price.
---------------------------------------------------------------------------

    \140\ See MDI Rules Release, supra note 11, 86 FR at 18612.
    \141\ The Filing Participants propose that Level 1 Core Data 
would include Top of Book Quotation Information, Last Sale Price 
Information, odd-lot information, administrative data, regulatory 
data, and self-regulatory organization program data. See Notice, 
supra note 6, 86 FR at 67517.
    \142\ For each NMS stock, the Equity Data Plans currently 
provide for the dissemination of top-of- book data and transaction 
information, generally defining consolidated market information (or 
```core data''') as consisting of: (1) the price, size, and exchange 
of the last sale; (2) each exchange's current highest bid and lowest 
offer and the shares available at those prices; and (3) the national 
best bid and national best offer (``NBBO'') (i.e., the highest bid 
and lowest offer currently available on any exchange). In addition 
to disseminating core data, the exclusive SIPs collect, calculate, 
and disseminate certain regulatory data--including information 
required by the National Market System Plan to Address Extraordinary 
Market Volatility (``LULD Plan''), information relating to 
regulatory halts and market-wide circuit breakers, and information 
regarding the short-sale price test pursuant to Rule 201 of 
Regulation SHO. They also collect and disseminate other NMS 
information and disseminate certain administrative messages. 
Together with core data, the Commission refers to this broader set 
of data for purposes of this release as ``SIP data.'' See MDI Rules 
Release, supra note 11, 86 FR at 18599.
---------------------------------------------------------------------------

    The fees proposed by the Filing Participants are for a product 
independent from, and differing in content and function from, the 
current Level 1 Core Data under the Plan. Unlike the current Level 1 
Core Data, the new Level 1 Core Data would include, in addition to top-
of-book information, expanded data elements that form part of the 
definition of ``core data,'' such as information about better priced 
quotations in higher-priced stocks (implemented through a new 
definition of ``round lot'' and the inclusion of certain odd-lot 
information). In addition, and unlike the current Level 1 Core Data, 
the data content underlying consolidated data for the new Level 1 Core 
Data would not be collected, consolidated, or disseminated by the 
exclusive SIP for the Plan, but instead by competing consolidators and 
self-aggregators. And unlike current Level 1 Core Data, which bundles 
several consolidated data elements into one product, the core data 
elements contained in the new Level 1 Core Data could have been, in a 
manner not inconsistent with the MDI Rules, unbundled and offered as 
separate data underlying consolidated data offerings by the Filing 
Participants. Moreover, the proposed enhanced data content underlying 
consolidated data for the new Level 1 Core Data would not be 
implemented upon approval of the Proposed Amendments, nor would it be 
implemented under the current centralized model, but rather would be 
implemented in accordance with the phased implementation of the new 
decentralized consolidation model, as required by the Commission.\143\ 
The Filing Participants do not analyze or otherwise justify the 
proposed fees for the new Level 1 Core Data in a manner that is 
consistent with these facts.
---------------------------------------------------------------------------

    \143\ See MDI Rules Release, supra note 11, 86 FR at 18698-701.
---------------------------------------------------------------------------

    In addition, the Filing Participants have not demonstrated how, if 
at all, the proposed fees have taken into account the transfer of costs 
for collection, consolidation, and dissemination of data content 
underlying consolidated market data in the new Level 1 Core Data to 
other market participants under the decentralized consolidation model. 
Similarly, the Filing Participants do not justify or otherwise explain 
how the proposed fees have been adjusted so as to exclude other 
operating costs or profits of the exclusive SIPs, as some commenters, 
including a Non-Supporting Participant, point out.\144\ Though one 
Filing Participant argues that, because the MDI Rules require the 
current Processors to continue operating for at least several more 
years, there are no savings to back out of any proposed fee structure 
at this time,\145\ this argument presents a false choice. This 
commenter ignores that the Plan could retain one price for the existing 
Level 1 Core Data, for as long as the current Processors continue to 
operate, and

[[Page 58623]]

propose new fees that would apply only to the data content underlying 
consolidated data in the new Level 1 Core Data under the decentralized 
model.
---------------------------------------------------------------------------

    \144\ See BlackRock Letter, supra note 57, at 2, 3-4; MayStreet 
Letter II, supra note 58, at 8-9; NovaSparks Letter, supra note 125, 
at 1; MEMX Letter, supra note 57, at 15-17.
    \145\ See NYSE Letter, supra note 71, at 7.
---------------------------------------------------------------------------

    The Filing Participants have not demonstrated that the proposed 
fees for the new Level 1 Core Data are fair, reasonable, and not 
unreasonably discriminatory consistent with Rule 603(a) of Regulation 
NMS. Thus, the Commission cannot find that, consistent with Rule 608 of 
Regulation NMS, the Proposed Amendment is necessary or appropriate in 
the public interest, for the protection of investors and the 
maintenance of fair and orderly markets, to remove impediments to, and 
perfect the mechanisms of, a national market system, or otherwise in 
furtherance of the purposes of the Act.\146\
---------------------------------------------------------------------------

    \146\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

2. Fees for Depth-of-Book Data
    The Filing Participants propose to set fees for depth-of-book data, 
as that term is defined in Rule 600(b)(26) of Regulation NMS.\147\ With 
respect to depth-of-book data, the Filing Participants propose that 
Professional Subscribers would pay $99.00 per device per month for each 
Network's data, and that Nonprofessional Subscribers would pay $4.00 
per subscriber per month for each Network's depth of book data.\148\ 
The Filing Participants are also proposing a monthly charge for Non-
Display Use of depth-of-book data of $12,477 for each of three types of 
Non-Display Use,\149\ as well as an Access Fee of $9,850.00 per 
month.\150\ The Filing Participants further propose to add language to 
the Plan's fee schedule in connection with the expanded content, 
including: (1) that the existing Redistribution Fees \151\ would apply 
to all three categories of core data, including Depth-of-Book Data, and 
any subset thereof, and (2) that the existing Redistribution Fees would 
apply to competing consolidators.
---------------------------------------------------------------------------

    \147\ See 17 CFR 242.600(b)(26) (``Depth of book data means all 
quotation sizes at each national securities exchange and on a 
facility of a national securities association at each of the next 
five prices at which there is a bid that is lower than the national 
best bid and offer that is higher than the national best offer. For 
these five prices, the aggregate size available at each price, if 
any, at each national securities exchange and national securities 
association shall be attributed to such exchange or association.'').
    \148\ The Filing Participants state they applied the 3.94x ratio 
described in the Proposed Amendments to the current fees charged to 
Professional Subscribers taking all three Networks ($75.00). This 
resulted in the total fee level for depth of book data for 
Professional Subscribers equaling $296.00 (i.e., $75.00 x 3.94 = 
$295.50, rounded to $296.00). This fee was then split evenly among 
the three Networks, resulting in a proposed Professional Subscriber 
fee of $99.00 per Network. The Filing Participants applied the 3.94x 
ratio to the current fees charged for Nonprofessional Subscribers 
taking all three Networks ($3.00). This resulted in the total fee 
level for depth of book data for Nonprofessional Subscribers 
equaling $12.00 (i.e., $3.00 x 3.94 = $11.82, rounded to $12.00). 
This fee was then split evenly among the three Networks, resulting 
in a proposed Nonprofessional Subscriber fee of $4.00 per Network. 
See Notice, supra note 6, 86 FR at 67520.
    \149\ See supra note 32 (describing the three types of Non-
Display Use recognized under Exhibit E to the CTA Plan). The Filing 
Participants applied the 3.94x ratio described in the Proposed 
Amendments to the current fees charged for Non-Display Use for all 
three Networks ($9,500.00). This resulted in the total fee level for 
depth-of-book data for Non-Display Use equaling $37,430.00 (i.e., 
$9,500.00 x 3.94 = $37,430.00). This fee was then split evenly among 
the three Networks, resulting in a proposed Non-Display Use Fee of 
$12,477.00 per Network (including rounding). See Notice, supra note 
6, 86 FR at 67520.
    \150\ The Filing Participants applied the 3.94x ratio described 
in the Proposed Amendments to the current fees charged for direct 
Data Access for all three Networks ($7,500.00). This resulted in the 
total fee level for depth of book data for Data Access Fees equaling 
$29,550.00 (i.e., $7,500.00 x 3.94 = $29,550.00). This fee was then 
split evenly among the three Networks, resulting in a proposed Data 
Access Fees of $9,850.00 per Network. See Exhibit A to the Notice, 
supra note 6, 86 FR at 67521.
    \151\ See infra Section IV.C.7. discussing the proposed 
Redistribution Fees with respect to the proposed Auction Data and 
all other categories of data underlying consolidated market data.
---------------------------------------------------------------------------

    While one commenter supports the methodology selected by the Filing 
Participants, arguing that pricing for proprietary data feeds is a 
reasonable gauge of value because those fees are constrained by 
competition,\152\ another commenter disagrees with that view,\153\ and 
several commenters, including Non-Supporting Participants, have 
expressed concern about the use of prices for exchange proprietary data 
products as the basis for setting the proposed fees on several 
grounds.\154\ Commenters state that the method used presupposes that 
fees for proprietary data products are fair and reasonable and not 
unreasonably discriminatory,\155\ and they state that Filing 
Participants have not shown that pricing for proprietary data feeds are 
a reasonable gauge of value or that proprietary data feeds are 
appropriate proxies for data content underlying consolidated market 
data \156\
---------------------------------------------------------------------------

    \152\ See Nasdaq Letter I, supra note 75, at 2.
    \153\ See SIFMA Letter I, supra note 57, at 6.
    \154\ See MIAX Letter, supra note 57, at 4; SIFMA Letter I, 
supra note 57, at 4, 5; IEX Letter, supra note 57, at 4; SIFMA 
Letter II, supra note 57, at 2; NBIM Letter, supra note 79, at 1-2.
    \155\ See SIFMA Letter I, supra note 57, at 5.
    \156\ See IEX Letter, supra note 57, at 3-4; MEMX Letter, supra 
note 57, at 11-12; BlackRock Letter, supra note 57, at 4-5; Letter 
from Marcia E. Asquith, Executive Vice President, Board and External 
Relations, Financial Industry Regulatory Authority, Inc., to Vanessa 
Countryman, Secretary, Commission, at 6 (Dec. 17, 2021) (``FINRA 
Letter''); MayStreet Letter II, supra note 58, at 17; Proof Services 
Letter, supra note 57, at 3.
---------------------------------------------------------------------------

    Some commenters, including Non-Supporting Participants, argue that 
the calculation used by the Filing Participants to determine the 
proposed depth-of-book fees is flawed and inconsistent with the MDI 
Rules Release because the proprietary data feeds used by the Filing 
Participants were inappropriate references for the calculation.\157\ 
These commenters point out that while the proprietary market data 
depth-of-book feeds used to calculate fees for the depth-of-book 
information include top-of-book data as part of those offerings, the 
depth-of-book data product under the Proposed Amendment does not 
include top-of-book data.\158\ Consequently, some of these commenters 
argue, subscribers to the new core data would need to pay an additional 
fee to receive top-of-book data at current rates to obtain the same 
data content that is available today through proprietary feeds.\159\
---------------------------------------------------------------------------

    \157\ See IEX Letter, supra note 57, at 3-4; MEMX Letter, supra 
note 57, at 11-12; BlackRock Letter, supra note 57, at 4-5; FINRA 
Letter, supra note 156, at 6; MayStreet Letter II, supra note 58, at 
17.
