[Federal Register Volume 78, Number 68 (Tuesday, April 9, 2013)]
[Notices]
[Pages 21172-21180]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08176]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69285; File No. SR-NYSEMKT-2013-32]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Implementing Certain
Fees for NYSE MKT OpenBook, NYSE MKT Trades, and NYSE MKT BBO
April 3, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on March 22, 2013, NYSE MKT LLC (the ``Exchange'' or ``NYSE
MKT'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to implement certain fees for NYSE MKT
OpenBook, NYSE MKT Trades, and NYSE MKT BBO, all of which will be
operative on April 1, 2013. The text of the proposed rule change is
available on the Exchange's Web site at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below,
[[Page 21173]]
of the most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to establish certain fees for NYSE MKT
OpenBook, NYSE MKT Trades, and NYSE MKT BBO, all of which will be
operative on April 1, 2013. The subsections below describe (1) The
background on the current fees for these real-time products; (2) a
description of the proposed fees for NYSE MKT OpenBook (excluding the
proposed non-display fees); (3) the rationale for creating a new non-
display usage fee structure; (4) the proposed fees for non-display use,
which will include internal non-display use and managed non-display
use; and (5) examples comparing the current and proposed fees.
Background on Current Fees
Currently, there are no fees for the equities data distributed via
NYSE MKT OpenBook.\4\ The current monthly fees for NYSE MKT BBO \5\ and
NYSE MKT Trades \6\ are as follows:
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\4\ See Securities Exchange Act Release No. 60123 (June 17,
2009), 74 FR 30192 (June 24, 2009) (File No. SR-NYSEAmex-2009-28)
(``OpenBook Release''). Separate fees have been established for the
NYSE MKT OpenBook options data. See Securities Exchange Act Release
No. 68004 (Oct. 9, 2012), 77 FR 62582 (Oct. 15, 2012) (SR-NYSEMKT-
2012-49).
\5\ See Securities Exchange Act Release No. 62187 (May 27,
2010), 75 FR 31500 (June 3, 2010) (SR-NYSEAmex-2010-35).
\6\ See SR-NYSEMKT-2013-31.
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Digital media
Product Access fee Subscriber fees enterprise fee Redistribution fee
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NYSE MKT BBO................... $750 Professional: $10 N/A N/A.
Non-professional:
$5.
Per Quote: $0.005
NYSE MKT Trades................ 750 \7\ $10.............. $5,000 $1,000 (operative May 1,
2013).
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\7\ One $750 monthly access fee entitles a vendor to receive both the NYSE MKT BBO data feed as well as the
Exchange's NYSE MKT Trades data feed. See supra n.4.
While the majority of subscribers pay the subscriber fee for each
display or non-display device that has access to NYSE MKT BBO and NYSE
MKT Trades as set forth above, a small number of vendors and
subscribers are eligible for, and have elected, the NYSE MKT Unit-of-
Count Policy that was first introduced by the Exchange's affiliate, New
York Stock Exchange LLC (``NYSE''), in 2009 \8\ and is now also
available for NYSE MKT BBO and NYSE MKT Trades.\9\ Under this fee
structure, these vendors and subscribers are subject to a fee structure
that utilizes the following basic principles:
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\8\ See Securities Exchange Act Release Nos. 62038 (May 5,
2010), 75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22); 62181 (May 26,
2010), 75 FR 31488 (June 3, 2010) (SR-NYSE-2010-30); and 59290 (Jan.
23, 2009), 74 FR 5707 (Jan. 30, 2009) (SR-NYSE-2009-05).
\9\ See supra n.4.
i. Vendors.
``Vendors'' are market data vendors, broker-dealers,
private network providers, and other entities that control
Subscribers' access to a market data product through Subscriber
Entitlement Controls (as described below).
ii. Subscribers.
``Subscribers'' are unique individual persons or
devices (which include both display and non-display devices) to
which a Vendor provides a market data product. Any individual or
device that receives the market data product from a Vendor is a
Subscriber, whether the individual or device works for or belongs to
the Vendor, or works for or belongs to an entity other than the
Vendor.
Only a Vendor may control Subscriber access to the
market data product.
Subscribers may not redistribute the market data
product in any manner.
iii. Subscriber Entitlements.
A Subscriber Entitlement is a Vendor's permitting a
Subscriber to receive access to the market data product through an
Exchange-approved Subscriber Entitlement Control.
A Vendor may not provide access to a market data
product to a Subscriber except through a unique Subscriber
Entitlement.
The Exchange will require each Vendor to provide a
unique Subscriber Entitlement to each unique Subscriber.
At prescribed intervals (normally monthly), the
Exchange will require each Vendor to report each unique Subscriber
Entitlement.
iv. Subscriber Entitlement Controls.
A Subscriber Entitlement Control is the Vendor's
process of permitting Subscribers' access to a market data product.
Prior to using any Subscriber Entitlement Control or
changing a previously approved Subscriber Entitlement Control, a
Vendor must provide the Exchange with a demonstration and a detailed
written description of the control or change and the Exchange must
have approved it in writing.
The Exchange will approve a Subscriber Entitlement
Control if it allows only authorized, unique end-users or devices to
access the market data product or monitors access to the market data
product by each unique end-user or device.
Vendors must design Subscriber Entitlement Controls to
produce an audit report and make each audit report available to the
Exchange upon request. The audit report must identify:
Each entitlement update to the Subscriber Entitlement
Control;
The status of the Subscriber Entitlement Control; and
Any other changes to the Subscriber Entitlement Control
over a given period.
Only the Vendor may have access to Subscriber
Entitlement Controls.
