[Federal Register Volume 78, Number 162 (Wednesday, August 21, 2013)]
[Notices]
[Pages 51775-51780]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-20339]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70212; File No. SR-NYSEMKT-2013-69]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending the Fees for
Display Use of the NYSE MKT BBO and NYSE MKT Trades Market Data
Products and Making Certain Technical Changes to the Fee Schedule
August 15, 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 August 1, 2013, NYSE MKT LLC (the ``Exchange'' or ``NYSE
MKT'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the fees for display use of the NYSE
MKT BBO and NYSE MKT Trades market data products and make certain
technical changes to the fee schedule. The changes will be operative on
August 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend the fees for display use of the NYSE
MKT BBO \4\ and NYSE MKT Trades \5\ market data products and make
certain technical changes to the fee schedule. The changes will be
operative on August 1, 2013.
---------------------------------------------------------------------------
\4\ NYSE MKT BBO is an NYSE MKT-only market data feed that
allows a vendor to redistribute on a real-time basis the same best-
bid-and-offer information that the Exchange reports under the
Consolidated Quotation (``CQ'') Plan for inclusion in the CQ Plan's
consolidated quotation information data stream. The data feed
includes the best bids and offers for all securities that are traded
on the Exchange and for which NYSE MKT reports quotes under the CQ
Plan.
\5\ NYSE MKT Trades is an NYSE MKT-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 MKT 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 MKT's opening price,
high price, low price, closing price, and cumulative volume for the
security.
---------------------------------------------------------------------------
The Exchange currently charges $10 per month for professional users
and $5 per month for non-professional users for display use of NYSE MKT
BBO.\6\ Alternatively, the Exchange charges $0.005 per quote for
display use of NYSE MKT BBO for non-professional users, capped at $5
per month per non-professional user.\7\ The Exchange currently charges
$10 per month for professional users for display use of NYSE MKT
Trades. The Exchange currently does not offer NYSE MKT Trades for non-
professional users under a per-user fee structure.\8\
---------------------------------------------------------------------------
\6\ The Exchange applies the same criteria for qualification as
a ``non-professional subscriber'' as the CTA and CQ Plan
participants use. See Securities Exchange Act Release No. 62187 (May
27, 2010), 75 FR 31500, 31502 (June 3, 2010) (SR-NYSEAmex-2010-35).
\7\ Id. The cap is referenced in this filing, although it does
not currently appear in the fee schedule.
\8\ See SR-NYSEAmex-2010-35, supra n.6. When NYSE MKT Trades was
initially offered, the Exchange had not observed a demand for non-
professional use because an alternative product was available. See
id. The Exchange now offers two last sale market data products for
distribution to non-professional users, NYSE MKT Trades Digital
Media and NYSE MKT Realtime Reference Prices Digital Media. See
Securities Exchange Act Release No. 69300 (Apr. 4, 2013), 78 FR
21469 (Apr. 10, 2013) (SR-NYSEMKT-2013-31).
---------------------------------------------------------------------------
The Exchange also charges an access fee of $750 per month for NYSE
MKT BBO and an access fee of $750 for NYSE MKT Trades. However, a
single access fee applies for clients receiving both NYSE MKT BBO and
NYSE MKT Trades.
Vendors that redistribute NYSE MKT Trades data pay a redistribution
fee of $750 per month.
The Exchange proposes to lower the professional user fees for
display use of NYSE MKT BBO from $10 per month to $1 per month, lower
the non-professional user fees for display use of NYSE MKT BBO from $5
per month to $0.05 per month, and eliminate the per quote option for
display use of NYSE MKT BBO for non-professional users. The Exchange
also proposes to lower the professional user fee for display use of
NYSE MKT Trades from $10 per month to $1 per month and introduce a fee
for display use of NYSE MKT Trades by non-professional users of $0.05
per month.