    \158\ See IEX Letter, supra note 57, at 3-4; MEMX Letter, supra 
note 57, at 11-12; BlackRock Letter, supra note 57, at 4-5; FINRA 
Letter, supra note 156, at 6; MayStreet Letter II, supra note 58, at 
17.
    \159\ See IEX Letter, supra note 57, at 4; MEMX Letter, supra 
note 57, at 6, 11-12; BlackRock Letter, supra note 57, at 4-5.
---------------------------------------------------------------------------

    Some commenters, including Non-Supporting Participants, state that 
an additional problem with the proposed approach is that the 
proprietary depth-of-book products used in the calculation are 
primarily structured as comprehensive order-by-order feeds, which do 
not aggregate orders at each price level.\160\ According to these 
commenters, the depth-of-book elements prescribed by the MDI Rules 
warrant a lower price because they would contain only the aggregated 
quotes available at the next five price levels away from the NBBO and 
would thus include less content than the proprietary feeds.\161\ One 
commenter states that complete, disaggregated order-by-order depth-of-
book feeds, such as those used in the calculation, are likely to be 
associated with ``additional operational costs because of increased 
message traffic with order by order data at all price levels.'' \162\ 
Accordingly, the commenter argues that an aggregated feed with only 
five levels of depth should have been priced at a discount relative to 
the corresponding

[[Page 58624]]

exchange offerings to compensate for differences in both information 
content and costs.\163\
---------------------------------------------------------------------------

    \160\ See IEX Letter, supra note 57, at 4; MEMX Letter, supra 
note 57, at 11-12; BlackRock Letter, supra note 57, at 4-5; FINRA 
Letter, supra note 156, at 6.
    \161\ See IEX Letter, supra note 57, at 4; MEMX Letter, supra 
note 57, at 11-12; BlackRock Letter, supra note 57, at 4-5.
    \162\ See BlackRock Letter, supra note 57, at 4-5.
    \163\ See BlackRock Letter, supra note 57, at 4-5. See also IEX 
Letter, supra note 57, at 4; MEMX Letter, supra note 57, at 11-12.
---------------------------------------------------------------------------

    A Non-Supporting Participant argues that the proposal fails to 
consider pricing for other proprietary depth-of-book feeds that are 
aggregated by price level and would therefore serve as a more logical 
proxy for setting core data fees.\164\ Another commenter states that 
while the Proposed Amendment compared the aggregated depth-of-book data 
set with order-by-order data, the more appropriate comparison would be 
with Cboe One Premium, which offers top-of-book, last sale, and 
[filig]ve levels of depth.\165\ This commenter states that the proposed 
user fees for underlying market data content are not in line either 
with Cboe One Premium on its own or with a scaled charge based on 
Cboe's market share, even though the Cboe charges are for a product 
sold to end users, whereas the proposed Plan fees are only for 
underlying content.\166\ One Non-Supporting Participant states that the 
proposal fails to acknowledge or account for the fact that the proposed 
methodology relies on this commenter's equity market data fees as one 
of the comparison points, notwithstanding that, unlike the other 
exchanges' market data prices, the commenter's proprietary data fees do 
not include individual per user fees but apply only on a per firm basis 
for firms subscribing to ``real time data.'' \167\
---------------------------------------------------------------------------

    \164\ See IEX Letter, supra note 57, at 4.
    \165\ See MayStreet Letter II, supra note 58, at 17.
    \166\ See id. at 18.
    \167\ See IEX Letter, supra note 57, at 4. The commenter also 
points out that its proprietary market data fees do not vary 
depending on the type of use made by those firms, do not apply to 
data that is redistributed with a delay of as little as 15 
milliseconds (whereas other exchanges typically require a 15-minute 
delay to avoid charges for real-time data), and were determined and 
justified based on costs. The commenter further states that, to the 
extent the commenter's fees are relevant at all, a more consistent 
approach would have been to reflect the commenter's fees as zero, 
since the commenter does not charge any fees on an individual per 
user basis for either of its two proprietary market data products. 
According to the commenter, the latter approach would substantially 
reduce the average ratio and multiplier, and thus substantially 
reduce the fees proposed to be charged for core data. See id.
---------------------------------------------------------------------------

    Some commenters, including Non-Supporting Participants, question 
the determination of the ratio (or multiplier) used by the Filing 
Participants to set the depth-of-book feeds.\168\ Several commenters 
state that the ratio used by the Filing Participants to determine the 
fees for accessing depth-of-book data is too high.\169\ One commenter 
states that fees for depth-of-book information ``should be adjusted to 
use a multiplier of 2.94x to eliminate the overcharging from double 
counting top-of-book data''; otherwise, those who subscribe to both the 
new Level 1 Core Data and depth-of-book data offering ``would be paying 
twice for top of book content.'' \170\ Another commenter states that 
the Filing Participants have created a completely unreasonable standard 
to justify the proposed fees and that the ratio used to calculate the 
proposed fees, ``is completely arbitrary and in no way shows that the 
proposed fees are fair, reasonable, and not unreasonably discriminatory 
as required under the Exchange Act.'' \171\
---------------------------------------------------------------------------

    \168\ See IEX Letter, supra note 57; MEMX Letter, supra note 57; 
MIAX Letter, supra note __; BlackRock Letter, supra note 57; FINRA 
Letter, supra note 156; Letter from James Angel, Ph.D., CFP, CFA, 
Associate Professor of Finance, Georgetown University, to Vanessa 
Countryman, Secretary, Commission, at 9-10 (Dec. 21, 2021) (``Angel 
Letter''); NovaSparks Letter, supra note 125; SIFMA Letter I, supra 
note 57; SIFMA Letter II, supra note 57.
    \169\ See NovaSparks Letter, supra note 125, at 1; BlackRock 
Letter, supra note 57, at 4-5; FINRA Letter, supra note 156, at 5-6; 
MayStreet Letter II, supra note 58, at 3, 19.
    \170\ BlackRock Letter, supra note 57, at 4-5. See also IEX 
Letter, supra note 57, at 4; MEMX Letter, supra note 57, at 6, 11-
12.
    \171\ SIFMA Letter II, supra note 57, at 5.
---------------------------------------------------------------------------

    Several commenters state that, while the Filing Participants sought 
to demonstrate that the proposed fees were related to the value of the 
data, the method employed by the Filing Participants does not align the 
proposed fees for the new depth-of-book data to the value of that data 
to subscribers.\172\ One Non-Supporting Participant states that 
calculating the proposed fee levels based on prices charged by the 
exchanges for their existing market data product is not the right 
starting point for setting the proposed fees and is inconsistent with 
the MDI Rules' goal of expanding access to consolidated data.\173\
---------------------------------------------------------------------------

    \172\ See BlackRock Letter, supra note 57, at 4. See also IEX 
Letter, supra note 57, at 4; MEMX Letter, supra note 57, at 6, 11-
12; BlackRock Letter, supra note 57, at 4-5.
    \173\ See MIAX Letter, supra note 57, at 4.
---------------------------------------------------------------------------

    Two Filing Participants state that the proposed fees are fair and 
reasonable and not unreasonably discriminatory because they are 
reasonably related to the value that subscribers gain from the data and 
because they achieve the Commission's objective in Regulation NMS that 
prices for consolidated market data be set by market forces.\174\ One 
Filing Participant argues that the pricing for exchange proprietary 
data feeds--including the depth-of-book data, top-of-book data, and 
auction information on which the proposed fees are based--is 
constrained by competitive forces, in that they have a history of being 
constrained by direct competition and by platform competition among the 
exchanges.\175\ This commenter argues that, because they are tested by 
market competition, proprietary data fees provide a good and indicative 
starting point for estimating the value of new core data and for 
setting fees at their efficient level.\176\ This, according to the 
commenter, provides a substantial basis for showing that current 
proprietary fees--and, by extension, the proposed fees for new core 
data--are equitable, fair, reasonable, and not unreasonably 
discriminatory.\177\
---------------------------------------------------------------------------

    \174\ See NYSE Letter, supra note 71, at 5; Nasdaq Letter I, 
supra note 75, at 5.
    \175\ See NYSE Letter, supra note 71, at 5.
    \176\ See id. at 6.
    \177\ See id.
---------------------------------------------------------------------------

    The Filing Participants' methodology to justify the proposed fees 
is flawed, and the Commission concludes that, as a result, the Filing 
Participants have failed to demonstrate that the proposed fees are 
fair, reasonable, and not unreasonably discriminatory. The Filing 
Participants have chosen to justify the proposed fees by multiplying 
the existing fees for SIP data (which is top-of-book data) by a number 
derived from the ratio of the fees of several exchanges' proprietary 
depth-of-book feeds to the fees for the exchanges' proprietary top-of-
book feeds. As a number of commenters, including Non-Supporting 
Participants, point out,\178\ however, the proprietary depth-of-book 
products used as part of this methodology are materially different 
products from the new data content underlying consolidated data 
offerings, making the proprietary products an inappropriate simple 
benchmark for pricing. Unlike the new data content underlying 
consolidated data offerings, the proprietary depth-of-book data 
products typically include: (1) top-of-book data, for which the Filing 
Participants propose to charge separately; (2) auction data, for which 
the Filing Participants also propose to charge separately; (3) 
comprehensive order-by-order depth information, rather than just 
aggregated orders at each price level; \179\ and (4) full depth 
information at all price levels, rather than just the five price levels 
outside the NBBO as prescribed under the MDI Rules. Notably, the 
Commission considered but declined to expand the definition of depth-
of-book data to include complete,

[[Page 58625]]

order-by-order depth of book information at all price levels, noting 
that the objectives of providing useful additional information to a 
broad cross-section of market participants and reducing informational 
asymmetries between users of proprietary data and SIP data must be 
balanced against the risk of, among other things, ``additional 
operational costs and latency because of increased message traffic with 
order by order data at all price levels.'' \180\
---------------------------------------------------------------------------

    \178\ See IEX Letter, supra note 57, at 3-4; MEMX Letter, supra 
note 57, at 11-12; BlackRock Letter, supra note 57, at 4-5; FINRA 
Letter, supra note 156, at 6; MayStreet Letter II, supra note 58, at 
17.
    \179\ See supra notes 160-163 and accompanying text.
    \180\ See MDI Rules Release, supra note 11, 86 FR at 18627.
---------------------------------------------------------------------------

    While the Filing Participants have described the methodology used 
to set the proposed fees and have made certain arguments about their 
consistency with statutory standards for assessing fees for NMS Plans, 
they have not adequately explained: (1) how setting the proposed fees 
based on the ratio of fees for depth-of-book and top-of-book 
proprietary data is an appropriate method for setting the proposed 
fees; (2) how the ratio used in the calculation adequately represents 
the difference in value between top-of-book data and the five levels of 
additional depth that would be required under the MDI Rules; (3) how 
calculating the ratio based on proprietary depth-of-book data products 
that include content that would not be part of the consolidated depth-
of-book product prescribed under the MDI Rules did not result in a 
ratio that is excessively high; or (4) how the fees generated by 
applying that ratio to the fees for current consolidated market data 
resulted in proposed depth-of-book fees that are fair, reasonable, and 
not unreasonably discriminatory. And while the Filing Participants 
state that alternative methodologies resulted in ratios greater than 
3.94x and were thus not selected by the Filing Participants, the Filing 
Participants do not specify which other data feeds were considered in 
those methodologies or how feeds other than those considered--such as a 
proprietary feed with aggregated, rather than the more comprehensive 
order-by-order depth-of-book information--might have served as better 
proxies for the data content required under the MDI Rules.
