[Federal Register Volume 78, Number 70 (Thursday, April 11, 2013)]
[Notices]
[Pages 21668-21675]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-08464]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69315; File No. SR-NYSEArca-2013-37]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Establishing Non-
Display Usage Fees for NYSE Arca Integrated Feed, NYSE ArcaBook, NYSE
Arca Trades, and NYSE Arca BBO, and a Redistribution Fee for NYSE
ArcaBook
April 5, 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 28, 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 non-display usage fees for NYSE
Arca Integrated Feed, NYSE ArcaBook, NYSE Arca Trades, and NYSE Arca
BBO, all of which will be operative on April 1, 2013, and a
redistribution fee for NYSE ArcaBook, which will be operative on July
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, 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 non-display usage fees for NYSE
Arca Integrated Feed, NYSE ArcaBook, NYSE Arca Trades, and NYSE Arca
BBO, all of which will be operative on April 1, 2013, and a
redistribution fee for NYSE ArcaBook, which will be operative on July
1, 2013. The subsections below describe (1) The background on the
current fees for these real-time products; (2) the rationale for
creating a new non-display usage fee structure; (3) the proposed fees
for non-display use, which will include internal non-display use and
managed non-display use; (4) the proposed redistribution fee for NYSE
ArcaBook; and (5) examples comparing the current and proposed fees.
[[Page 21669]]
Background on Current Fees
The current monthly fees for NYSE Arca Integrated Feed,\4\ NYSE
ArcaBook,\5\ NYSE Arca BBO,\6\ and NYSE Arca Trades \7\ are as follows:
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Digital media Redistribution
Product Access fee Subscriber fees enterprise fee fee
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NYSE Arca Integrated Feed \8\... $3,000 Professional: $40....... N/A $3,000
Non-professional: $20...
NYSE ArcaBook................... $750 Tape A & B Securities NA NA
(including ETFs).
................ Professional: $15.
................ Non-professional: $5.
................ Tape C Securities
(excluding ETFs)
................ Professional: $15.
................ Non-professional: $5.
................ Non-professional Fee
Cap: $20,000.
NYSE Arca BBO................... $750 Professional: $10....... NA NA
Non-professional: $5....
NYSE Arca Trades................ \9\ $750 Professional: $10....... $20,000 * $750
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* (Operative May 1, 2013).
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\4\ See Securities Exchange Act Release No. 66128 (Jan. 10,
2012), 77 FR 2331 (Jan. 17, 2012) (SR-NYSEArca-2011-96).
\5\ See Securities Exchange Act Release No. 63291 (Nov. 9,
2010), 75 FR 70311 (Nov. 17, 2010) (SR-NYSEArca-2010-97).
\6\ See Securities Exchange Act Release No. 62188 (May 27,
2010), 75 FR 31484 (June 3, 2010) (SR-NYSEArca-2010-23).
\7\ See SR-NYSEArca-2013-31.
\8\ The NYSE Arca Integrated Feed includes: (i) NYSE ArcaBook;
(ii) NYSE Arca BBO; (iii) NYSE Arca Trades; and (iv) order imbalance
information. See supra n.4.
\9\ One $750 monthly access fee entitles a vendor to receive
both the NYSE Arca BBO data feed as well as the Exchange's NYSE Arca
Trades data feed. See supra n.6.
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While the majority of subscribers pay the subscriber fee for each
display or non-display device that has access to NYSE Arca BBO and NYSE
Arca Trades as set forth above, a small number of vendors and
subscribers are eligible for, and have elected, the NYSE Arca Unit-of-
Count Policy that was first introduced by the Exchange's affiliate, New
York Stock Exchange LLC (``NYSE''), 2009 \10\ and is now also available
for NYSE Arca BBO and NYSE Arca Trades.\11\ Under this fee structure,
these vendors and subscribers are subject to a fee structure that
utilizes the following basic principles:
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\10\ 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).
\11\ See supra n.6.
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 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
[[Page 21670]]
to use the same device, the Vendor should include only the entitled
individuals, and not the device, in the count.
Rationale for New Non-Display Usage Fee Structure
As noted in the original NYSE Arca 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.'' \12\ 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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\12\ 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 Stock Market LLC (``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 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 Arca Integrated Feed, NYSE ArcaBook, NYSE Arca BBO,
and NYSE Arca 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 Arca data product delivered
via direct and/or Redistributor \13\ 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 Arca market
data products in Non-Display Trading Activities in accordance with NYSE
Arca's vendor and subscriber agreements.
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\13\ ``Redistributor'' means 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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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 Arca Unit-of-
Count Policy will no longer apply to any non-display usage for NYSE
Arca BBO and NYSE Arca Trades.\14\
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\14\ Existing customers that are approved for the NYSE Arca
Unit-of-Count Policy for NYSE Arca BBO and NYSE Arca 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 Arca
Integrated Feed, NYSE ArcaBook, NYSE Arca BBO, and NYSE Arca 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.
[[Page 21671]]
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 Arca Integrated Feed....................................... $5,000 $5,000 $5,000
NYSE ArcaBook................................................... 4,000 4,000 4,000
NYSE Arca BBO................................................... 1,000 1,000 1,000
NYSE Arca Trades................................................ 1,000 1,000 1,000
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Subscribers to NYSE Arca Integrated Feed, which includes access to
NYSE ArcaBook, NYSE Arca BBO, NYSE Arca Trades, and order imbalance
information, are not required to subscribe to these individual services
as part of the non-display activity for these products. Subscribers who
are not currently subscribing to NYSE Arca Integrated Feed \15\ will be
responsible for the individual product licenses for the non-display
activity.
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\15\ See supra n.8.
