[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21464-21469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08324]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69298; File No. SR-NYSE-2013-24]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Establish Certain Fees for the NYSE Trades and NYSE Realtime Reference
Prices Market Data Products
April 4, 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 21, 2013, New York Stock Exchange LLC (``NYSE'' or
the ``Exchange'') 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 establish certain fees for the NYSE Trades
and NYSE Realtime Reference Prices (``NYSE RRP'') market data products.
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, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to establish certain fees for the NYSE Trades
and NYSE RRP market data products.
Background
Current NYSE Trades Basic and Broadcast Fees
In 2009, the Securities and Exchange Commission (``SEC'' or the
``Commission'') approved the NYSE Trades data feed and certain fees for
it.\4\ NYSE Trades is a NYSE-only market data feed that allows a vendor
to redistribute on a real-time basis the same last sale information
that the Exchange reports under the Consolidated Tape Association
(``CTA'') Plan for inclusion in the CTA Plan's consolidated data
streams and certain other related data elements. Specifically, NYSE
Trades includes the real-time last sale price, time, size, and bid/ask
quotations for each security traded on the Exchange and a stock summary
message. The stock summary message updates every minute and
[[Page 21465]]
includes NYSE's opening price, high price, low price, closing price,
and cumulative volume for the security.
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\4\ See Securities Exchange Act Release No. 59606 (Mar. 19,
2009), 74 FR 13293 (Mar. 26, 2009) (SR-NYSE-2009-04).
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The Exchange currently charges NYSE Trades data feed recipients an
access fee of $1,500 per month, and a subscriber fee for professional
subscribers of $15 per month per device, which may be counted, at the
election of the vendor based on the number of ``Subscriber
Entitlements'' \5\ (collectively, these fees are referred to in this
filing as ``NYSE Trades basic fees''). In July 2012, the Exchange added
a fee for distribution by television broadcasters (``Broadcast Fee''),
which is $40,000 per month.\6\ The television broadcast distribution
method differs from the other distribution methods in that the data is
available in a temporary, view-only mode on television screens.
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\5\ See id. at n.5; Securities Exchange Act Release No. 62038
(May 5, 2010), 75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22).
\6\ See Securities Exchange Act Release No. 67467 (July 19,
2012), 77 FR 43636 (July 25, 2012) (SR-NYSE-2012-28).
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Current NYSE RRP Fees
The Exchange also offers NYSE RRP.\7\ NYSE RRP is designed for Web
site distribution and includes the real-time last sale price and time
for each security traded on the Exchange as well as the stock summary
message, but does not include the size of each trade or bid/ask
quotations.
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\7\ See Securities Exchange Act Release No. 61406 (Jan. 22,
2010), 75 FR 4600 (Jan. 28, 2010) (SR-NYSE-2009-120).
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The Exchange currently charges a flat fee of $60,000 per month with
no user-based fees for NYSE RRP. For that fee, the vendor may provide
NYSE RRP to an unlimited number of the vendor's subscribers and
customers without having to differentiate between professional
subscribers and nonprofessional subscribers, without having to account
for the extent of access to the data, and without having to report the
number of users. As an alternative to the NYSE RRP flat monthly fee,
the Exchange offers an alternative fee of $.004 for each real-time
reference price that a vendor disseminates to its customers (``per
query fee''), which is capped at $60,000 per month, the same amount as
the flat fee. In order to take advantage of the per-query fee, a vendor
must document that it has the ability to measure accurately the number
of queries and must have the ability to report aggregate query
quantities on a monthly basis. The per-query fee is imposed on vendors,
not end-users. There are currently no fees for NYSE RRP that are
specifically designed for television or mobile device distribution.
NYSE RRP was created to allow distribution of a last sale data
product for reference purposes on Web sites at a low cost that would
facilitate distribution to millions of retail investors and relieve
vendors of administrative burdens.\8\ NYSE RRP is an alternative to
delayed prices and is not intended for use in trading decisions.\9\ As
such, distribution of NYSE RRP is subject to certain requirements.
Specifically, vendors may not provide NYSE RRP in a context in which a
trading or order routing decision can be implemented unless CTA data is
available in an equivalent manner, must label NYSE RRP as NYSE-only
data, and must provide a hyperlinked notice similar to the one provided
for CTA delayed data.\10\
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\8\ See Securities Exchange Act Release No. 55354 (Feb. 26,
2007), 72 FR 9817 (Mar. 5, 2007) (SR-NYSE-2007-04) (proposing NYSE
RRP pilot).