    Several commenters, including Non-Supporting Participants, state 
that the proposed fees, including the proposed fees for depth-of-book 
data, are too high.\181\ One commenter states that retail investors 
should get free or very-low-cost depth-of-book data because it is in 
the best interest of retail investors, the industry, and the 
Commission.\182\ This commenter states that displaying depth-of-book 
data can give investors a better understanding of how prices are 
formed.\183\ The commenter states that the ability for an investor to 
see buying and selling interest at various price levels makes it easier 
for the investor to understand what determines the price of a 
particular security by seeing the interaction of market and limit 
orders.\184\ The commenter argues that making depth-of-book data 
``cheap'' would allow brokers to give the data to retail clients for no 
or low cost and that this, in turn, would increase retail participation 
in the securities markets because investors will not only understand 
markets better, but they will participate more in the markets.\185\ 
According to this commenter, if depth-of-book data is expensive, it 
will not help most retail investors because they will not be able to 
afford to see it.\186\ One commenter states that depth-of-book data 
should be priced higher than top-of-book data, but adds that charges 
for depth-of-book data from the Plans should be much lower than charges 
for consuming the market data directly from the exchanges, because the 
information provided under the Plan would still be a subset of what is 
provided by the proprietary data feeds.\187\
---------------------------------------------------------------------------

    \181\ See FINRA Letter, supra note 156, at 5-7; BlackRock 
Letter, supra note 57, at 1-5; MIAX Letter, supra note 57, at 2; 
Angel Letter, supra note 168, at 9; NovaSparks Letter, supra note 
125, at 1; BMO Letter, supra note 57, at 2-3; IEX Letter, supra note 
57, at 1, 5; SIFMA Letter I, supra note 57, at 1, 4-5; IEX Letter, 
supra note 57, at 4; MEMX Letter, supra note 57, at 11-12. See also 
MayStreet Letter II, supra note 58, at 18.
    \182\ See Angel Letter, supra note 168, at 3.
    \183\ See id. at 7.
    \184\ See id.
    \185\ See id. at 8.
    \186\ See id.
    \187\ See NovaSparks Letter, supra note 125, at 1.
---------------------------------------------------------------------------

    One commenter opposes the proposed depth-of book data fees, because 
they, as well as the other proposed fees, represent an overall increase 
in costs to end users, making market data less accessible, contrary to 
``the core precept of the'' MDI Rules.\188\ Another commenter states 
that the value of the depth-of-book data should focus on greater access 
and availability of this kind of data, and that the Operating Committee 
should thus consider what price point would increase availability of 
depth-of-book information, rather than charging a multiple of 
proprietary data feeds.\189\ One commenter expresses support for the 
proposed and ``moderately priced'' non-professional rate for depth-of-
book information, because, in the commenter's view, this aspect of the 
proposal ``levels the playing field'' for retail investors by providing 
them with access to the same information that is available to 
professionals traders at an affordable price, which will help broaden 
adoption of this new category of data.\190\ One commenter states that 
it is concerning that the Proposed Amendment, without explanation, 
precludes the redistribution of delayed depth-of-book data, adding that 
it sees no reason for prohibiting the redistribution of depth-of-book 
data on a delayed basis and that it does not object to offering 
snapshot pricing.\191\
---------------------------------------------------------------------------

    \188\ See Cutler Group Letter, supra note 134, at 1. This 
commenter further states that the level of the proposed fees would 
make it difficult for competing consolidators to offer products at 
prices competitive to those of proprietary feeds thereby placing 
competing consolidators at a disadvantage. See id.
    \189\ See MayStreet Letter I, supra note 57, at 7.
    \190\ See BlackRock Letter, supra note 57, at 3, 5.
    \191\ See MayStreet Letter II, supra note 58, at 3, 19.
---------------------------------------------------------------------------

    The Commission acknowledges the concerns raised by some commenters 
that the proposed fees for depth-of-book data are too high and thus do 
not serve the goals of Section 11A of the Exchange Act or help to 
ensure broad availability to brokers, dealers, and investors of 
information with respect to quotations for and transactions in NMS 
stocks that is prompt, accurate, reliable, and fair. Here, however, as 
discussed above, the Commission has concluded that the Filing 
Participants have not demonstrated that the proposed fees for depth-of-
book data are fair, reasonable, and not unreasonably discriminatory. 
Because the Filing Participants have not justified either the proposed 
fees or the methodology behind them, the Commission does not have a 
basis to make a finding in this Order as to what fair, reasonable, and 
not unreasonably discriminatory level of fees would be.
    The Filing Participants have not demonstrated that the proposed 
fees for the content underlying consolidated depth-of-book data provide 
for the distribution of information with respect to quotations for and 
transactions in NMS stocks on terms that are fair, reasonable, and not 
unreasonably discriminatory consistent with Rule 603(a) of Regulation 
NMS. Thus, the Commission cannot find that, consistent with Rule 608 of 
Regulation NMS, the Proposed Amendment is necessary or appropriate in 
the public interest, for the protection of investors and the 
maintenance of fair and orderly markets, to remove impediments to, and 
perfect the mechanisms of, a national market system, or otherwise in 
furtherance of the purposes of the Act.\192\
---------------------------------------------------------------------------

    \192\ See 17 CFR 242.608(b)(2).

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

[[Page 58626]]

3. Fees for Auction Data
    The Filing Participants have proposed fees for Auction information 
(as defined in Rule 600(b)(5)).\193\ The Filing Participants propose 
that, with respect to auction information, both Professional 
Subscribers and Nonprofessional Subscribers would pay $10.00 per 
device/subscriber per month for each Network's auction 
information.\194\
---------------------------------------------------------------------------

    \193\ The Filing Participants state that they propose to price 
subsets of data that constitute core data separately so that data 
subscribers have flexibility in how much consolidated market data 
content they wish to purchase. For example, the Filing Participants 
state that they understand that certain data subscribers may not 
wish to add depth-of-book data or auction information, or may want 
to add only depth-of-book information, but not auction information. 
Accordingly, the Filing Participants are proposing to price subsets 
of data to provide flexibility to data subscribers. However, the 
Filing Participants state that they expect that competing 
consolidators would purchase all core data. See Notice, supra note 
6, 86 FR at 67517 n.10.
    \194\ See id. at 67518.
---------------------------------------------------------------------------

    The Filing Participants state that, with respect to the fees for 
auction information, the Filing Participants looked to the number of 
trades that occur during the auction process as compared to the trading 
day and determined that roughly 10% of daily trading volume is 
concentrated in auctions.\195\ The Filing Participants state that, 
consequently, a fee that is 10% of the fee charged for depth-of-book 
data is an appropriate proxy for determining the value of auction 
information. As a result, the Filing Participants have proposed a 
$10.00 fee per Network for auction information, which the Filing 
Participants state is fair and reasonable and not unreasonably 
discriminatory.\196\
---------------------------------------------------------------------------

    \195\ See id. at 67520.
    \196\ See id.
---------------------------------------------------------------------------

    Three commenters, including a Non-Supporting Participant, state 
that information about auction order imbalances is included with the 
proprietary depth-of-book data products that the Filing Participants 
used to calculate the consolidated depth-of-book fees. Therefore, these 
commenters argue, the proposed consolidated depth-of-book fees already 
incorporate the fees for auction imbalance data, and the proposed 
auction information fees would result in double charging consumers who 
purchase both auction information and depth-of-book products from 
competing consolidators.\197\ One commenter states that proprietary 
depth-of-book product pricing is also inappropriately used to derive 
the value of auction data, because auction information is more closely 
aligned with top-of-book content, which provides only high-level 
information about aggregate order imbalances and does not include the 
order-by-order details or the data about multiple price levels that 
proprietary depth-of-book feeds include.\198\ One commenter states 
that, while the pricing rationale in the proposal uses the ratio of 
auction volume to total trading volume to price the auction information 
feed, the Filing Participants incorrectly apply this ratio to the fees 
for the depth-of-book feed, which conveys information about displayed 
liquidity, not trading activity. According to this commenter, (1) it 
would have been more congruent with the Filing Participants' 
proposition to use Level 1 core data as the basis for pricing auction 
content as this feed is more closely associated with trade volume, and 
(2) the fees for auction information should be set to 10% of Level 1 
core data prices.\199\
---------------------------------------------------------------------------

    \197\ See BlackRock Letter, supra note 57, at 4-5; MEMX Letter, 
supra note 57, at 11-13; FINRA Letter, supra note 156, at 6.
    \198\ See BlackRock Letter, supra note 57, at 5.
    \199\ See id.
---------------------------------------------------------------------------

    One commenter states that the best proxy for the value of auction 
data is the NYSE Order Imbalance feed, given that NYSE has the biggest 
auction market share.\200\ The commenter recommends eliminating auction 
usage fees from the proposal because the most valuable auction data 
available today does not have such usage charges.\201\ The commenter 
also states that it sees no reason for prohibiting the redistribution 
of auction data on a historical basis.\202\
---------------------------------------------------------------------------

    \200\ See MayStreet Letter II, supra note 58, at 19.
    \201\ See id. at 4, 19.
    \202\ See id. at 19.
---------------------------------------------------------------------------

    The Filing Participants have not shown that the proposed fees for 
auction data meet the statutory standard that fees for consolidated 
market data must be fair, reasonable, and not unreasonably 
discriminatory. The Filing Participants state that, to determine the 
proposed fees for auction data, they looked to the number of trades 
that occur during the auction process as compared to the trading day 
and determined that roughly 10% of the trading volume is concentrated 
in auctions. The Filing Participants then applied the 10% figure to the 
fees charged for depth-of-book data to determine the value of auction 
information. However, as several commenters, including Non-Supporting 
Participants, have pointed out, because information about auction order 
imbalances is included with the proprietary depth-of-book data products 
used as a benchmark for both the proposed depth-of-book fees and the 
proposed auction information fees,\203\ the proposed auction 
information fee would essentially result in double charging subscribers 
who purchase both auction and depth-of-book information. Moreover, the 
Filing Participants have failed to respond to criticisms raised by a 
commenter that proprietary depth-of-book pricing was inappropriately 
used as a benchmark to derive the value of auction data because auction 
information is more closely aligned with top-of-book content, which 
only provides high-level information about aggregate order imbalances 
and does not include the order-by-order details or data about multiple 
price levels typically included in proprietary depth-of-book 
information products.\204\ The Filing Participants, who have argued 
that their proposed fees are based on the value of the data products to 
subscribers, have failed to justify the assumption that the relative 
value of two materially different data products is based on the 
relative volume of trades during different periods of the day, without 
reference to the content of the two feeds. Because the rationale 
offered by the Filing Participants to support their methodology with 
respect to auction information fees is arbitrary, and because the 
methodology uses as a benchmark proprietary depth-of-book products that 
contain auction data along with a significant amount of other data, the 
Commission cannot find that the proposed fees are fair, reasonable, and 
not unreasonably discriminatory.
---------------------------------------------------------------------------

    \203\ See MEMX Letter, supra note 57, at 11-12. BlackRock 
Letter, supra note 57, at 4-5; FINRA Letter, supra note 156, at 6.
    \204\ See BlackRock Letter, supra note 57, at 5 (arguing that it 
would have been more congruent to use Level 1 core data fees as the 
benchmark). One commenter also argues that certain proprietary 
auction imbalance feeds, rather that the proprietary depth-of-book 
products selected, are a better proxy for the value of auction data. 