Vendors must count every Subscriber Entitlement, whether it be an
individual person or a device. Thus, the Vendor's count would include
every person and device that accesses the data regardless of the
purpose for which the individual or device uses the data.
Vendors must report all Subscriber Entitlements in accordance with
the following:
i. In connection with a Vendor's external distribution of the
market data product, the Vendor should count as one Subscriber
Entitlement each unique Subscriber that the Vendor has entitled to have
access to the market data product. However, where a device is dedicated
specifically to a single individual, the Vendor should count only the
individual and need not count the device.
ii. In connection with a Vendor's internal distribution of a market
data product, the Vendor should count as one Subscriber Entitlement
each unique individual (but not devices) that the Vendor has entitled
to have access to such market data.
iii. The Vendor should identify and report each unique Subscriber.
If a Subscriber uses the same unique Subscriber Entitlement to gain
access to multiple market data services, the Vendor should count that
as one Subscriber Entitlement. However, if a unique Subscriber uses
multiple Subscriber Entitlements to gain access to one or more market
data services (e.g., a single Subscriber has multiple
[[Page 21174]]
passwords and user identifications), the Vendor should report all of
those Subscriber Entitlements.
iv. Vendors should report each unique individual person who
receives access through multiple devices as one Subscriber Entitlement
so long as each device is dedicated specifically to that individual.
v. The Vendor should include in the count as one Subscriber
Entitlement devices serving no entitled individuals. However, if the
Vendor entitles one or more individuals to use the same device, the
Vendor should include only the entitled individuals, and not the
device, in the count.
Proposed Fees for NYSE MKT OpenBook (Excluding Non-Display Fees)
The Exchange proposes to charge access and subscriber fees for NYSE
MKT OpenBook, which has been offered for free since 2009. The Exchange
believes that fees should be charged for the product because the data
is valuable and there are costs associated with consolidating and
distributing it. The Exchange will charge a $1,000 per month access
fee, a $5 per month professional subscriber fee, and a $1 per month
non-professional subscriber fee. No redistribution fee will be charged.
This fee structure--with an access fee and differentiated professional
and non-professional subscriber fees--is similar to the Exchange's fee
structure for NYSE MKT Trades and NYSE MKT BBO market data products,
and the proposed fee levels are the same or lower as other exchanges'
fees for similar products.\10\
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\10\ See, e.g., NASDAQ Stock Market LLC (``NASDAQ'') Rule 7023.
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The Exchange proposes to limit the maximum amount of monthly fees
payable by any broker-dealer for nonprofessional subscribers who
maintain brokerage accounts with the broker-dealer. Professional
subscribers may be included in the calculation of the monthly maximum
amount if:
(i) Nonprofessional subscribers comprise no less than 90 percent of
the pool of subscribers that are included in the calculation;
(ii) Each professional subscriber that is included in the
calculation is not affiliated with the broker-dealer or any of its
affiliates (either as an officer, partner, or employee or otherwise);
and
(iii) Each such professional subscriber maintains a brokerage
account directly with the broker-dealer (that is, with the broker-
dealer rather than with a correspondent firm of the broker dealer).\11\
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\11\ The same criteria are used by NYSE Arca, Inc. (``NYSE
Arca'') for its equities depth-of-book product. See Securities
Exchange Act Release No. 63291 (Nov. 9, 2010), 75 FR 70311 (Nov. 17,
2010) (SR-NYSEArca-2010-97) (``Arca Release'').
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For 2013, the maximum amount for any calendar month will equal
$20,000. For the months falling in a subsequent calendar year, the
maximum monthly payment will increase (but not decrease) by the
percentage increase (if any) in the annual composite share volume \12\
for the calendar year preceding that calendar year, subject to a
maximum annual increase of five percent.\13\ For example, if the annual
composite share volume for calendar year 2013 increases by three
percent over the annual composite share volume for calendar year 2012,
then the monthly maximum amount for months falling in calendar year
2014 will increase by three percent to $20,600. The maximum amount is
the same as the monthly maximum payable to NYSE Arca.\14\
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\12\ ``Composite share volume'' for a calendar year refers to
the aggregate number of shares in all securities that trade over
NYSE MKT facilities for that calendar year.
\13\ This is the same annual increase calculation that the
Commission approved for the CTA Monthly Maximum and NYSE Arca's
ArcaBook monthly maximum. See Securities Act Release No. 34-41977
(Oct. 5, 1999), 64 FR 55503 (Oct. 13, 1999 (SR-CTA/CQ-99-01) and
2010 Arca Release, supra n.11, at 70313.
\14\ See id.
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Although the Exchange had indicated in 2009 that it would offer the
NYSE MKT Unit-of-Count Policy for NYSE MKT OpenBook when fees were
established,\15\ the Exchange has determined not to do so. As a result
of the changes described below, the Exchange is no longer offering NYSE
MKT Unit-of-Count Policy for NYSE MKT BBO and NYSE MKT Trades for non-
display usage. As described above, the Exchange expects to amend its
display usage fees in the near future. Therefore, it would impractical
to expand the coverage of the NYSE Unit-of-Count Policy at this time.
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\15\ See OpenBook Release, supra n.4.
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Rationale for New Non-Display Usage Fee Structure
The Exchange also proposes to establish fees for non-display use of
NYSE MKT OpenBook, NYSE MKT BBO, and NYSE MKT Trades. As noted in the
original NYSE Unit-of-Count Policy proposal, ``technology has made it
increasingly difficult to define `device' and to control who has access
to devices, [and] the markets have struggled to make device counts
uniform among their customers.'' \16\ Significant change has
characterized the industry in recent years, stemming in large measure
from changes in regulation and technological advances, which has led to
the rise in automated and algorithmic trading. Additionally, market
data feeds have become faster and contain a vastly larger number of
quotes and trades. Today, a majority of trading is done by leveraging
non-display devices consuming massive amounts of data. Some firms base
their business models largely on incorporating non-display data into
applications and do not require widespread data access by the firm's
employees. Changes in market data consumption patterns have increased
the use and importance of non-display data.