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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 Arca Integrated Feed, NYSE ArcaBook, and NYSE
Arca 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 Arca Integrated Feed, NYSE ArcaBook, and/or NYSE Arca Trades
for these applications and may 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 Arca Unit-of-Count
Policy described above,\16\ which will no longer be available for non-
display use after the proposed fees are implemented. If a data
recipient is receiving NYSE Arca Integrated Feed, NYSE ArcaBook, and/or
NYSE Arca Trades for Non-Display Trading Activities from a
Redistributor that is not approved under the NYSE Arca Unit-of-Count
Policy, then the internal non-display fees described above will apply.
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\16\ See supra n.11. The Redistributor and data recipient will
qualify if they are approved for NYSE Arca Unit-of-Count Policy for
any NYSE Arca market data product. The products that are currently
approved for NYSE Arca Unit-of-Count Policy are NYSE Arca Trades and
NYSE Arca 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 Fee
Product (per month)
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NYSE Arca Integrated Feed................. $1,750
NYSE ArcaBook............................. 1,500
NYSE Arca 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, a Redistributor offering managed non-display services
must provide the Exchange with a list of data recipients that are
receiving NYSE Arca Integrated Feed, NYSE ArcaBook, or NYSE Arca 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.
NYSE ArcaBook Redistribution Fee
The Exchange proposes to establish a monthly redistribution fee of
$1,500 for NYSE ArcaBook that will be operative on July 1, 2013. The
Exchange believes that it is reasonable to charge this redistribution
fee because vendors receive value from redistributing the data in their
business products for their customers.
Examples
Broker-Dealer A obtains NYSE Arca Trades directly from the Exchange
for internal use and does not fall under the NYSE Arca 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 Arca
Trades from Vendor X. Broker-Dealer B and Vendor X are both approved
for the NYSE Arca Unit-of-Count Policy. Broker-Dealer B has (i) 10
individual persons who use 12 display devices and (ii) 5 non-display
devices.
Today, Vendor X pays the $750 access fee and Broker-Dealer
B pays $150 ($10 for the 10 individual persons (under the NYSE Arca
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).
[[Page 21672]]
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 and, as of May 1, 2013,
the redistribution fee of $750 for a total of $1,500.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\17\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\18\ 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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\17\ 15 U.S.C. 78f(b).
\18\ 15 U.S.C. 78f(b)(4), (5).
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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.\19\
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.\20\ 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 feed.\21\
NASDAQ and Phlx also both offer managed non-display data solutions at
higher overall fees than the Exchange proposes to charge.\22\
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\19\ See NASDAQ Rule 7023(b)(4).
\20\ 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.
\21\ See NASDAQ OMX BX Rule 7023(a)(2). Alternatively, BX
charges each professional subscriber $40 per month.
\22\ 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 Arca 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 proposed redistribution fee for NYSE ArcaBook also is
reasonable because it is comparable to other redistribution fees that
are currently charged by the Exchange and other exchanges.\23\ As noted
above, the Exchange believes that 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 to those vendors that
choose to redistribute the data.
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\23\ The Exchange charges a $3,000 per month redistribution fee
for the NYSE Arca Integrated Feed, which includes depth-of-book
data. See supra n.4. In addition, 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). All distributors of a
NASDAQ Last Sale Data Feed also pay a monthly fee of $1,500. See
NASDAQ Rule 7039(d).
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The Exchange has not raised the market data fees for NYSE Arca
Integrated Feed and NYSE Arca BBO since the fees were adopted in 2011
and 2010, respectively.\24\ The Exchange set the NYSE ArcaBook
professional subscriber fee at $15 and non-professional subscriber fee
for Tape A and B Securities (including ETFs) or Tape C Securities
(excluding ETFs) in 2006, and the NYSE Arca Trades professional
subscriber fee at $10 in 2010.\25\ 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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\24\ See supra nn.4, 6.
\25\ See Securities Exchange Act Release No. 54597 (Oct. 12,
2006), 71 FR 62029 (Oct. 20, 2006) (SR-NYSEArca-2006-21); 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 Arca Integrated Feed,
NYSE ArcaBook, NYSE Arca BBO, or NYSE Arca Trades. Firms have a wide
variety of alternative market data products from which to choose.\26\
Moreover, the Exchange is not required to make these
[[Page 21673]]
proprietary data products available or to offer any specific pricing
alternatives to any customers.
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\26\ See supra nn.19-22.
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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 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.''' \27\
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\27\ 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.\28\ 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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\28\ 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.\29\
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\29\ 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 for the
creation of proprietary data and strict pricing discipline to 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.'' \30\
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\30\ 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.'' \31\
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\31\ 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 Arca 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.
[[Page 21674]]
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.\32\
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.\33\
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\32\ 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.
\33\ 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 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,\34\ 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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\34\ See supra nn.19-22.
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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 Arca Integrated Feed, NYSE ArcaBook,
NYSE Arca Trades, and NYSE Arca BBO are generally lower than the
maximum non-display fees charged by other exchanges such as NASDAQ,
Phlx, and BX for comparable products.\35\ The proposed redistribution
fee for NYSE ArcaBook also is comparable to the Exchange's and other
exchanges' similar fees.\36\
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\35\ Id.
\36\ See supra n.23.
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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.\37\
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\37\ 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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[[Page 21675]]
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. The
Exchange further believes that only vendors that expect to derive a
reasonable benefit from redistributing the market data products
described herein 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 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) \38\ of the Act and subparagraph (f)(2) of Rule
19b-4 \39\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\38\ 15 U.S.C. 78s(b)(3)(A).
\39\ 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) \40\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\40\ 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-NYSEArca-2013-37 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-2013-37. 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-2013-37, and should be submitted on or before May 2, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08464 Filed 4-10-13; 8:45 am]
BILLING CODE 8011-01-P