See MayStreet Letter II, supra note 58, at 19.
---------------------------------------------------------------------------

    Some commenters argue that the fees for auction information under 
the Proposed Amendment should be lower.\205\ One commenter states that 
retail investors should get free or moderately priced auction data 
because it is in the interest of retail investors, the industry, and 
the Commission.\206\ The commenter states that opening and closing 
auction data is important in the securities markets and that providing 
auction data to retail investors will increase retail investor 
participation in the market.\207\ Another commenter states that the 
filing should not be

[[Page 58627]]

approved because the price levels do not contribute to a level playing 
field between competing consolidators and the current plan 
administrators, such that competing consolidators will be at a 
disadvantage because they will not be able to offer products at prices 
competitive with those of proprietary feeds.\208\
---------------------------------------------------------------------------

    \205\ See Angel Letter, supra note 168; Cutler Group Letter, 
supra note 134; BlackRock Letter, supra note 57.
    \206\ See Angel Letter, supra note 168, at 3.
    \207\ See id. at 9.
    \208\ See Cutler Group Letter, supra note 134, at 1-2.
---------------------------------------------------------------------------

    As noted above, the Commission has found that the Filing 
Participants have not justified the rationale they have used to set the 
proposed fees for auction information, and therefore it is not 
necessary for the Commission to make a finding about the absolute level 
of the proposed fees.
    The Filing Participants have not demonstrated that the proposed 
fees for Auction Data provide for the distribution of information with 
respect to quotations for and transactions in NMS stocks on terms that 
are fair, reasonable, and not unreasonably discriminatory consistent 
with Rule 603(a) of Regulation NMS. Thus, the Commission cannot find 
that, consistent with Rule 608 of Regulation NMS, the Proposed 
Amendment is necessary or appropriate in the public interest, for the 
protection of investors and the maintenance of fair and orderly 
markets, to remove impediments to, and perfect the mechanisms of, a 
national market system, or otherwise in furtherance of the purposes of 
the Act.\209\
---------------------------------------------------------------------------

    \209\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

4. Fees for Professional and Non-Professional Users
    For each of the three categories of data described above, the 
Filing Participants propose a Professional Subscriber Charge and a 
Nonprofessional Subscriber Charge. With respect to Level 1 Core Data, 
the Filing Participants propose to charge the same Professional 
Subscriber and Nonprofessional Subscriber fees for the new Level 1 Core 
Data product under the distributed consolidation model as are charged 
for the existing Level 1 Core Data SIP data product that the Plans 
generate and disseminate. With respect to depth-of-book data, 
Professional Subscribers would pay $99.00 per device per month for each 
Network's data,\210\ and Nonprofessional Subscribers would pay $4.00 
per subscriber per month for each Network's depth-of-book data.\211\ 
The Filing Participants are not proposing per-quote packet charges or 
enterprise rates for either Professional Subscribers or Nonprofessional 
Subscribers use of depth-of-book data.\212\
---------------------------------------------------------------------------

    \210\ See Notice, supra note 6, 86 FR at 67518.
    \211\ See id. The Filing Participants applied the 3.94x ratio to 
the current fees charged for Nonprofessional Subscribers taking all 
three Networks ($3.00). This resulted in the total fee level for 
depth-of-book data for Nonprofessional Subscribers equaling $12.00 
(i.e., $3.00 x 3.94 = $11.82, rounded to $12.00). This fee was then 
split evenly among the three Networks, resulting in a proposed 
Nonprofessional Subscriber fee of $4.00 per Network. See id. at 
67520.
    \212\ See id. at 67518.
---------------------------------------------------------------------------

    With respect to auction information, both Professional Subscribers 
and Nonprofessional Subscribers would pay $10.00 per device/subscriber 
per month for each Network's auction information data.\213\
---------------------------------------------------------------------------

    \213\ See id.
---------------------------------------------------------------------------

    Some commenters, including a Non-Supporting Participant, question 
the classification of fees by professional or non-professional user 
type under the Proposed Amendments.\214\ One commenter states that it 
is unreasonably discriminatory to charge non-professional users the 
same fees as professional users for auction data because professionals 
make far more use of the data,\215\ and that the filing contains no 
justification as to why the Filing Participants propose to charge 
professionals the same as non-professionals for auction data.\216\ One 
commenter opposes non-professional and professional user 
classifications on the grounds that they prevent competing 
consolidators from being able to offer products at competitive prices 
compared to the proprietary data feeds.\217\ One commenter states that 
the inclusion of multiple tiers, user types with bespoke definitions, 
and high compliance costs does not amount to fair and reasonable terms 
and in fact unreasonably discriminates against competing consolidators 
who seek to bring competition, innovation, and broader access to 
consolidated market data.\218\ According to the commenter, simplifying 
the pricing structure to allow for enterprise caps at multiple tiers 
should be considered, along with easier-to-track proxies for usage 
based on data already reported by firms or other existing regulatory 
reporting.\219\ Another commenter suggests slowing down the data feeds 
by 15 milliseconds to mitigate the risk of professionals 
``masquerading'' as non-professionals utilizing the cheaper data.\220\
---------------------------------------------------------------------------

    \214\ See Angel Letter, supra note 168; BlackRock Letter, supra 
note 57; MIAX Letter, supra note 57; Polygon.io Letter I, supra note 
126, at 2-3; MayStreet Letter I, supra note 57.
    \215\ See Angel Letter, supra note 168, at 9-10.
    \216\ See id. at 10.
    \217\ See Polygon.io Letter I, supra note 126, at 2-3.
    \218\ See MayStreet Letter I, supra note 57, at 8.
    \219\ See id.
    \220\ See Angel Letter, supra note 168, at 11.
---------------------------------------------------------------------------

    Some commenters support moderately priced or free non-professional 
user fees. Two Non-Supporting Participants support the proposed low 
fees for non-professional users.\221\ One commenter supports the 
proposed ``moderately priced'' non-professional rate for depth-of-book 
information because this aspect of the proposal ``levels the playing 
field'' for retail investors by providing them with access to the same 
information that is available to professionals traders at an affordable 
price, which will help broaden adoption of this new category of 
data.\222\ Another commenter states that free or moderately priced non-
professional data, including depth-of-book and auction data, is in the 
best interest of brokers and exchanges because it may increase retail 
order flow and thus profits into the industry.\223\ The commenter 
further states that free or moderately priced non-professional data is 
in the best interest of the Commission as well, because providing 
``better data to retail investors at low cost will reduce the amount of 
SEC resources devoted to dealing with complaints based on 
misunderstandings of market function.'' \224\
---------------------------------------------------------------------------

    \221\ See MIAX Letter, supra note 57, at 2; MEMX Letter, supra 
note 57, at 3.
    \222\ BlackRock Letter, supra note 57, at 1, 3.
    \223\ See Angel Letter, supra note 168, at 11.
    \224\ Id.
---------------------------------------------------------------------------

    One Filing Participant states that distinguishing between 
professional and non-professional subscribers is fair, as well as 
efficient.\225\ According to this commenter, professional fees are 
higher than those for non-professionals because professionals realize 
greater value from the data than non-professionals.\226\ The commenter 
states that applying the same fees to both categories would result 
either in low-value users subsidizing high-value users, or in fees that 
are not economically sustainable for producers.\227\ According to the 
commenter, setting professional and non-professional fees based on the 
value of the data is efficient, fair, and well established by the 
industry, and setting those fees based on cost is likely to be 
unworkable.\228\ Another Filing Participant states that it is fair, 
reasonable, and not unreasonable discriminatory for ``Wall Street to 
pay higher fees than Main Street.'' \229\
---------------------------------------------------------------------------

    \225\ See Nasdaq Letter II, supra note 75, at 3.
    \226\ See id. The commenter further states that Non-
Professionals are provided a discount to encourage their use of the 
data. See id.
    \227\ See Nasdaq Letter II, supra note 75, at 3.
    \228\ See id.
    \229\ NYSE Letter, supra note 71, at 8.
---------------------------------------------------------------------------

    With respect to the specific fees proposed, one Non-Supporting

[[Page 58628]]

Participant states that the proposed professional user fees are based 
on a flawed methodology that results in excessive fee levels that would 
discourage firms from registering as competing consolidators and would 
hinder the formation of the decentralized consolidation model that the 
MDI Rules seeks to create.\230\ Another Non-Supporting Participant 
states that the proposed fees are ``plagued by double counting and 
other significant issues'' that raise questions about the process used 
to design the Proposed Amendments.\231\ For example, this commenter 
states that, as proposed, the $70 Professional User fee for depth-of-
book information comes with access only to aggregated depth-of-book 
information and does not include top-of-book information, even though 
the calculation of that fee is based on a depth-of book product that 
includes top-of-book information.\232\ This, the commenter states, ``is 
straightforward double counting, plain and simple.'' \233\ The 
commenter also states that while auction information is included in the 
depth-of-book feed used to calculate the proposed fees, the proposal 
also charges additional fees, including Professional and Non-
Professional Fees, for auction information.\234\ The commenter states 
that even exchanges that offer separate feeds for auction information 
generally do not charge Professional user fees.\235\
---------------------------------------------------------------------------

    \230\ See MIAX Letter, supra note 57, at 4.
    \231\ See MEMX Letter, supra note 57, at 10.
    \232\ See id. at 12. According to the commenter, the value of 
top-of-book information is therefore already embedded in the cost 
proposed for depth-of-book information. See id.
    \233\ See id.
    \234\ See id. at 13-14.
    \235\ See id.
---------------------------------------------------------------------------

    One Non-Supporting Participant states that the proposed non-
professional user fees were a step in the right direction, but points 
out that, while the proposed fees would be lower for the limited subset 
of Non-Professional users that consume depth-of-book quotation 
information, the proposed fees are higher than the fees currently 
charged for proprietary data products that offer similar 
information.\236\ This commenter adds that, even where the proposed 
fees are lower than the fees charged for comparable proprietary data--
as is the case for Non-Professional users--the fact that the other fees 
are higher than proprietary offerings is likely to reduce incentives 
for competing consolidators to actually offer that data content to 
their customers.\237\ According to the commenter, there is unlikely to 
be any demand for the new data elements included in consolidated market 
data at prices that exceed the fees charged for proprietary data feeds 
today.\238\ In response to this commenter, a Filing Participant argues 
that this analysis does not account for the fact that purchasers of the 
new data would be receiving a consolidated data product that aggregates 
all exchanges' data together to determine an NBBO and the five best 
levels of depth among all the exchanges and that the analysis 
disregards that the Proposed Amendment includes much lower fees for 
non-professionals.\239\
---------------------------------------------------------------------------

    \236\ See id. at 7.
    \237\ See id. at 9.
    \238\ See id. at 17. The commenter further states that the 
Operating Committees should analyze whether it is fair and 
reasonable to continue to charge professional and non-professional 
user fees that exceed the fees charges for similar proprietary 
market data. See id.
    \239\ See NYSE Letter, supra note 71, at 8.