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\16\ See Securities Exchange Act Release No. 59544 (Mar. 9,
2009), 74 FR 11162 (Mar. 16, 2009) (SR-NYSE-2008-131). At least one
other Exchange also has noted such administrative challenges. In
establishing a non-display usage fee for internal distributors of
TotalView and OpenView, NASDAQ noted that as ``the number of devices
increase, so does the administrative burden on the end customer of
counting these devices.'' See Securities Exchange Act Release No.
61700 (Mar. 12, 2010), 75 FR 13172 (Mar. 18, 2010) (SR-NASDAQ-2010-
034).
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Applications that can be used in non-display devices provide added
value in their capability to manipulate and spread the data they
consume. Such applications have the ability to perform calculations on
the live data stream and manufacture new data out of it. Data can be
processed much faster by a non-display device than it can be by a human
being processing information that he or she views on a data terminal.
Non-display devices also can dispense data to multiple computer
applications as compared with the restriction of data to one display
terminal.
While the non-display data has become increasingly valuable to data
recipients who can use it to generate substantial profits, it has
become increasing difficult for them and the Exchange to accurately
count non-display devices. The number and type of non-display devices,
as well as their complexity and interconnectedness, have grown in
recent years, creating administrative challenges for vendors, data
recipients, and the Exchange to accurately count such devices and audit
such counts. Unlike a display device, such as a Bloomberg terminal, it
is not possible to simply walk through a trading floor or areas of a
data recipient's premises to identify non-display devices. During an
audit, an auditor must review a firm's entitlement report to determine
usage. While display use is generally associated with an individual end
user and/or unique user ID, a non-display use is more difficult to
account for because the entitlement report may show a server name or
Internet protocol (``IP'') address or it may not. The auditor must
review
[[Page 21175]]
each IP or server and further inquire about downstream use and quantity
of servers with access to data; this type of counting is very labor-
intensive and prone to inaccuracies.
For these reasons, the Exchange determined that its current fee
structure, which is based on counting non-display devices, is no longer
appropriate in light of market and technology developments and does not
reflect the value of the non-display data and its many profit-
generating uses for subscribers. As such, the Exchange, in conjunction
with its domestic and foreign affiliate exchanges, undertook a review
of its market data policies with a goal of bringing greater consistency
and clarity to its fee structure; easing administration for itself,
vendors, and subscribers; and setting fees at a level that better
reflects the current value of the data provided. As a result of this
review, the Exchange has determined to implement a new fee structure
for display and non-display use of certain market data products.
Initially, the Exchange will implement the new non-display use fee
structure for NYSE MKT OpenBook, NYSE MKT BBO, and NYSE MKT Trades,
operative on April 1, 2013. The Exchange anticipates implementing a new
display use fee structure later this year; until such time, existing
fees for display use will apply.
Proposed Non-Display Usage Fees
The Exchange proposes to establish new monthly fees for non-display
usage, which for purposes of the proposed fee structure will mean
accessing, processing or consuming an NYSE MKT data product delivered
via direct and/or Redistributor \17\ data feeds, for a purpose other
than in support of its display or further internal or external
redistribution. The proposed non-display fees will apply to the non-
display use of the data product as part of automated calculations or
algorithms to support trading decision-making processes or the
operation of trading platforms (``Non-Display Trading Activities'').
They include, but are not limited to, high frequency trading, automated
order or quote generation and/or order pegging, or price referencing
for the purposes of algorithmic trading and/or smart order routing.
Applications and devices that solely facilitate display, internal
distribution, or redistribution of the data product with no other uses
and applications that use the data product for other non-trading
activities, such as the creation of derived data, quantitative
analysis, fund administration, portfolio management, and compliance,
are not covered by the proposed non-display fee structure and are
subject to the current standard per-device fee structure. The Exchange
reserves the right to audit data recipients' use of NYSE MKT market
data products in Non-Display Trading Activities in accordance with NYSE
MKT's vendor and subscriber agreements.
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\17\ ``Redistributor'' means a vendor or any other person that
provides an NYSE MKT data product to a data recipient or to any
system that a data recipient uses, irrespective of the means of
transmission or access.
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There will be two types of fees, which are described below. The
first type of fee is for internal non-display use. The second type of
fee is for managed non-display services. The current NYSE MKT Unit-of-
Count Policy will no longer apply to any non-display usage for NYSE MKT
BBO and NYSE MKT Trades.\18\
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\18\ Existing customers that are approved for the NYSE MKT Unit-
of-Count Policy for NYSE MKT BBO and NYSE MKT Trades display usage
may continue to follow that Policy until the new display fees are
implemented.
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Proposed Fees for Internal Non-Display Use
The proposed internal non-display use fees will apply to NYSE MKT
OpenBook, NYSE MKT BBO, and NYSE MKT Trades. Internal non-display use
occurs when a data recipient either manages its own non-display
infrastructure and controls the access to and permissioning of the
market data product on its non-display applications or when the data
recipient's non-display applications are hosted by a third party that
has not been approved to provide the managed non-display services as
described below.
