[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21436-21441]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08325]
[[Page 21436]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69299; File No. SR-NYSEArca-2013-31]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Establishing
Certain Fees for the NYSE Arca Trades and NYSE Arca 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 22, 2013, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') 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 Arca
Trades and NYSE Arca Realtime Reference Prices (``NYSE Arca 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 Arca
Trades and NYSE Arca RRP market data products.
Background
Current NYSE Arca Trades Basic and Broadcast Fees
In 2009, the Securities and Exchange Commission (``SEC'' or the
``Commission'') approved the NYSE Arca Trades data feed and certain
fees for it.\4\ NYSE Arca Trades is a NYSE Arca-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 Arca 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 includes NYSE Arca'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. 59598 (Mar. 18,
2009), 74 FR 12919 (Mar. 25, 2009) (SR-NYSEArca-2009-05).
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The Exchange currently charges NYSE Arca Trades data feed
recipients an access fee of $750 per month, and a subscriber fee for
professional subscribers of $10 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 Arca Trades basic fees''). In July 2012,
the Exchange added a fee for distribution by television broadcasters
(``Broadcast Fee''), which is $20,000 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 Securities Exchange Act Release No. 62188 (May 27,
2010), 75 FR 31484 (June 3, 2010) (SR-NYSEArca-2010-23).
\6\ See Securities Exchange Act Release No. 67436 (July 13,
2012), 77 FR 42529 (July 19, 2012) (SR-NYSEArca-2012-73).
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Current NYSE Arca RRP Fees
The Exchange also offers NYSE Arca RRP.\7\ NYSE Arca 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. 61404 (Jan. 22,
2010), 75 FR 5363 (Feb. 2, 2010) (SR-NYSEArca-2009-108).
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The Exchange currently charges a flat fee of $30,000 per month with
no user-based fees for NYSE Arca RRP. For that fee, the vendor may
provide NYSE Arca 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
Arca 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 $30,000 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 Arca RRP that are specifically designed for television or mobile
device distribution.
NYSE Arca 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 Arca RRP is an alternative
to delayed prices and is not intended for use in trading decisions.\9\
As such, distribution of NYSE Arca RRP is subject to certain
requirements. Specifically, vendors may not provide NYSE Arca 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
Arca RRP as NYSE Arca-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. 59790 (Apr. 20,
2009), 74 FR 18758 (Apr. 24, 2009) (SR-NYSEArca-2009-32).
\9\ Id. at 18759.
\10\ Id.
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[[Page 21437]]
New Digital Media Offerings
The Exchange recently created a new version of NYSE Arca Trades,
NYSE Arca 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 Arca 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 Arca Trades product under the
basic fees or Broadcast Fee. Vendors may not provide the NYSE Arca
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 Arca-only data, and
must provide a hyperlinked notice similar to the one provided for CTA
delayed data.
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\11\ See SR-NYSEArca-2013-30.
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The Exchange also will offer NYSE Arca RRP Digital Media so that
NYSE Arca RRP will be available for distribution in the same manner as
NYSE Arca Trades Digital Media, via television, Web site, and mobile
devices. The data elements of NYSE Arca RRP (last sale price, time, and
stock summary message) will remain unchanged from today's NYSE Arca 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 Arca 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 Arca Trades Digital Media Enterprise Fee will be $20,000
per month, and the NYSE Arca RRP Digital Media Enterprise Fee will be
$15,000 per month. The Exchange notes that the NYSE Arca RRP Digital
Media Enterprise Fee is lower than NYSE Arca 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 Arca RRP product and the Broadcast Fee, a vendor
paying the Digital Media Enterprise Fee may deliver the NYSE Arca
Trades and NYSE Arca 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 Arca Trades, the television-only $20,000 Broadcast Fee
option will no longer be available. For NYSE Arca RRP, web-only
distribution for $30,000 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 Arca RRP
Digital Media.
The Exchange will continue to offer the $.004 per query fee for
NYSE Arca RRP to any vendor that so chooses, but the Exchange proposes
to reduce the cap to $15,000, the same amount as the NYSE Arca RRP
Digital Media Enterprise Fee. Vendors and subscribers receiving NYSE
Arca 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 will
continue to pay NYSE Arca Trades basic fees.
Redistribution Fees
The Exchange also proposes to charge a redistribution fee of $750
per month for NYSE Arca Trades and $1,500 per month for NYSE Arca
RRP.\12\ The redistribution fees will apply regardless of whether the
customer is eligible for the Digital Media Enterprise Fees or NYSE Arca
Trades basic fees.
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\12\ A redistributor is a vendor or any other person that
provides an NYSE Arca 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 Arca Trades Digital Media Enterprise Fee of
$20,000 per month and NYSE Arca RRP Digital Media Enterprise Fee of
$15,000 per month are reasonable because they will offer a means for
vendors to more widely distribute NYSE Arca Trades and NYSE Arca RRP
data to investors for informational purposes at the same cost (in the
case of NYSE Arca Trades) or a lower cost (in the case of NYSE Arca
RRP) than is available today. Currently, NYSE Arca Trades can be
distributed via television for a $20,000 monthly fee, but that fee does
not include Web site or mobile device distribution. NYSE Arca RRP can
be distributed over Web sites for a $30,000 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 Arca Trades Digital Media
than NYSE Arca RRP Digital Media because the former includes trade size
data. The Exchange believes that the price reduction for NYSE Arca 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
$30,000 to $15,000 is reasonable because it will be equal to the
proposed monthly NYSE Arca 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
[[Page 21438]]
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 Arca Trades and NYSE
Arca 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 Arca 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 Arca
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 Arca RRP, reducing
prices, the Exchange believes that more vendors will choose to offer
NYSE Arca Trades and NYSE Arca 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 the Exchange as
well as 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, the Exchange 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). The Exchange 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 (DC 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 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 Arca Trades and NYSE Arca 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 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
[[Page 21439]]
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. 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 [hellip] 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 Arca Trades or NYSE Arca 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 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
[[Page 21440]]
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, NYSE
MKT, 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 Arca Trades) or a lower price (in the case
of NYSE Arca 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 the Exchange's and
another exchange's 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 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 either the same
or a lower price, may encourage more vendors to choose to offer NYSE
Arca Trades or NYSE Arca 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 Arca Trades and NYSE Arca 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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[[Page 21441]]
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-NYSEArca-2013-31 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-NYSEArca-2013-31. 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-NYSEArca-2013-31, and should be submitted on or before
May 1, 2013.
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\31\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08325 Filed 4-9-13; 8:45 am]
BILLING CODE 8011-01-P