---------------------------------------------------------------------------

    The Commission finds that the Filing Participants have not 
demonstrated that the proposed fees for professional and non-
professional subscribers are fair, reasonable, and not unreasonably 
discriminatory. With respect to Level 1 Core Data, the Filing 
Participants state they are not proposing to change the Professional 
Subscriber and Nonprofessional Subscriber fees currently set forth in 
the Plans. But, as discussed above,\240\ in the context of the MDI 
Rules, the Proposed Amendment is in fact proposing fees applicable to a 
new data product--the data content underlying the top-of-book data 
product to be collected, consolidated, and disseminated by competing 
consolidators--that differs both with respect to content and 
administrative expense from the existing top-of-book product generated 
and disseminated by the exclusive SIP. In taking the position that they 
are not proposing to do more than add content to the existing Level 1 
Core Data product offered by the exclusive SIP, however, the Filing 
Participants have not even attempted to explain or justify how the 
proposed Professional and Non Professional Fees for the new Level 1 
Core Data satisfy the statutory standard of being fair, reasonable and 
not unreasonably discriminatory.'' \241\ Significantly, the Filing 
Participants have not taken into account that the current 
consolidation, processing, and dissemination expenses incurred by the 
Equity Data Plans would be inapplicable to the data content underlying 
consolidated data offered through the new Level 1 Core Data product to 
be collected, consolidated, and disseminated by competing 
consolidators.\242\
---------------------------------------------------------------------------

    \240\ See supra Section IV.C.1.
    \241\ See MDI Rules Release, supra note 11, 86 FR at 18684.
    \242\ See id. at 18682 (stating that ``the proposed new fees 
[filed pursuant to Rule 614(e)] will need to reflect . . . that the 
effective national market system plan(s) is no longer operating the 
exclusive SIPs and is no longer performing collection, 
consolidation, and dissemination functions'').
---------------------------------------------------------------------------

    With respect to depth-of-book data, the Filing Participants have 
not demonstrated that the proposed Professional and Non Professional 
depth-of-book fees are fair, reasonable, and not unreasonably 
discriminatory. The Filing Participants have attempted to justify the 
proposed Professional and Non-Professional fees for depth-of-book data 
by using the same multiplier (i.e., 3.94x) employed to calculate the 
proposed fees for data content underlying consolidated depth-of-book 
offerings,\243\ but, as explained in detail above, the Filing 
Participants have not demonstrated that the use of this multiplier is 
appropriate in the first place because, among other things, the 
proprietary depth-of-book feeds contain top-of-book data and auction 
information, which the data content underlying consolidated depth-of-
book feed would lack, leading to ``double-counting,'' as several 
commenters have pointed out.\244\ In addition, with respect to auction 
information, other than describing the proposal, explaining the 
methodology used to generate the proposed fees,\245\ and arguing that 
the resulting fees are fair, reasonable, and not unreasonably 
discriminatory, the Filing Participants have not attempted to explain 
or otherwise justify why it is fair, reasonable, and not unreasonably 
discriminatory to set both the Professional Subscribers and 
Nonprofessional Subscribers fee at the same rate of $10.00 per device 
per month.
---------------------------------------------------------------------------

    \243\ See supra note 211.
    \244\ See supra Section IV.C.2 for a discussion on issues 
associated with the application of the multiplier used by the Filing 
Participants to generate certain proposed fees.
    \245\ See Notice, supra note 6, 86 FR at 67517-18, 67520-21.
---------------------------------------------------------------------------

    The Filing Participants have not demonstrated that the proposed 
fees for professional and non-professional users provide for the 
distribution of information with respect to quotations for and 
transactions in NMS stocks on terms that are fair, reasonable, and not 
unreasonably discriminatory consistent with Rule 603(a) of Regulation 
NMS. Thus, the Commission cannot find that, consistent with Rule 608 of 
Regulation NMS, the Proposed Amendment is necessary or appropriate in 
the public interest, for the protection of investors and the 
maintenance of fair and orderly markets, to remove impediments to, and

[[Page 58629]]

perfect the mechanisms of, a national market system, or otherwise in 
furtherance of the purposes of the Act.\246\
---------------------------------------------------------------------------

    \246\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

5. Fees for Non-Display Use
    The Filing Participants propose Non-Display Use fees relating to 
the three categories of data described above: (1) Level 1 Core Data; 
(2) depth-of-book data; and (3) auction information. With respect to 
Level 1 Core Data, the Filing Participants propose to apply the Non-
Display Use fees currently set forth in the Plans to the data content 
underlying consolidated market data in the new Level 1 Core Data data 
product to be offered by the competing consolidators \247\ for each of 
the three categories of Non-Display Use.\248\ With respect to depth-of-
book data, Subscribers would pay Non-Display Use Fees of $12,477.00 per 
month for each category of Non-Display Use per Network.\249\ With 
respect to auction information, Subscribers would pay Non-Display Use 
fees of $1,248.00 per month for each category of Non-Display Use per 
Network.\250\
---------------------------------------------------------------------------

    \247\ See Exhibit E to the CTA Plan; Section IX(b)(ii) of the CQ 
Plan.
    \248\ The Filing Participants propose that access to odd-lot 
information would be made available to Level 1 Core Data subscribers 
for the same fees currently charged for Level 1 Core Data provided 
by the exclusive SIP. See Notice, supra note 6, 86 FR at 67518. See 
also supra note 35 (describing the three categories of Non-Display 
Use recognized under Exhibit E to the CTA Plan).
    \249\ See Notice, supra note 6, 86 FR at 67518.
    \250\ The Filing Participants state that, as is the case today, 
Subscribers would be charged for each category of use of depth-of-
book data and auction information. See Notice, supra note 6, 86 FR 
at 67518.
---------------------------------------------------------------------------

    Some commenters, including a Non-Supporting Participant, state that 
the proposed Non-Display Use fees result in excessive fee levels that 
would discourage firms from registering as competing consolidators, 
thereby hindering the formation of the decentralized consolidation 
model that the MDI Rules seeks to create.\251\ One commenter states 
that the fees in the Proposed Amendment, including the non-display 
fees, would place competing consolidators at a disadvantage because 
they will not be able to offer products at prices competitive with 
those of proprietary feeds.\252\ One commenter asks that the Commission 
reject the Proposed Amendment and any future proposal that maintains 
display/non-display classifications.\253\ The commenter states that, if 
the Proposed Amendment is not rejected, competing consolidators will 
not be able to offer products at competitive prices to proprietary data 
feeds.\254\
---------------------------------------------------------------------------

    \251\ See MIAX Letter, supra note 57, at 3; Polygon.io Letter I, 
supra note 126, at 2-3.
    \252\ See Cutler Group Letter, supra note 134, at 1-2.
    \253\ See Polygon.io Letter I, supra note 126, at 2.
    \254\ See id.
---------------------------------------------------------------------------

    One Filing Participant states that distinguishing between Display 
and Non-Display use is fair, as well as efficient.\255\ According to 
this commenter, algorithms, dark pools, and electronic traders pay 
higher fees than human professionals because they realize greater value 
from the data.\256\ The commenter argues that, because Non-Display 
users realize greater value from the use of market data than Display 
users, applying the same fees to both categories would result either in 
low-value users subsidizing high-value users or fees that are not 
economically sustainable for producers.\257\ The commenter states that 
the Proposed Amendment thus sets the Display Fee and Non-Display Fee 
according to the value of the data, which is efficient, fair, and well-
established in the industry both nationally and globally.\258\ 
According to the commenter, any alternative based solely on cost is 
likely to be unworkable.\259\
---------------------------------------------------------------------------

    \255\ See Nasdaq Letter II, supra note 75, at 3.
    \256\ See id.
    \257\ See id.
    \258\ See id. at 2.
    \259\ See id.
---------------------------------------------------------------------------

    The Filing Participants have not explained or justified how the 
proposed Non-Display Fees are fair, reasonable, and not unreasonably 
discriminatory. With respect to the new Level 1 Core Data, the Filing 
Participants state they are proposing to charge the same fees for Non-
Display Use of Level 1 data that are currently set forth in the Plans 
with respect to data disseminated by the exclusive SIP. But, as 
discussed above,\260\ in the context of the MDI Rules the Proposed 
Amendment is in fact proposing fees applicable to a new data product--
the top-of-book data product to be collected, consolidated, and 
disseminated by competing consolidators--that differs both with respect 
to content and administrative expense from the existing top-of-book 
product generated and disseminated by the exclusive SIP. In taking the 
position that they have not proposed to do more than add content to the 
existing Level 1 product offered by the exclusive SIP, however, the 
Filing Participants have not even attempted to explain how the proposed 
Non-Display Use fees for Level 1 Core Data satisfy the statutory 
standard of being fair, reasonable, and not unreasonably 
discriminatory.\261\ Significantly, the Filing Participants have not 
taken into account that the current consolidation, processing, and 
dissemination expenses incurred by the Equity Data Plans would be 
inapplicable to the data content underlying the new Level 1 products to 
be offered by competing consolidators.\262\
---------------------------------------------------------------------------

    \260\ See supra Section IV.C.1.
    \261\ See MDI Rules Release, supra note 11, 86 FR at 18684.
    \262\ See supra note 242 and accompanying text.
---------------------------------------------------------------------------

    With respect to the content underlying depth-of-book data, the 
Filing Participants state that they applied the 3.94x multiplier to the 
current fees charged for Non-Display Use for all three Networks, 
resulting in a proposed Non-Display Use fee of $12.477.00 per 
Network.\263\ With respect to depth-of-book data, the Filing 
Participants have not demonstrated that the proposed Non-Display Use 
fees are fair, reasonable, and not unreasonably discriminatory. The 
Filing Participants have attempted to justify the proposed Non-Display 
Use fees for depth-of-book data by using the same multiplier (i.e., 
3.94x) employed to calculate the proposed fees for the data underlying 
the consolidated depth-of-book feed, but, as explained in detail above, 
the Filing Participants have not demonstrated that the use of this 
multiplier is appropriate in the first place because, among other 
things, the proprietary depth-of-book feeds contain top-of-book data 
and auction information, which the consolidated depth-of-book feed 
would lack, leading to ``double-counting,'' as several commenters have 
pointed out.\264\
---------------------------------------------------------------------------

    \263\ See Notice, supra note 6, 86 FR at 67520.
    \264\ See supra Section IV.C.2.
---------------------------------------------------------------------------

    With respect to auction information, Filing Participants propose 
that Subscribers would pay Non-Display Use fees of $1,248.00 per month 
for each category of Non-Display Use per Network.\265\ The Filing 
Participants state that, as is the case today, Subscribers would be 
charged for each category of non-display use of auction 
information.\266\ The Filing Participants, however, have not explained 
the basis for the proposed Non-Display Use fees for auction 
information, and the Commission therefore has no basis on which it can 
find that the proposed fees are fair, reasonable, and not unreasonably 
discriminatory. And even if the unstated rationale is that the

[[Page 58630]]

proposed fees are 10% of the proposed Non-Display Use fees for depth-
of-book data--consistent with the derivation of auction information 
fees from the fees for the content underlying depth-of-book data--that 
rationale would suffer from the same weaknesses as the rationale 
underlying the proposed fees for Non-Display Use of depth-of-book data 
and for the content underlying depth-of-book data. The Filing 
Participants have not demonstrated that is fair, reasonable, and not 
unreasonably discriminatory to calculate the fees by comparison to the 
current charges for proprietary depth-of-book products, which are 
substantially different products than those at issue in the Proposed 
Amendment.\267\
---------------------------------------------------------------------------

    \265\ The Filing Participants state that, as is the case today, 
Subscribers would be charged for each category of use of depth-of-
book data and auction information. See Notice supra note 6, 86 FR at 
67518.