The fee structure will have three categories, which recognize the
different uses for the market data. Category 1 Fees apply where a data
recipient's non-display use of real time market data is for the purpose
of principal trading. Category 2 Fees apply where a data recipient's
non-display use of market data is for the purpose of broker/agency
trading, i.e., trading-based activities to facilitate the recipient's
customers' business. If a data recipient trades both on a principal and
agency basis, then the data recipient must pay both categories of fees.
Category 3 Fees apply where a data recipient's non-display use of
market data is, in whole or in part, for the purpose of providing
reference prices in the operation of one or more trading platforms,
including but not limited to multilateral trading facilities,
alternative trading systems, broker crossing networks, dark pools, and
systematic internalization systems. A data recipient will not be liable
for Category 3 Fees for those market data products for which it is also
paying Category 1 and/or Category 2 Fees.
The fees for internal non-display use per data recipient
organization for each category will be as follows:
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Category 1 Category 2 Category 3
Trading as Trading as Trading
Product Principal (per Broker/Agency Platform (per
month) (per month) month)
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NYSE MKT OpenBook............................................... $1,500 $1,500 $1,500
NYSE MKT BBO.................................................... 500 500 500
NYSE MKT Trades................................................. 1,000 1,000 1,000
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For internal non-display use, there will be no reporting
requirements regarding non-display device counts, thus doing away with
the administrative burdens described above. Data recipients will be
required to declare the market data products used within their non-
display trading applications by executing an NYSE Euronext Non-Display
Usage Declaration.
Proposed Fees for Managed Non-Display Services
The Exchange also proposes to establish fees for managed non-
display services for NYSE MKT OpenBook and NYSE MKT Trades. Under the
managed non-display service, a data recipient's non-display
applications must be hosted by a Redistributor approved by the
Exchange, and this Redistributor must manage and control the access to
NYSE MKT OpenBook and/or NYSE MKT Trades for these applications and may
[[Page 21176]]
not allow for further internal distribution or external redistribution
of these market data products. The Redistributor of the managed non-
display services and the data recipient must be approved under the
current NYSE MKT Unit-of-Count Policy described above,\19\ which will
no longer be available for non-display use after the proposed fees are
implemented. If a data recipient is receiving NYSE MKT OpenBook or NYSE
MKT Trades for Non-Display Trading Activities from a Redistributor that
is not approved under the NYSE MKT Unit-of-Count Policy, then the
internal non-display fees described above will apply.
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\19\ See supra n.9. The Redistributor and data recipient will
qualify if they are approved for NYSE MKT Unit-of-Count Policy for
any NYSE MKT market data product. The products that are currently
approved for NYSE MKT Unit-of-Count Policy are NYSE MKT Trades and
NYSE MKT BBO.
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The fees for managed non-display services per data recipient
organization will be as follows:
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Managed Non-Display Use
Product Fee (per month)
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NYSE MKT OpenBook.............................. $500
NYSE MKT Trades................................ $400
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Data recipients will not be liable for managed non-display fees for
those market data products for which they pay the internal non-display
fee.
Upon request, Redistributor offering managed non-display services
must provide the Exchange with a list of data recipients that are
receiving NYSE MKT OpenBook or NYSE MKT Trades through the
Redistributor's managed non-display service. Data recipients of the
managed non-display service have no additional reporting requirements,
thus easing the administrative burdens described above.
Examples
Broker-Dealer A obtains NYSE MKT Trades directly from the Exchange
for internal use and does not fall under the NYSE MKT Unit-of-Count
Policy. Broker-Dealer A trades both on a principal and agency basis and
has (i) 80 individual persons who use 100 display devices and (ii) 50
non-display devices.
Under the current fee schedule, Broker-Dealer A pays the
Exchange the $750 access fee plus $10 for each of the 100 display
devices (although 80 individual persons use them, the number of devices
is counted), or $1,000, and $10 for each of the 50 non-display devices,
or $500, for a total of $2,250 per month.
Under the proposed fee schedule, Broker-Dealer A would pay
the Exchange the $750 access fee plus $10 for each of the 100 display
devices, or $1,000, and Category 1 and Category 2 fees for internal
non-display use, or $2,000, for a total of $3,750 per month. No
redistribution fee would be charged.
Broker-Dealer B, which only trades as principal, obtains NYSE MKT
Trades from Vendor X. Broker-Dealer B and Vendor X are both approved
for the NYSE MKT Unit-of-Count Policy. Broker-Dealer B has (i) 10
individual persons who use 12 display devices and (ii) 5 non-display
devices.
Under the current fee schedule, Vendor X pays the $750
access fee and Broker-Dealer B pays $150 ($10 for the 10 individual
persons (under the NYSE MKT Unit-of-Count Policy, the larger number of
display devices is not counted), or $100, plus $10 for each of the 5
non-display devices, or $50).
Under the proposed fee schedule, Broker-Dealer B would pay
$100 as it does today for its individual persons using display devices,
and $400 for managed non-display use, for a total of $500 per month in
fees. Vendor X would pay the $750 access fee.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\20\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\21\ in particular, in that it
provides an equitable allocation of reasonable fees among users and
recipients of the data and is not designed to permit unfair
discrimination among customers, issuers, and brokers.
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\20\ 15 U.S.C. 78f(b).
\21\ 15 U.S.C. 78f(b)(4), (5).
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The Exchange believes that the proposed fees for NYSE MKT OpenBook
are reasonable, equitable, and not unfairly discriminatory. The
Exchange believes that the fees for the OpenBook equity data feed are
reasonable because, as described above, they are less than or
equivalent to the fees charged by other exchanges for comparable data.