\9\ See Securities Exchange Act Release No. 60004 (May 29,
2009), 74 FR 26905 (June 4, 2009) (SR-NYSE-2009-42) (making NYSE RRP
pilot permanent) (``NYSE RRP Permanent Approval Order'').
\10\ Id.
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New Digital Media Offerings
The Exchange recently created a new version of NYSE Trades, NYSE
Trades Digital Media, which will allow market data vendors, television
broadcasters, Web site and mobile device service providers, and others
to distribute the product to their customers for viewing via
television, Web site, and mobile devices.\11\ The NYSE Trades Digital
Media product includes access to the real-time last sale price, time,
and size for each security traded on the Exchange as well as the stock
summary message, but does not include access to the bid/ask quotation
that is included with NYSE Trades product under the basic fees or
Broadcast Fee. Vendors may not provide the NYSE Trades Digital Media
product in a context in which a trading or order routing decision can
be implemented unless CTA data is available in an equivalent manner,
must label the product as NYSE-only data, and must provide a
hyperlinked notice similar to the one provided for CTA delayed data.
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\11\ See SR-NYSE-2013-23.
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The Exchange also will offer NYSE RRP Digital Media so that NYSE
RRP will be available for distribution in the same manner as NYSE
Trades Digital Media, via television, Web site, and mobile devices. The
data elements of NYSE RRP (last sale price, time, and stock summary
message) will remain unchanged from today's NYSE RRP product offering.
The Exchange has established these Digital Media products in
recognition of the demand for a more seamless and easier-to-administer
data distribution model that takes into account the expanded variety of
media and communication devices that investors utilize today. For
example, a television broadcaster could display the NYSE Trades data
during market-related television programming and on its Web site and
allow its viewers to view the data via their mobile devices, creating a
more seamless distribution model that will allow investors more choice
in how they receive and view market data.
Proposed Digital Media Fees
The NYSE Trades Digital Media Enterprise Fee will be $40,000 per
month, and the NYSE RRP Digital Media Enterprise Fee will be $25,000
per month. The Exchange notes that the NYSE RRP Digital Media
Enterprise Fee is lower than NYSE Trades Digital Media Enterprise Fee
because it does not include trade size data. Vendors that pay these
fees will not be required to pay an access fee, but they will be
required to pay the redistribution fees as described below. As with the
current NYSE RRP product and the Broadcast Fee, a vendor paying the
Digital Media Enterprise Fee may deliver the NYSE Trades and NYSE RRP
data to an unlimited number of television, Web site, and mobile device
viewers without having to differentiate between professional
subscribers and nonprofessional subscribers, without having to account
for the extent of access to the data, and without having to report the
number of users.
For NYSE Trades, the television-only $40,000 Broadcast Fee option
will no longer be available. For NYSE RRP, web-only distribution for
$60,000 per month will no longer be available. The Exchange does not
believe that any customers would elect these options in light of the
broader distribution offered with the new Digital Media Enterprise Fees
and the substantially lower price for NYSE RRP Digital Media.
The Exchange will continue to offer the $.004 per query fee for
NYSE RRP to any vendor that so chooses, but the Exchange proposes to
reduce the cap to $25,000, the same amount as the NYSE RRP Digital
Media Enterprise Fee. Vendors and subscribers receiving NYSE Trades via
traditional distribution methods, e.g. a Bloomberg terminal or a
broker-dealer customer Web site that permits order entry, will not be
eligible for Digital Media Enterprise Fees and
[[Page 21466]]
will continue to pay NYSE Trades basic fees.
Redistribution Fees
The Exchange also proposes to charge a redistribution fee of $1,000
per month for NYSE Trades and $1,500 per month for NYSE RRP.\12\ The
redistribution fees will apply regardless of whether the customer is
eligible for the Digital Media Enterprise Fees or NYSE Trades basic
fees.
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\12\ A redistributor is a vendor or any other person that
provides an NYSE 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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Operative Date
The Digital Media Enterprise Fees will be operative on April 1,
2013 and the redistribution fees will be operative on May 1, 2013.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\13\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ 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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\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(4), (5).
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The proposed NYSE Trades Digital Media Enterprise Fee of $40,000
per month and NYSE RRP Digital Media Enterprise Fee of $25,000 per
month are reasonable because they will offer a means for vendors to
more widely distribute NYSE Trades and NYSE RRP data to investors for
informational purposes at the same cost (in the case of NYSE Trades) or
a lower cost (in the case of NYSE RRP) than is available today.