    \266\ See supra note 35 (describing the categories of Non-
Display Uses recognized under Exhibit E to the CTA Plan).
    \267\ See supra Section IV.C.2 for a discussion on issues 
associated with the application of the multiplier used by the Filing 
Participants to generate certain proposed fees.
---------------------------------------------------------------------------

    The Filing Participants have not demonstrated that the proposed 
fees for Non-Display Use provide for the distribution of information 
with respect to quotations for and transactions in NMS stocks on terms 
that are fair, reasonable, and not unreasonably discriminatory 
consistent with Rule 603(a) of Regulation NMS. Thus, the Commission 
cannot find that, consistent with Rule 608 of Regulation NMS, the 
Proposed Amendment is necessary or appropriate in the public interest, 
for the protection of investors and the maintenance of fair and orderly 
markets, to remove impediments to, and perfect the mechanisms of, a 
national market system, or otherwise in furtherance of the purposes of 
the Act.\268\
---------------------------------------------------------------------------

    \268\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

6. Access Fees
    The Filing Participants propose to charge Access Fees to all 
subscribers for the use of the three categories of data: (1) Level 1 
Core Data; (2) depth-of-book data; and (3) auction information. With 
respect to Level 1 Core Data, the Filing Participants to apply the same 
Access Fees that currently set forth in the Plans with respect to data 
disseminated by the exclusive SIP. With respect to depth-of-book data, 
the Filing Participants propose to charge Subscribers a monthly Access 
Fee of $9,850.00 per Network. With respect to auction information, the 
Filing Participants propose to charge Subscribers a monthly Access Fee 
of $985.00 per Network.
    Some commenters oppose the access fees in the proposed fee 
schedule. One Non-Supporting Participant states that the proposed 
access fees result in excessive fee levels that would discourage firms 
from registering as competing consolidators and would hinder the 
formation of the decentralized consolidation model that the MDI Rules 
seeks to create.\269\ Another Non-Supporting Participant states that 
the proposed access fees are not fair and reasonable because they are 
more expensive than those charged by exchanges for their proprietary 
products.\270\
---------------------------------------------------------------------------

    \269\ See MIAX Letter, supra note 57, at 3.
    \270\ See MEMX Letter, supra note 57, at 6, 8. See also Cutler 
Group Letter, supra note 134, at 1-2 (noting that it supports the 
comment letter written by MEMX and that the Proposed Amendments make 
market data less accessible).
---------------------------------------------------------------------------

    The Filing Participants have not demonstrated that the proposed 
access fees for depth-of-book information are fair, reasonable, and not 
unreasonably discriminatory. With respect to Level 1 Core Data, the 
Filing Participants are proposing to charge the same Access Fees for 
Non-Display Use of Level 1 Core Data that are currently set forth in 
the Plans with respect to data disseminated by the exclusive SIP. But, 
as discussed above,\271\ in the context of the MDI Rules, the Proposed 
Amendment is in fact proposing fees applicable to a new data product--
the top-of-book data product to be generated and disseminated by 
competing consolidators--that differs both with respect to content and 
administrative expense from the existing top-of-book product generated 
and disseminated by the exclusive SIP. In taking the position that they 
have not proposed to do more than add content to the existing Level 1 
Core Data product offered by the exclusive SIP, however, the Filing 
Participants have not even attempted to explain or justify how the 
proposed Access Fees for Level 1 Core Data satisfy the statutory 
standard of being fair, reasonable and not unreasonably 
discriminatory.'' \272\ Significantly, the Filing Participants have not 
taken into account that the current consolidation, processing, and 
dissemination expenses incurred by the Equity Data Plans would be 
inapplicable to the data content underlying the new Level 1 Core Data 
products to be offered by competing consolidators.
---------------------------------------------------------------------------

    \271\ See supra Section IV.C.1.
    \272\ See MDI Rules Release, supra note 11, 86 FR at 18684.
---------------------------------------------------------------------------

    With respect to Access Fees for the content underlying depth-of-
book data, the Filing Participants have attempted to justify the 
proposed Access Fees by using the same multiplier (i.e., 3.94x) to the 
Access Fees charged for all three Networks, resulting in a proposed 
Access Fee of $9,850.00 per Network.\273\ But, as explained in detail 
above, the Filing Participants have not demonstrated that the use of 
this multiplier is appropriate in the first place because, among other 
things, the proprietary depth-of-book feeds contain top-of-book data 
and auction information, which the consolidated depth-of-book feed 
would lack, leading to ``double-counting,'' as several commenters have 
pointed out.\274\
---------------------------------------------------------------------------

    \273\ See Notice, supra note 6, 86 FR at 67520.
    \274\ See supra Section IV.C.2 (discussing issues associated 
with the application of the multiplier used by the Filing 
Participants to generate certain proposed fees).
---------------------------------------------------------------------------

    Finally, with respect to auction information, the Filing 
Participants have not explained the basis for the proposed Access Fees 
for auction information, and the Commission therefore has no basis on 
which it can find that the proposed fees are fair, reasonable, and not 
unreasonably discriminatory. And even if the unstated rationale is that 
the proposed fees are 10% of the proposed Access Fees for depth-of-book 
data, consistent with the derivation of auction information fees from 
the fees for the content underlying depth-of-book data, that rationale 
would suffer from the same weaknesses as the rationale for Non-Display 
Use of depth-of-book data and for the content underlying depth-of-book 
data. The Filing Participants have not demonstrated that is fair, 
reasonable, and not unreasonably discriminatory to calculate the fees 
by comparison to the current charges for proprietary depth-of-book 
products, which are substantially different products than those at 
issue in the Proposed Amendment.\275\
---------------------------------------------------------------------------

    \275\ See id.
---------------------------------------------------------------------------

    The Filing Participants have not demonstrated that the proposed 
Access Fees provide for the distribution of information with respect to 
quotations for and transactions in NMS stocks on terms that are fair, 
reasonable, and not unreasonably discriminatory consistent with Rule 
603(a) of Regulation NMS. Thus, the Commission cannot find that, 
consistent with Rule 608 of Regulation NMS, the Proposed Amendment is 
necessary or appropriate in the public interest, for the protection of 
investors and the maintenance of fair and orderly markets, to remove 
impediments to, and perfect the mechanisms of, a national market 
system, or otherwise in furtherance of the purposes of the Act.\276\
---------------------------------------------------------------------------

    \276\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

7. Redistribution Fees
    The Filing Participants propose that the existing Redistribution 
Fees would apply to all three categories of core data (i.e., Level 1 
Core Data, depth-of-book, and auction information), including any

[[Page 58631]]

subset thereof.\277\ The Filing Participants are not proposing to 
change the amount of the Redistribution Fees. The Filing Participants 
also specify that Redistribution Fees would be charged to competing 
consolidators.
---------------------------------------------------------------------------

    \277\ The Filing Participants state that, currently, 
Redistribution Fees are charged to any entity that makes last sale 
information or quotation information available to any other entity 
or to any person other than its employees, irrespective of the means 
of transmission or access. The Filing Participants propose to amend 
this description to make it applicable to core data, as that term is 
defined in Rule 600(b)(21). See Notice, supra note 6, 86 FR at 
67518.
---------------------------------------------------------------------------

    In support of their proposal to charge Redistribution Fees to 
competing consolidators, the Filing Participants argue: (1) that the 
comparison the Commission made in the MDI Rules Release between self-
aggregators (which would not pay Redistribution Fees) and competing 
consolidators is not appropriate in determining whether a 
redistribution fee is not unreasonably discriminatory; and (2) that the 
Commission's comparison is not consistent with the current long-
standing practice of the Plan that redistribution fees are charged to 
any entity that distributes data externally.\278\ The Filing 
Participants state that a self-aggregator, by definition, would not be 
distributing data externally and would therefore not be subject to such 
fees, which, according to the Filing Participants, is consistent with 
current Plan practice that a subscriber to consolidated data that only 
uses data for internal use is not charged a Redistribution Fee.
---------------------------------------------------------------------------

    \278\ See, e.g., Cover Letter, supra note 1, at 4; Notice, supra 
note 6, 86 FR at 67518. The Filing Participants state that the 
current exclusive SIP is not charged a Redistribution Fee. The 
Filing Participants state, however, that unlike competing 
consolidators, the processor has been retained by the Plans to serve 
as an exclusive SIP, is subject to oversight by both the Plans and 
the Commission, and neither pays for the data nor engages with data 
subscriber customers. The Filing Participants state that, by 
contrast, under the competing consolidator model: The Plans would 
have no role in either overseeing or determining which entities 
choose to be a competing consolidator; a competing consolidator 
would need to purchase consolidated market data just as any other 
vendor would; and competing consolidators would be responsible for 
competing for data subscriber clients. Accordingly, the Filing 
Participants argue, competing consolidators would be more akin to 
vendors than to the current exclusive SIPs. The Filing Participants 
state that if any entity that is currently an exclusive SIP chooses 
to register as a competing consolidator, that entity would be 
subject to the Redistribution Fee. See Cover Letter, supra note 1, 
at 4 n.7; Notice, supra note 6, 86 FR at 67518 n.12.
---------------------------------------------------------------------------

    The Filing Participants argue that the more appropriate comparison 
would be between competing consolidators and downstream vendors, both 
of which would be selling consolidated market data directly to market 
data subscribers. The Filing Participants state that vendors are and 
would still be subject to Redistribution Fees when redistributing data 
to market data subscribers and argue that it would be unreasonably 
discriminatory and would impose a burden on competition if competing 
consolidators--which would be competing with downstream market data 
vendors for the same data subscriber customers--are not charged a 
Redistribution Fee for exactly the same activity.
    One commenter states that the Proposed Amendment should treat 
competing consolidators as replacements to the exclusive SIPs, not as 
data vendors.\279\ The commenter states that subjecting competing 
consolidators to the same fees as data vendors and subscribers that 
receive consolidated market data from the exclusive SIP fails to 
recognize that competing consolidators are SIPs and are not similarly 
situated to today's data vendors.\280\ This commenter further states 
that competing consolidators should not be charged redistribution fees 
because they are not redistributing consolidated market data, but are 
instead generating and distributing consolidated data for the first 
time.\281\ According to this commenter, redistribution fees should not 
be charged by the Plan because the Plan would no longer govern the 
distribution of consolidated market data.\282\ The commenter states 
that not recognizing competing consolidators as SIPs places competing 
consolidators at a competitive disadvantage relative to data vendors, 
given that they take on expenses and risks that data vendors do not, 
such as the costs for generating consolidated market data, disclosing 
operational and performance metrics, registering with the Commission, 
and complying with Rule 614 of Regulation NMS.\283\
---------------------------------------------------------------------------

    \279\ See MayStreet Letter I, supra note 57, at 3.
    \280\ See id. at 3-4.
    \281\ See id.
    \282\ See id. at 5.
    \283\ See id.