Moreover, the Exchange has offered the OpenBook data feed for free
since 2009, and it is reasonable and equitable for the Exchange to
begin charging fees in light of the value of the data and the costs
associated with consolidating and distributing it. The Exchange also
believes that the fees are equitable and not unfairly discriminatory
because the fee structure of access and professional and
nonprofessional subscriber fees is substantially the same as the fee
structure used by the Exchange for other products, the other exchanges,
and the CTA and CQ Plans.
As described in detail in the section ``Rationale for New Non-
Display Usage Fee Structure'' above, which is incorporated by reference
herein, technology has made it increasingly difficult to define
``device'' and to control who has access to devices. Significant change
has characterized the industry in recent years, stemming in large
measure from changes in regulation and technological advances, which
has led to the rise in automated and algorithmic trading, which have
the potential to generate substantial profits. Indeed, data used in a
single non-display device running a single trading algorithm can
generate large profits. Market data technology and usage has evolved to
the point where it is no longer practical, nor fair and equitable, to
simply count non-display devices. The administrative costs and
difficulties of establishing reliable counts and conducting an
effective audit of non-display devices have become too burdensome,
impractical, and non-economic for the Exchange, vendors, and data
recipients. Rather, the Exchange believes that its proposed flat fee
structure for non-display use is reasonable, equitable, and not
unfairly discriminatory in light of these developments.
Other exchanges also have established differentiated fees based on
non-display usage, including a flat or enterprise fee. For example,
NASDAQ professional subscribers pay monthly fees for non-display usage
based upon direct access to NASDAQ Level 2, NASDAQ TotalView, or NASDAQ
OpenView, which range from $300 per month for customers with one to 10
subscribers to $75,000 for customers with 250 or more subscribers.\22\
In addition, NASDAQ OMX PHLX, Inc. (``Phlx'') offers an alternative
$10,000 per month ``Non-Display Enterprise License'' fee that permits
distribution to an unlimited number of internal non-display subscribers
without incurring additional fees for each internal subscriber.\23\ The
Non-Display Enterprise License covers non-display subscriber fees for
all Phlx proprietary direct data feed products and is in addition to
any other associated distributor fees for Phlx proprietary direct data
feed products. NASDAQ OMX BX, Inc. (``BX'') also offers an alternative
non-display usage fee of $16,000 for its BX TotalView data
[[Page 21177]]
feed.\24\ NASDAQ and Phlx also both offer managed non-display data
solutions at higher overall fees than the Exchange proposes to
charge.\25\
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\22\ See NASDAQ Rule 7023(b)(4).
\23\ See Securities Exchange Act Release No. 68576 (Jan. 3,
2013), 78 FR 1886 (Jan. 9, 2013) (SR-Phlx-2012-145). Alternatively,
Phlx charges each professional subscriber $40 per month.
\24\ See NASDAQ OMX BX Rule 7023(a)(2). Alternatively, BX
charges each professional subscriber $40 per month.
\25\ NASDAQ established fees for a Managed Data Solution to
Distributors, which includes a monthly Managed Data Solution
Administration fee of $1,500 and monthly Subscriber fees ranging
from $60 to $300. See NASDAQ Rule 7026(b). Phlx also established a
Managed Data Solution, which includes a monthly Managed Data
Solution Administration fee of $1,500 and a monthly Subscriber fee
of $250. The monthly License fee is in addition to Phlx's monthly
Distributor fee of $2,500 (for external usage), and the $250 monthly
Subscriber fee is assessed for each Subscriber of a Managed Data
Solution. See Securities Exchange Act Release No. 67466 (July 19,
2012), 77 FR 43629 (July 25, 2012) (SR-Phlx-2012-93).
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The Exchange also believes that it is reasonable, equitable, and
not unfairly discriminatory to charge relatively lower fees for managed
non-display services because the Exchange expects that they will
generally be used by a small number of Redistributors and data
recipients that are currently eligible for the NYSE MKT Unit-of-Count
Policy. These data recipients are constrained by whatever applications
are available via Redistributors operating in the Exchange's co-
location center and other hosted facilities. In comparison, a data
recipient that elects internal non-display use is free to use the data
in any manner it chooses and create new uses in an unlimited number of
non-display devices. The lack of constraint in this regard will make
the non-display usage of the data more valuable to such an internal use
data recipient.
The Exchange has not raised the market data fees for NYSE MKT BBO
and NYSE MKT Trades since June 2010.\26\ The Exchange has made NYSE MKT
OpenBook available for free to date. The Exchange believes that the new
fee schedule, which may result in certain vendors and data recipients
paying more than they have in the last several years, is fair and
reasonable in light of market and technology developments. The current
per-device fee structure no longer reflects the significant overall
value that non-display data can provide in trading algorithms and other
uses that provide professional users with the potential to generate
substantial profits. The Exchange believes that it is equitable and not
unfairly discriminatory to establish an overall monthly fee that better
reflects the value of the data to the data recipients in their profit-
generating activities and does away with the costs and administrative
burdens of counting non-display devices.
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\26\ See supra n.5.
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The Exchange also notes that products described herein are entirely
optional. Firms are not required to purchase NYSE MKT OpenBook, NYSE
MKT BBO, or NYSE MKT Trades. Firms have a wide variety of alternative
market data products from which to choose.\27\ Moreover, the Exchange
is not required to make these proprietary data products available or to
offer any specific pricing alternatives to any customers.
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\27\ See supra nn.22-25.
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The decision of the United States Court of Appeals for the District
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (DC Cir.