Currently, NYSE Trades can be distributed via television for a $40,000
monthly fee, but that fee does not include Web site or mobile device
distribution. NYSE RRP can be distributed over Web sites for a $60,000
monthly fee, but that fee does not include television or mobile device
distribution. The Exchange believes that the proposed Digital Media
Enterprise Fees are reasonable because in certain instances they are
less than the fees charged by another exchange for a similar
product.\15\ The Exchange also believes that it is reasonable to charge
more for NYSE Trades Digital Media than NYSE RRP Digital Media because
the former includes trade size data. The Exchange believes that the
price reduction for NYSE RRP coupled with the broader distribution
options will make the product more attractive and result in its greater
availability to investors. The Exchange believes that reducing the cap
for the per query fee from $60,000 to $25,000 is reasonable because it
will be equal to the proposed monthly NYSE RRP Digital Media Enterprise
Fee. The Exchange believes that reducing the cap for the per query fee
is equitable and not unfairly discriminatory because it is designed to
ensure that vendors that elect the per query fee do not pay more for
real-time reference price data than vendors that pay a flat fee for
unlimited use.
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\15\ The NASDAQ Stock Market offers proprietary last sale data
products for distribution over the Internet and television under
alternative fee schedules that are subject to a maximum fee is
$50,000 per month. See NASDAQ Rule 7039(b).
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The proposed Digital Media Enterprise Fees also are equitable and
not unfairly discriminatory because they will be applied uniformly to
market data vendors, television broadcasters, Web site and mobile
service providers, or any other person that distributes the data on the
basis described in this filing. The Exchange believes that it is
appropriate to offer a lower cost fee structure that is designed to
facilitate broader media distribution of the NYSE Trades and NYSE RRP
data for informational purposes because it will benefit investors
generally. Moreover, the value of the data distributed generally in the
media for informational purposes differs from when it is distributed in
manner in which it can immediately be utilized for trading decisions.
The Exchange believes that the data is more valuable in that latter
context, and as such, it is fair and equitable to have differential
pricing for it.
In establishing the Digital Media Enterprise Fees, the Exchange
recognizes that there is demand for a more seamless and easier-to-
administer data distribution model that takes into account the expanded
variety of media and communication devices that investors utilize
today. As is the case with the current NYSE RRP product and the
Broadcast Fee, the Exchange believes that the Digital Media Enterprise
Fee will be easy to administer because vendors that purchase it will
not have to differentiate between professional subscribers and
nonprofessional subscribers, account for the extent of access to the
data, or report the number of users; this is a significant reduction in
vendors' administrative burdens and is a significant value to vendors.
For example, a television broadcaster could display the NYSE Trades
Digital Media data during market-related television programming and on
its Web site and allow its viewers to view the data via their mobile
devices, creating a more seamless distribution model that will allow
investors more choice in how they receive and view market data, all
without having to account for and/or measure who accesses the data and
how much they do so. By easing administration, broadening distribution
channels, and, in the case of NYSE RRP, reducing prices, the Exchange
believes that more vendors will choose to offer NYSE Trades and NYSE
RRP, thereby expanding the distribution of market data for the benefit
of investors.
The proposed redistribution fees also are reasonable because they
are comparable to other redistribution fees charged by other
exchanges.\16\ The Exchange believes it is reasonable to charge
redistribution fees because vendors receive value from redistributing
the data in their business products for their customers. The
redistribution fees also are equitable and not unfairly discriminatory
because they will be charged on an equal basis only to those vendors
that choose to redistribute the data.
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\16\ For example, NYSE Arca, Inc. (``NYSE Arca'') and NYSE MKT
LLC (``NYSE MKT'') charge redistribution fees of $2,000 per month
for certain proprietary options market data products. See Securities
Exchange Act Release Nos. 68005 (Oct. 9, 2012), 77 FR 63362 (Oct.
16, 2012) (SR-NYSEArca-2012-106), and 68004 (Oct. 9, 2012), 77 FR
62582 (Oct. 15, 2012) (SR-NYSEMKT-2012-49). NYSE Arca charges a
$3,000 per month redistribution fee for the NYSE Arca Integrated
Feed. See Securities Exchange Act Release No. 66128 (Jan. 10, 2012),
77 FR 2331 (Jan. 17, 2012) (SR-NYSEArca-2011-96). The Options Price
Reporting Authority's Fee Schedule, available at http://www.opradata.com/pdf/fee_schedule.pdf, includes an ``Internet
Service Only'' redistribution fee ($650/month) and standard
redistribution fee ($1,500/month).