---------------------------------------------------------------------------

    One Non-Supporting Participant states that the redistribution fee 
for competing consolidators is inconsistent with the MDI Rules, is not 
fair and reasonable, and is unreasonably discriminatory.\284\ This 
commenter states that the proposal's attempt to justify the 
redistribution fee based on the current centralized model that charges 
fees to downstream vendors is unsound because, under the decentralized 
MDI Rules, competing consolidators would be ``stepping into the role 
that the SIPs hold today as the primary sources of consolidated market 
data.'' \285\ According to this commenter, to charge a redistribution 
fee on top of the other proposed fees would ``unquestionably put 
competing consolidators at a further competitive disadvantage as 
compared to aggregated proprietary data products offered by 
exchanges,'' thus targeting them in an unfair and unreasonable 
manner.\286\
---------------------------------------------------------------------------

    \284\ See MIAX Letter, supra note 57, at 2 (citing the MDI Rules 
Release statements that ``imposing redistribution fees on data 
content underlying consolidated market data that will be 
disseminated by competing consolidators would be difficult to 
reconcile with the standards of being fair and reasonable and not 
unreasonably discriminatory in the new decentralized model,'' and 
that ``fees proposed by the SROs should not contain redistribution 
fees for competing consolidators because this would hinder their 
ability to compete.'').
    \285\ Id.
    \286\ Id.
---------------------------------------------------------------------------

    One commenter states the Proposed Amendment directly contradicts 
the Commission's directive in the MDI Rules that competing 
consolidators not be treated the same as market data vendors.\287\ The 
commenter states that the Filing Participants are ``engaged in a 
strategy to undermine the Commission's authority over market data as 
enumerated in the CT Plan and MDI Rule[s] in order to preserve their 
current revenues from proprietary and SIP data.'' \288\ The commenter 
further states that the Filing Participants' position that the 
competing consolidators should be charged redistribution fees just like 
any market data vendor undermines the efforts of the MDI Rules.\289\ 
The commenter cites the Commission's statement in the MDI Rules Release 
that the fees for the data content underlying consolidated market data 
should not include redistribution fees for competing consolidators.'' 
\290\ The commenter argues that by treating competing consolidators 
differently than the exclusive SIPs, the Filing Participants are acting 
in an unreasonably discriminatory manner, effectively disregarding the 
Exchange Act mandates in addition to the Commission's directive in the 
MDI Rules.\291\ The commenter argues that imposing redistribution fees 
on competing consolidators imposes an undue burden on competition.\292\
---------------------------------------------------------------------------

    \287\ See SIFMA Letter I, supra note 57, at 4-5.
    \288\ Id. at 6; see also SIFMA Letter II, supra note 57, at 3.
    \289\ See SIFMA Letter I, supra note 57, at 7; SIFMA Letter II, 
supra note 57, at 2.
    \290\ See SIFMA Letter I, supra note 57, at 7; SIFMA Letter II, 
supra note 57, at 2.
    \291\ See SIFMA Letter I, supra note 57, at 7; SIFMA Letter II, 
supra note 57, at 2.
    \292\ See SIFMA Letter I, supra note 57, at 7; SIFMA Letter II, 
supra note 57, at 2.
---------------------------------------------------------------------------

    Other commenters also suggest that the imposition of redistribution 
fees on

[[Page 58632]]

competing consolidators would place competing consolidators at a 
competitive disadvantage.\293\ One commenter states that by charging 
redistribution fees to competing consolidators, the Proposed Amendment 
creates a barrier to entry to technology solution vendors becoming 
competing consolidators.\294\ Two other commenters, including a Non-
Supporting Participant, also argue that the redistribution fees charged 
to competing consolidators are in contravention of the Commission's 
express direction in the MDI Rules.\295\ Another Non-Supporting 
Participant states that the proposed redistribution fee that would be 
charged to competing consolidators is inconsistent with the purposes 
and structure of the MDI Rules, and that this aspect of the proposal 
represents a ``further indication that the intent of the majority [of 
the exchanges] was to subvert the purpose of the Commission's order.'' 
\296\
---------------------------------------------------------------------------

    \293\ See NBIM Letter, supra note 79, at 2; Cutler Group Letter, 
supra note 134, at 1-2.
    \294\ See NovaSparks Letter, supra note 125, at 1.
    \295\ See FINRA Letter, supra note 156, at 5; MEMX Letter, supra 
note 57, at 21.
    \296\ IEX Letter, supra note 57, at 5.
---------------------------------------------------------------------------

    One Filing Participant states that, although the Commission in the 
MDI Rules Release compared competing consolidators to self-aggregators, 
a more appropriate comparison would be between competing consolidators 
and downstream vendors.\297\ According to this commenter, because these 
vendors would be subject to redistribution fees when redistributing 
data to their subscribers, it would impose a burden on competition and 
be unfair to vendors not to charge a redistribution fee for exactly the 
same activity by competing consolidators.\298\
---------------------------------------------------------------------------

    \297\ See NYSE Letter, supra note 71, at 7.
    \298\ See id.
---------------------------------------------------------------------------

    As the Commission stated in the MDI Rules Release, ``the fees for 
the data content underlying consolidated data should not include 
redistribution fees for competing consolidators,'' \299\ and imposing 
redistribution fees on competing consolidators ``would be difficult to 
reconcile with statutory standards of being fair and reasonable and not 
unreasonably discriminatory in the new decentralized model.'' \300\ The 
Filing Participants' attempt to justify the Redistribution Fee--basing 
it on the long-standing practice within a centralized model that 
charges fees to ``any entity that distributes data''--is misplaced. 
Unlike current vendors that take consolidated data generated by the 
exclusive SIP, distribute it, and pay redistribution fees, the 
competing consolidators will ``take the place of the exclusive SIP, 
which is not charged a redistribution fee.'' \301\ The competing 
consolidators will take underlying data content from the exchanges and 
will themselves generate the consolidated data. Thus, there is no 
``redistribution'' when a competing consolidator sells consolidated 
data--at fees set forth in the Plan--to a subscriber. Moreover, like 
the exclusive SIPs, competing consolidators will take on expenses, 
risks, and obligations that data vendors do not, such as the costs for 
collecting, consolidating, generating, and disseminating consolidated 
equity market data.\302\ Additionally, like the exclusive SIPs and 
unlike vendors, competing consolidators will be subject to the 
registration, disclosure, and other regulatory requirements under Rule 
614 and Form CC of Regulation NMS,\303\ as well as to the requirements 
of Regulation SCI.\304\
---------------------------------------------------------------------------

    \299\ MDI Rules Release, supra note 11, 86 FR at 18685.
    \300\ Id.
    \301\ Id.
    \302\ See id. at 18603-04, 18662-76 (discussing registration and 
responsibilities of competing consolidators).
    \303\ See id. at 18603-04, 18662-76 (discussing registration and 
responsibilities competing consolidators).
    \304\ In the MDI Rules Release, the Commission amended 
Regulation SCI to expand the definition of ``SCI entities'' to 
include ``SCI competing consolidators'' that are subject to the 
requirements of Regulation SCI after an initial transition period if 
they meet a threshold based on certain share of gross consolidated 
market data revenues. See id. at 18604-05.
---------------------------------------------------------------------------

    Thus, the Filing Participants have not adequately explained or 
justified how the proposal to impose Redistribution Fees reflects, 
consistent with the MDI Rules, that ``that the effective national 
market system plan(s) is no longer operating the exclusive SIPs and is 
no longer performing collection, consolidation, and dissemination 
functions.'' \305\ The Filing Participants have not explained how 
keeping the proposed Redistribution Fees unchanged from the current 
fees under the Plans is an appropriate means of establishing the 
proposed fees, or how the resulting fee levels are fair and reasonable 
and not unreasonably discriminatory. Additionally, the Filing 
Participants have not explained how charging Redistribution Fees--
layered atop the other fees described above--to competing consolidators 
(thus subjecting them to the same fees as vendors and subscribers) is 
necessary or appropriate in the public interest, for the protection of 
investors and the maintenance of fair and orderly markets, to remove 
impediments to, and perfect the mechanisms of, a national market 
system, or otherwise in furtherance of the purposes of the Act.\306\
---------------------------------------------------------------------------

    \305\ Id. at 18682.
    \306\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

    The Filing Participants have not demonstrated that the proposed 
Redistribution Fees provide for the distribution of information with 
respect to quotations for and transactions in NMS stocks on terms that 
are fair, reasonable, and not unreasonably discriminatory consistent 
with Rule 603(a) of Regulation NMS. Thus, the Commission cannot find 
that, consistent with Rule 608 of Regulation NMS, the Proposed 
Amendment is necessary or appropriate in the public interest, for the 
protection of investors and the maintenance of fair and orderly 
markets, to remove impediments to, and perfect the mechanisms of, a 
national market system, or otherwise in furtherance of the purposes of 
the Act.\307\
---------------------------------------------------------------------------

    \307\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------

8. Other Comments Regarding the Proposed Fees \308\
---------------------------------------------------------------------------

    \308\ In addition to the other comments discussed in this Order, 
the Commission also received a letter in the comment file that is 
not germane to the Proposed Amendments. See Letter from Charles L. 
Groothoff (Apr. 13, 2022).
---------------------------------------------------------------------------

    One commenter states that the proposed fees for the content 
underlying consolidated market data would be too high whether a cost-
basis or value-basis were used as a justification by the Filing 
Participants.\309\ A Non-Supporting Participant states that any 
analysis of current SIP fees should include a discussion of what 
structural changes could be made to SIP fees to eliminate or reduce the 
incentives that firms have today to avoid providing SIP data to their 
customers.\310\ One commenter favors expanding the broker-dealer 
enterprise cap that is part of the current fee schedule of the Plan, 
stating that the Proposed Amendment provides no depth-of-book 
enterprise cap and that the Level 1 enterprise caps are out of reach 
for most market participants.\311\ Another commenter states that it 
supports the proposed a la carte fee structure for the expanded 
elements of consolidated data because, in the commenter's view, market 
participants should be able to select from a variety of market data 
products and pay only for the content they consume.\312\
---------------------------------------------------------------------------

    \309\ See MayStreet Letter I, supra note 57, at 6.
    \310\ See MEMX Letter, supra note 57, at 20.
    \311\ See MayStreet Letter I, supra note 57, at 8.
    \312\ See BlackRock Letter, supra note 57, at 2-3.
---------------------------------------------------------------------------

    One Non-Supporting Participant compares the proposed fees for 
content underlying consolidated data to fees currently charged for 
proprietary data fees and argues that at any given price

[[Page 58633]]

a subscriber would be better off subscribing to the proprietary data 
fees listed instead of purchasing data from the Plan, given the 
additional information included on those feeds.\313\ This commenter 
states that, because the proposed fees are generally more expensive 
than current proprietary data offerings, the Proposed Amendments 
clearly fail the ``fair and reasonable'' test required by the Exchange 
Act.\314\ This commenter further argues that it is unlikely that there 
will be any demand for the new data elements included in consolidated 
market data at prices that exceed the fees charged for proprietary data 
feeds today.\315\
---------------------------------------------------------------------------

    \313\ See MEMX Letter, supra note 57, at 7.
    \314\ See id. at 8.
    \315\ See id. at 17.
---------------------------------------------------------------------------

    The Commission in this Order is not taking a position on what 
structure or level of fees--either on an absolute basis or in 
comparison to existing proprietary data products--would be appropriate, 
but finds that the Filing Participants have failed to demonstrate that 
the proposed fees provide for the distribution of information with 
respect to quotations for and transactions in NMS stocks on terms that 
are fair and reasonable and not unreasonably discriminatory.\316\
---------------------------------------------------------------------------

    \316\ See Sections 11A(c)(1)(C)-(D) of the Exchange Act, 15 
U.S.C 78k-1(c)(1)(C)-(D); Rule 603(a) of Regulation NMS, 17 CFR 
242.603.