2010), upheld reliance by the Securities and Exchange Commission
(``Commission'') upon the existence of competitive market mechanisms to
set reasonable and equitably allocated fees for proprietary market
data:
In fact, the legislative history indicates that the Congress
intended that the market system `evolve through the interplay of
competitive forces as unnecessary regulatory restrictions are
removed' and that the SEC wield its regulatory power `in those
situations where competition may not be sufficient,' such as in the
creation of a `consolidated transactional reporting system.'
Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted in
1975 U.S.C.C.A.N. 323). The court agreed with the Commission's
conclusion that ``Congress intended that `competitive forces should
dictate the services and practices that constitute the U.S. national
market system for trading equity securities.' '' \28\
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\28\ NetCoalition, 615 F.3d at 535.
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As explained below in the Exchange's Statement on Burden on
Competition, the Exchange believes that there is substantial evidence
of competition in the marketplace for data and that the Commission can
rely upon such evidence in concluding that the fees established in this
filing are the product of competition and therefore satisfy the
relevant statutory standards.\29\ In addition, the existence of
alternatives to these data products, such as proprietary last sale data
from other sources, as described below, further ensures that the
Exchange cannot set unreasonable fees, or fees that are unreasonably
discriminatory, when vendors and subscribers can elect such
alternatives.
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\29\ Section 916 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (the ``Dodd-Frank Act'') amended
paragraph (A) of Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3),
to make clear that all exchange fees for market data may be filed by
exchanges on an immediately effective basis.
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As the NetCoalition decision noted, the Commission is not required
to undertake a cost-of-service or ratemaking approach, and the Exchange
incorporates by reference into this proposed rule change its
affiliate's analysis of this topic in another rule filing.\30\
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\30\ See Securities Exchange Act Release No. 63291 (Nov. 9,
2010), 75 FR 70311 (Nov. 17, 2010) (SR-NYSEArca-2010-97).
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For these reasons, the Exchange believes that the proposed fees are
reasonable, equitable, and not unfairly discriminatory.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. An exchange's ability to
price its proprietary data feed products is constrained by actual
competition for the sale of proprietary market data products, the joint
product nature of exchange platforms, and the existence of alternatives
to the Exchange's proprietary last sale data.
The Existence of Actual Competition. The market for proprietary
data products is currently competitive and inherently contestable
because there is fierce competition for the inputs necessary to the
creation of proprietary data and strict pricing discipline for the
proprietary products themselves. Numerous exchanges compete with each
other for listings and order flow and sales of market data itself,
providing virtually limitless opportunities for entrepreneurs who wish
to compete in any or all of those areas, including producing and
distributing their own market data. Proprietary data products are
produced and distributed by each individual exchange, as well as other
entities, in a vigorously competitive market.
Competitive markets for listings, order flow, executions, and
transaction reports provide pricing discipline for the inputs of
proprietary data products and therefore constrain markets from
overpricing proprietary market data. The U.S. Department of Justice
also has acknowledged the aggressive competition among exchanges,
including for the sale of proprietary market data itself. In announcing
that the bid for NYSE Euronext by NASDAQ OMX Group Inc. and
IntercontinentalExchange Inc. had been abandoned, Assistant Attorney
General Christine Varney stated that exchanges ``compete head to head
to offer real-time equity data products. These data products include
the best bid and offer
[[Page 21178]]
of every exchange and information on each equity trade, including the
last sale.'' \31\
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\31\ Press Release, U.S. Department of Justice, Assistant
Attorney General Christine Varney Holds Conference Call Regarding
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning
Their Bid for NYSE Euronext (May 16, 2011), available at http://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html.
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It is common for broker-dealers to further exploit this recognized
competitive constraint by sending their order flow and transaction
reports to multiple markets, rather than providing them all to a single
market. As a 2010 Commission Concept Release noted, the ``current
market structure can be described as dispersed and complex'' with
``trading volume * * * dispersed among many highly automated trading
centers that compete for order flow in the same stocks'' and ``trading
centers offer[ing] a wide range of services that are designed to
attract different types of market participants with varying trading
needs.'' \32\
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\32\ Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21,
2010) (File No. S7-02-10). This Concept Release included data from
the third quarter of 2009 showing that no market center traded more
than 20% of the volume of listed stocks, further evidencing the
dispersal of and competition for trading activity. Id. at 3598.
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In addition, in the case of products that are distributed through
market data vendors, the market data vendors themselves provide
additional price discipline for proprietary data products because they
control the primary means of access to certain end users. These vendors
impose price discipline based upon their business models. For example,
vendors that assess a surcharge on data they sell are able to refuse to
offer proprietary products that their end users do not or will not
purchase in sufficient numbers. Internet portals, such as Google,
impose price discipline by providing only data that they believe will
enable them to attract ``eyeballs'' that contribute to their
advertising revenue. Similarly, vendors will not elect to make
available the NYSE MKT products described herein unless their customers
request them, and customers will not elect to purchase them unless they
can be used for profit-generating purposes. All of these operate as
constraints on pricing proprietary data products.
Joint Product Nature of Exchange Platform. Transaction execution
and proprietary data products are complementary in that market data is
both an input and a byproduct of the execution service. In fact, market
data and trade executions are a paradigmatic example of joint products
with joint costs. The decision whether and on which platform to post an
order will depend on the attributes of the platforms where the order
can be posted, including the execution fees, data quality, and price
and distribution of their data products. The more trade executions a
platform does, the more valuable its market data products become.
The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's transaction execution
platform and the cost of regulating the exchange to ensure its fair
operation and maintain investor confidence. The total return that a
trading platform earns reflects the revenues it receives from both
products and the joint costs it incurs. Moreover, an exchange's broker-
dealer customers view the costs of transaction executions and market
data as a unified cost of doing business with the exchange.