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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 (D.C. Cir.
2010), upheld the Commission's reliance 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
[[Page 21467]]
forces should dictate the services and practices that constitute the
U.S. national market system for trading equity securities.' '' \17\
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\17\ 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.\18\ In addition, the existence of
alternatives to NYSE Trades and NYSE RRP, including real-time
consolidated data, free delayed consolidated data, and 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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\18\ 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.\19\
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\19\ 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 (1) Actual
competition for the sale of proprietary market data products, (2) the
existence of inexpensive real-time consolidated data and free delayed
consolidated data, and (3) the inherent contestability of the market
for proprietary last sale data and the joint product nature of exchange
platforms.
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 of every exchange and information on each equity
trade, including the last sale.'' \20\
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\20\ Press Release, U.S. Department of Justice, Assistant
Attorney General Christine Varney Holds Conference Call Regarding
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abondoning
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.'' \21\
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\21\ 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, television broadcasters and Web site
and mobile device service providers will not elect to make available
NYSE Trades or NYSE RRP unless they believe it will help them attract
or maintain viewers/customers for their television, Web site, or mobile
device offerings. All of these operate as constraints on pricing
proprietary data products.
Joint 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
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common costs.\22\ 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.\23\
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\22\ 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.
\23\ 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 of
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 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 MKT,
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, 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.
Moreover, consolidated data provides two additional measures of
pricing discipline for proprietary data products that are a subset of
the consolidated data stream. First, the consolidated data is widely
available in real-time at $1 per month for non-professional users.
Second, consolidated data is also available at no cost with a 15- or
20-minute delay. Because consolidated data contains marketwide
information, it effectively places a cap on the fees assessed for
proprietary data (such as last sale data) that is simply a subset of
the consolidated data. The mere availability of low-cost or free
consolidated data provides a powerful form of pricing discipline for
proprietary data products that contain data elements that are a subset
of the consolidated data by highlighting the optional nature of
proprietary products.
Those competitive pressure imposed by available alternatives are
evident in the Exchange's proposed pricing. The Digital Media
Enterprise Fees, which will permit broader distribution at the same
price (in the case of NYSE Trades) or a lower price (in the case of
NYSE RRP) than is available today, also are lower than the maximum fee
for a similar product offered by another exchange \24\ and lower than
the television distribution fee charged by CTA.\25\ The proposed
redistribution fees also are comparable to other exchanges' similar
fees.\26\
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\24\ See supra n.15.
\25\ See CTA Plan dated July 1, 2012, Exhibit E, Schedule A-1 at
n.6 (television distribution fee capped at $125,000 per month in
2010, with certain increases permitted thereafter) available at
http://www.nyxdata.com/CTA.
\26\ See supra n.16.
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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 Trading 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
[[Page 21469]]
executions to maintain low execution charges for their users.\27\
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\27\ 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 in tracking prices and market trends. The
Exchange believes that the Digital Media Enterprise Fees, which will
permit wider distribution of last sale information at a lower price,
may encourage more vendors to choose to offer NYSE Trades or NYSE RRP
over multiple communication devices and thereby benefit public
investors and other market participants by providing them with more
convenient ways to track prices and market trends during the course of
the trading day. The Exchange further believes that only vendors that
expect to derive a reasonable benefit from redistributing NYSE Trades
and NYSE RRP data will choose to become redistributors and pay the
attendant monthly fees.
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 real-time consolidated data, free delayed
consolidated data, and 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
No written comments were solicited or received with respect to the
proposed rule change.
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) \28\ of the Act and subparagraph (f)(2) of Rule
19b-4 \29\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\28\ 15 U.S.C. 78s(b)(3)(A).
\29\ 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) \30\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\30\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSE-2013-24 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-NYSE-2013-24. 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 on
official business days between the hours of 10:00 a.m. and 3:00 p.m.
Copies of such filing also will be available for inspection and copying
at the principal offices of NYSE. 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-NYSE-2013-24, and should be submitted on or before May
1, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
Kevin M. O'Neill,
Deputy Secretary.
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\31\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-08324 Filed 4-9-13; 8:45 am]
BILLING CODE 8011-01-P