---------------------------------------------------------------------------

    Some commenters, including Non-Supporting Participants, also argue 
that the proposed fees would have an adverse impact on competition, and 
on competing consolidators in particular.\317\ One Non-Supporting 
Participant states that, even where the proposed fees are lower than 
the fees charged for comparable proprietary data, the fact that other 
fees are higher than proprietary offerings is likely to reduce 
incentives for competing consolidators to actually offer that data 
content to their customers and would limit the potential customer base 
for competing consolidators and inappropriately impede the viability of 
competing consolidators under the infrastructure rule.\318\ Another 
commenter expresses concern that if the Proposed Amendment were 
approved, the exchanges would entrench a high cost for market data that 
has no relation to underlying expenses, is not subject to effective 
competitive forces, and serves as a formidable barrier to entry for 
newer firms.\319\ One commenter states that the current proposal will 
favor current market data vendors who already pay for these fees and 
have large customer bases, but will not necessarily use the most 
efficient data consolidation solutions.\320\ This commenter states that 
all of the equity market data plans should have a unified feed and 
price list because most end users today consume all of the plans' 
feeds.\321\
---------------------------------------------------------------------------

    \317\ See MIAX Letter, supra note 57, at 1, 3; MEMX Letter, 
supra note 57, at 2, 9, 10-17, 21-22, 25; NBIM Letter, supra note 
79, at 2; NovaSparks Letter, supra note 125, at 1; IEX Letter, supra 
note 57, at 5; SIFMA Letter I, supra note 57, at 8; FINRA Letter, 
supra note 156, at 5; MayStreet Letter I, supra note 57, at 5; 
BlackRock Letter, supra note 57, at 1-4; Polygon.io Letter I, supra 
note 126, at 3; Proof Services Letter, supra note 57, at 3; Cutler 
Group Letter, supra note 134, at 1.
    \318\ See MEMX Letter, supra note 57, at 9, 17.
    \319\ See Proof Services Letter, supra note 57, at 1.
    \320\ See NovaSparks Letter, supra note 125, at 1.
    \321\ See id. at 1-2.
---------------------------------------------------------------------------

    The Commission has considered these comments regarding the 
competitive challenges of the current market environment and the role 
the Plan and these proposed fees would play under the competing 
consolidator regime. As discussed above, the Commission has found that 
the Filing Participants have not demonstrated that the proposed fees 
for content underlying consolidated market data are fair, reasonable 
and not unreasonably discriminatory. The Commission agrees that unfair, 
unreasonable, or unreasonably discriminatory fees for this data content 
would decrease the likelihood that it would be economically feasible 
for firms to become competing consolidators. That in turn would 
undermine the Commission's goals in ``fostering a competitive 
environment for the provision and dissemination of critical market data 
to investors and other market participants'' that will ``better achieve 
the goals of Section 11A of the Exchange Act and help to ensure broad 
availability to brokers, dealers, and investors of information with 
respect to quotations for and transactions in NMS stocks that is 
prompt, accurate, reliable, and fair.'' \322\
---------------------------------------------------------------------------

    \322\ MDI Rules Release, supra note 11, 86 FR at 18605-06.
---------------------------------------------------------------------------

D. NMS Plan Governance

    Some commenters, including Non-Supporting Participants, state that 
the MDI Rules should be implemented through the new CT Plan,\323\ 
rather than through the existing equity market data plans (i.e., the 
CTA/CQ Plans and the Nasdaq/UTP Plan).\324\ One commenter reiterated 
its continued support for the provisions of the CT Plan overall.\325\ 
The commenter states that the real and potential conflicts of interest 
that currently exist relating to the provision of market data directly 
relate to the decision-making problems at the Plan's Operating 
Committee.\326\ One commenter states that the conflicts of interest 
that led to the creation of the Proposed Amendment are apparent from 
the resounding lack of support it has received from anyone but the 
exchange groups that stand to benefit from creating a system where 
competing consolidators are not viable.\327\ According to this 
commenter, the exchange groups are disincentivized to create a fair and 
reasonable fee structure, so additional attempts under the same system 
are unlikely to create better results.\328\
---------------------------------------------------------------------------

    \323\ See supra note 18 (describing CT Plan).
    \324\ See BMO Letter, supra note 57; MEMX Letter, supra note 57; 
MIAX Letter, supra note 57; IEX Letter, supra note 57; and 
Polygon.io Letter I, supra note 126; Polygon.io Letter II, supra 
note 67.
    \325\ See BMO Letter, supra note 57, at 1.
    \326\ See id. at 2.
    \327\ See id.
    \328\ See Polygon.io Letter II, supra note 67, at 2.
---------------------------------------------------------------------------

    Another commenter supports expanding the voting representation 
under the CT Plan to non-SROs and having them participate as full 
voting members of the Operating Committee.\329\ The commenter states 
that the Commission cannot approve the Proposed Amendment given the 
inherent conflicts of interests of the Filing Participants that 
developed the proposals.\330\ The commenter states that, if the 
Commission approves the Proposed Amendment, it would be giving tacit 
approval to the shortcomings in the governance structure of the current 
Plans.\331\ This commenter also states that the proposed fee amendments 
are explicitly stated by the Filing Participants to be unrelated to the 
cost of providing the data, but instead related to subscriber 
value.\332\ The commenter states that this is a clear example of the 
Plan's Operating Committee failing to ensure that the public service 
mandates of the SIPs are achieved and is a failure in governance 
through the unmitigated conflicts of interest by voting members who 
just want to maximize profits.\333\ The commenter states that further 
evidence of the failure of the governance structure of the Operating 
Committee is that the fee proposals have been proposed while the 
remaining reforms of the CT Plan are stayed pending resolution of 
challenges in federal court.\334\ The commenter states that it is 
``somewhat shocking'' that the Proposed Amendment was filed 
notwithstanding that other members of the Operating Committee ``have 
stated publicly that the proposals contradict

[[Page 58634]]

the Exchange Act standards for consolidated data, which require that 
the fees be fair, reasonable, and not unreasonably discriminatory.'' 
\335\
---------------------------------------------------------------------------

    \329\ See BMO Letter, supra note 57, at 2.
    \330\ See id.
    \331\ See id.
    \332\ See id.
    \333\ See id. at 2-3.
    \334\ See id. at 3.
    \335\ Id.
---------------------------------------------------------------------------

    A Non-Supporting Participant also encourages the Commission to 
consider whether the CT Plan is a more appropriate body for setting 
fees for consolidated market data.\336\ This commenter states that 
placing the responsibility for setting fees in the hands of the CT Plan 
would allow SIP fees to be set by an operating committee that better 
reflects the constituencies affected by the Proposed Amendment, 
including non-SRO representatives.\337\ Another Non-Supporting 
Participant states that the fee proposals are ``the result of a 
conflicted and unbalanced voting process,'' adding that it agrees with 
the recommendation that the responsibility for setting the proposed 
fees should be placed on the CT Plan.\338\ Another Non-Supporting 
Participant recommends that the Commission disapprove the proposal and 
reassign responsibility for the filing to the operating committee for 
the CT Plan, which the commenter states would have a ``broader set of 
voting stakeholders and a fairer and less conflicted governance 
structure,'' and argues that the Proposed Amendment shows that this 
change is ``badly'' needed.\339\
---------------------------------------------------------------------------

    \336\ See MEMX Letter, supra note 57, at 23-24.
    \337\ See id.
    \338\ MIAX Letter, supra note 57, at 5.
    \339\ IEX Letter, supra note 57, at 5.
---------------------------------------------------------------------------

    One commenter asks the Commission to reevaluate the process that 
led to the creation of the Proposed Amendment and to make substantive 
changes to avoid the amendment process being used to derail timely 
implementation of the MDI Rules.\340\
---------------------------------------------------------------------------

    \340\ See Polygon.io Letter I, supra note 126, at 3.
---------------------------------------------------------------------------

    While some commenters suggest that the CT Plan is the appropriate 
mechanism for implementing the changes required by the MDI Rules, that 
mechanism is not available at this time because the D.C. Circuit has 
vacated the Commission order approving the CT Plan.\341\ And additional 
discussion on this topic in this Order is unnecessary, as it does not 
bear on the basis for the Commission's decision to disapprove the 
Proposed Amendment. On the record before us, for the independently 
sufficient reasons discussed in more detail above, we have concluded 
that the Filing Participants have not demonstrated that approval of the 
proposed NMS plan amendment is necessary or appropriate in the public 
interest, for the protection of investors and the maintenance of fair 
and orderly markets, to remove impediments to, and perfect the 
mechanisms of, a national market system, or otherwise in furtherance of 
the purposes of the Act.
---------------------------------------------------------------------------

    \341\ See The Nasdaq Stock Market LLC, et al. v. Securities and 
Exchange Commission, supra note 18.
---------------------------------------------------------------------------

E. Consideration of Other Actions Under Rule 608 of Regulation NMS

    In connection with recommending disapproval of the Proposed 
Amendment, one commenter states the Commission could consider potential 
action under Rule 608(a)(2) of Regulation NMS, which allows the 
Commission to directly propose amendments to effective national market 
system plans.\342\ The commenter states that in connection with a 
Commission disapproval of the Proposed Amendment, it would ``support 
the Commission's efforts to ensure that the newly expanded consolidated 
market data (i.e., new core data) under the Commission's Infrastructure 
Rule is disseminated in a manner consistent with the Exchange Act 
standards to ensure the investing public and all market participants 
have fair and reasonable access to it.'' \343\
---------------------------------------------------------------------------

    \342\ See SIFMA Letter I, supra note 57, at 2.
    \343\ Id.
---------------------------------------------------------------------------

    One Filing Commenter states that it would be inconsistent with the 
Exchange Act and Rule 608 of Regulation NMS for the Commission to 
change sua sponte any or all of the proposed fees, as any such change 
would be material to the Proposed Amendment.\344\ This commenter states 
that, if the Commission intends to revise the Proposed Amendment in any 
material way, it must do so through rulemaking under Rule 608(b)(2) of 
Regulation NMS, by providing public notice of the specific changes it 
proposes and giving the Plan's participants and the general public an 
opportunity to comment.\345\
---------------------------------------------------------------------------

    \344\ See NYSE Letter, supra note 71, at 8.
    \345\ See id.
---------------------------------------------------------------------------

    One commenter states that the Commission should provide guidance in 
terms of the requirements of the MDI Rules as well as the application 
of the terms ``fair and reasonable'' and ``not unfairly 
discriminatory'' in the context of supplying competing consolidators 
with the underlying content of consolidated market data, adding that, 
without such guidance, any refiling of the amendments will result in 
proposals that do not meet standards under the Exchange Act.\346\
---------------------------------------------------------------------------

    \346\ See MayStreet Letter II, supra note 58, at 1-2, 4, 20.
---------------------------------------------------------------------------

    To the extent that these comments bear on potential future 
Commission action, rather than on the basis for the Commission's 
decision to disapprove the Proposed Amendment, further discussion on 
these topics is unnecessary in this Order.

V. Conclusion

    For the reasons set forth above, the Commission does not find, 
pursuant to Section 11A of the Act, and Rule 608(b)(2) thereunder, that 
the Proposed Amendment is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to an NMS plan 
amendment.
    It is therefore ordered, pursuant to Section 11A of the Act, and 
Rule 608(b)(2) thereunder, that the Proposed Amendment (File No. S7-24-
89) be, and hereby is, disapproved.

    By the Commission.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20833 Filed 9-26-22; 8:45 am]
BILLING CODE 8011-01-P

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