Other market participants have noted that the liquidity provided by
the order book, trade execution, core market data, and non-core market
data are joint products of a joint platform and have common costs.\33\
The Exchange agrees with and adopts those discussions and the arguments
therein. The Exchange also notes that the economics literature confirms
that there is no way to allocate common costs between joint products
that would shed any light on competitive or efficient pricing.\34\
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\33\ See Securities Exchange Act Release No. 62887 (Sept. 10,
2010), 75 FR 57092, 57095 (Sept. 17, 2010) (SR-Phlx-2010-121);
Securities Exchange Act Release No. 62907 (Sept. 14, 2010), 75 FR
57314, 57317 (Sept. 20, 2010) (SR-NASDAQ-2010-110); and Securities
Exchange Act Release No. 62908 (Sept. 14, 2010), 75 FR 57321, 57324
(Sept. 20, 2010) (SR-NASDAQ-2010-111) (``all of the exchange's costs
are incurred for the unified purposes of attracting order flow,
executing and/or routing orders, and generating and selling data
about market activity. The total return that an exchange earns
reflects the revenues it receives from the joint products and the
total costs of the joint products.''); see also August 1, 2008
Comment Letter of Jeffrey S. Davis, Vice President and Deputy
General Counsel, NASDAQ OMX Group, Inc., Statement of Janusz Ordover
and Gustavo Bamberger (``because market data is both an input to and
a byproduct of executing trades on a particular platform, market
data and trade execution services are an example of `joint products'
with `joint costs.' ''), attachment at pg. 4, available at
www.sec.gov/comments/34-57917/3457917-12.pdf.
\34\ See generally Mark Hirschey, Fundamentals of Managerial
Economics, at 600 (2009) (``It is important to note, however, that
although it is possible to determine the separate marginal costs of
goods produced in variable proportions, it is impossible to
determine their individual average costs. This is because common
costs are expenses necessary for manufacture of a joint product.
Common costs of production--raw material and equipment costs,
management expenses, and other overhead--cannot be allocated to each
individual by-product on any economically sound basis. * * * Any
allocation of common costs is wrong and arbitrary.''). This is not
new economic theory. See, e.g., F. W. Taussig, ``A Contribution to
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4)
438, 465 (July 1891) (``Yet, surely, the division is purely
arbitrary. These items of cost, in fact, are jointly incurred for
both sorts of traffic; and I cannot share the hope entertained by
the statistician of the Commission, Professor Henry C. Adams, that
we shall ever reach a mode of apportionment that will lead to
trustworthy results.'').
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Analyzing the cost of market data product production and
distribution in isolation from the cost of all of the inputs supporting
the creation of market data and market data products will inevitably
underestimate the cost of the data and data products. Thus, because it
is impossible to obtain the data inputs to create market data products
without a fast, technologically robust, and well-regulated execution
system, system costs and regulatory costs affect the price of both
obtaining the market data itself and creating and distributing market
data products. It would be equally misleading, however, to attribute
all of an exchange's costs to the market data portion of an exchange's
joint products. Rather, all of an exchange's costs are incurred for the
unified purposes of attracting order flow, executing and/or routing
orders, and generating and selling data about market activity. The
total return that an exchange earns reflects the revenues it receives
from the joint products and the total costs of the joint products.
The level of competition and contestability in the market is
evident in the numerous alternative venues that compete for order flow,
including 12 equities self-regulatory organization (``SRO'') markets,
as well as internalizing broker-dealers (``BDs'') and various forms of
alternative trading systems (``ATSs''), including dark pools and
electronic communication networks (``ECNs''). Competition among trading
platforms can be expected to constrain the aggregate return that each
platform earns from the sale of its joint products, but different
platforms may choose from a range of possible, and equally reasonable,
pricing strategies as the means of recovering total costs. For example,
some platforms may choose to pay rebates to attract orders, charge
relatively low prices for market data products (or provide market data
products free of charge), and charge relatively high prices for
accessing posted liquidity. Other platforms may choose a strategy of
paying lower rebates (or no rebates) to attract orders, setting
relatively high prices for market data products, and setting relatively
low prices for accessing posted liquidity. In
[[Page 21179]]
this environment, there is no economic basis for regulating maximum
prices for one of the joint products in an industry in which suppliers
face competitive constraints with regard to the joint offering.
Existence of Alternatives. The large number of SROs, BDs, and ATSs
that currently produce proprietary data or are currently capable of
producing it provides further pricing discipline for proprietary data
products. Each SRO, ATS, and BD is currently permitted to produce
proprietary data products, and many currently do or have announced
plans to do so, including but not limited to the Exchange, NYSE, NYSE
Arca, NASDAQ OMX, BATS, and Direct Edge.
The fact that proprietary data from ATSs, BDs, and vendors can
bypass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and sale of proprietary data
products. Second, because a single order or transaction report can
appear in an SRO proprietary product, a non-SRO proprietary product, or
both, the amount of data available via proprietary products is greater
in size than the actual number of orders and transaction reports that
exist in the marketplace. Because market data users can thus find
suitable substitutes for most proprietary market data products,\35\ a
market that overprices its market data products stands a high risk that
users may substitute another source of market data information for its
own.
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\35\ See supra n.22-25.
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Those competitive pressures imposed by available alternatives are
evident in the Exchange's proposed pricing. As noted above, the
proposed non-display fees for NYSE MKT OpenBook, NYSE MKT Trades, and
NYSE MKT BBO are generally lower than the maximum non-display fees
charged by other exchanges such as NASDAQ, Phlx, and BX for comparable
products.\36\ The proposed NYSE MKT OpenBook access and subscriber fees
are same or lower than other exchanges' comparable fees.\37\
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\36\ Id.
\37\ See supra nn.10, 13.
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In addition to the competition and price discipline described
above, the market for proprietary data products is also highly
contestable because market entry is rapid and inexpensive. The history
of electronic trading is replete with examples of entrants that swiftly
grew into some of the largest electronic trading platforms and
proprietary data producers: Archipelago, Bloomberg Tradebook, Island,
RediBook, Attain, TrackECN, BATS, and Direct Edge. Today, BATS and
Direct Edge provide certain market data at no charge on their Web sites
in order to attract more order flow, and use revenue rebates from
resulting additional executions to maintain low execution charges for
their users.\38\
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\38\ This is simply a securities market-specific example of the
well-established principle that in certain circumstances more sales
at lower margins can be more profitable than fewer sales at higher
margins; this example is additional evidence that market data is an
inherent part of a market's joint platform.
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Further, data products are valuable to certain end users only
insofar as they provide information that end users expect will assist
them or their customers. The Exchange believes the proposed non-display
fees will benefit customers by providing them with a clearer way to
determine their fee liability for non-display devices, and with respect
to internal use, to obviate the need to count such devices.
In establishing the proposed fees, the Exchange considered the
competitiveness of the market for proprietary data and all of the
implications of that competition. The Exchange believes that it has
considered all relevant factors and has not considered irrelevant
factors in order to establish fair, reasonable, and not unreasonably
discriminatory fees and an equitable allocation of fees among all
users. The existence of numerous alternatives to the Exchange's
products, including proprietary data from other sources, ensures that
the Exchange cannot set unreasonable fees, or fees that are
unreasonably discriminatory, when vendors and subscribers can elect
these alternatives or choose not to purchase a specific proprietary
data product if its cost to purchase is not justified by the returns
any particular vendor or subscriber would achieve through the purchase.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange published draft Data Policies on its Web site on
November 20, 2012. Among other things, the Data Policies addressed non-
display use for certain market data products. The Exchange solicited
comments on the Data Policies in the form of a survey. The Exchange
received 14 comments relating to non-display use. Exhibit 2 contains a
copy of the notice soliciting comment, the Data Policies, the 14
comments received in alphabetical order, and an alphabetical listing of
such comments.
Nine commenters \39\ requested greater clarity with respect to the
definition and examples of non-display use. Specifically, the
commenters requested that the Exchange provide a consistent definition
of non-display use. As described above, the definition of non-display
use will be accessing, processing or consuming an NYSE MKT data product
delivered via direct and/or Redistributor data feeds, for a purpose
other than in support of its display or further internal or external
redistribution. The Exchange believes that this definition addresses
the comments and will clearly describe the types of activities that
will qualify for the proposed fee. The Exchange also provided examples
for illustrative purposes, which are not exclusive.
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\39\ Barclays, Brown Brothers Harriman, CMC Markets, Deutsche
Bank, Flowtraders, Nomura, Threadneedle, Transtrend BV, and UBS.
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Four commenters \40\ also questioned whether price referencing,
compliance, accounting or auditing activities, and derived data should
be considered non-display use. The Data Policies listed price
referencing, compliance, accounting or auditing activities, and derived
data as examples of non-display usage; however, as discussed above, the
Exchange has determined that price referencing for the purposes of
algorithmic trading and/or smart order routing would be considered Non-
Display Trading Activities, and applications that use the data product
for non-trading activities, such as compliance, accounting or auditing
activities, and derived data are not covered by the non-display fees
and are subject to the current standard per-device fee structure.
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\40\ Barclays, CMC Markets, Transtrend BV, and UBS.
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Three commenters \41\ requested clarity on the NYSE MKT Unit-of-
Count Policy for non-display use. As discussed above, the NYSE MKT
Unit-of-Count Policy will continue to apply to Redistributors and
customers that have been approved under the NYSE MKT Unit-of-Count
Policy. Under the proposed rule change, the pricing structure for
display usage will remain the same. However, for non-display usage,
customers approved under the NYSE MKT Unit-of-Count Policy will be
eligible for the managed non-display services at the managed non-
display fee, which is offered either directly from the Exchange or
through a Redistributor.
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\41\ Barclays, Essex Radez LLC, and UBS.
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Two commenters \42\ asked for more detail on the managed non-
display
[[Page 21180]]
service, which the Exchange has provided above.
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\42\ FXCM and RTS Group.
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Three commenters \43\ asked for examples of how the Exchange would
charge for customers that use both display and non-display devices. The
Exchange believes that the pricing examples provided above are
responsive to this request.
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\43\ Essex Radez LLC, Fidelity Market Data, and Lloyds TSB Bank
plc.
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One commenter \44\ stated that the proposed fees are excessive. The
Exchange believes that the proposed fees are reasonable, equitable, and
not unfairly discriminatory for the reasons discussed in Section 3(b)
above.
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\44\ Essex Radez LLC.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change is effective upon filing pursuant to
Section 19(b)(3)(A) \45\ of the Act and subparagraph (f)(2) of Rule
19b-4 \46\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\45\ 15 U.S.C. 78s(b)(3)(A).
\46\ 17 CFR 240.19b-4(f)(2).
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At any time within 60 days of the filing of such proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings under
Section 19(b)(2)(B) \47\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\47\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEMKT-2013-32 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEMKT-2013-32. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEMKT-2013-32 and should
be submitted on or before April 30, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\48\
Kevin M. O'Neill,
Deputy Secretary.
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\48\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-08176 Filed 4-8-13; 8:45 am]
BILLING CODE 8011-01-P