The Exchange also proposes to establish a $20,000 per month
enterprise fee for an unlimited number of professional and non-
professional users for NYSE MKT BBO and a $20,000 per month enterprise
fee for an unlimited number of professional and non-professional users
for NYSE MKT Trades. A single enterprise fee will apply for vendors
receiving both NYSE MKT BBO and NYSE MKT Trades.
As an example, under the current fee structure, if a firm had 1,500
professional users who each received
[[Page 51776]]
NYSE MKT Trades at $10 per month and NYSE MKT BBO at $10 per month,
then the firm currently pays $30,000 per month in professional user
fees. Under the proposed enterprise fee, the firm will pay a flat fee
of $20,000 for an unlimited number of professional and non-professional
users for both products.
A vendor that pays the enterprise fee would not have to report the
number of such users on a monthly basis.\9\ However, every six months,
a vendor must provide the Exchange with a count of the total number of
natural person users of each product, including both professional and
non-professional users.
---------------------------------------------------------------------------
\9\ Most professional users currently are subject to a per
display device count, except for a small number of professional
users that have qualified for the Exchange's Unit-of-Count Policy.
See SR-NYSEAmex-2010-35, supra n.6. That policy continues to apply
to such professional users for display use only if the proposed
enterprise fee does not apply. See Securities Exchange Act Release
No. 69285 (April 3, 2013) 78 FR 21172 (April 9, 2013) (SR-NYSEMKT-
2013-32).
---------------------------------------------------------------------------
Lastly, the Exchange proposes to make certain technical corrections
to clarify its fee schedule and to delete operative dates that are no
longer needed.
The purpose of the foregoing changes is to encourage greater use of
NYSE MKT BBO and NYSE MKT Trades by making them more affordable, to
compete more effectively with similar products in the marketplace, and
to clarify the fee schedule. The Exchange is eliminating the per quote
option for display use of NYSE MKT BBO for non-professional users
because non-professional users are not electing to use it. The Exchange
is not aware of any significant problems that persons affected are
likely to have in complying with the proposed rule change.
The Exchange further believes that the proposed rule change is
consistent with the market-based approach of the Securities and
Exchange Commission (``Commission''). The decision of the United States
Court of Appeals for the District of Columbia Circuit in NetCoalition
v. SEC, 615 F.3d 525 (DC Cir. 2010), upheld reliance by the 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.' '' \10\
---------------------------------------------------------------------------
\10\ NetCoalition, 615 F.3d at 535.
---------------------------------------------------------------------------
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.\11\ In addition, the existence of
alternatives to NYSE MKT BBO and NYSE MKT Trades, including real-time
consolidated data, free delayed consolidated data, and proprietary 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.
---------------------------------------------------------------------------
\11\ 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.
---------------------------------------------------------------------------
As the NetCoalition decision noted, the Commission is not required
to undertake a cost-of-service or ratemaking approach, and the Exchange
incorporates by reference into this proposed rule change its
affiliate's analysis of this topic in another rule filing.\12\
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release No. 63291 (Nov. 9,
2010), 75 FR 70311 (Nov. 17, 2010) (SR-NYSEArca-2010-97).
---------------------------------------------------------------------------
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 its members,
issuers, and other persons using its facilities and is not designed to
permit unfair discrimination among customers, issuers, brokers, or
dealers. The Exchange also believes that the proposed rule change is
consistent with Section 11(A) of the Act \15\ in that it is consistent
with (i) fair competition among brokers and dealers, among exchange
markets, and between exchange markets and markets other than exchange
markets and (ii) the availability to brokers, dealers, and investors of
information with respect to quotations for and transactions in
securities. Furthermore, the proposed rule change is consistent with
Rule 603 of Regulation NMS,\16\ which provides that any national
securities exchange that distributes information with respect to
quotations for or transactions in an NMS stock do so on terms that are
not unreasonably discriminatory.
---------------------------------------------------------------------------
\13\ 15 U.S.C. 78f(b).
\14\ 15 U.S.C. 78f(b)(4), (5).
\15\ 15 U.S.C. 78k-1.
\16\ See 17 CFR 242.603.
---------------------------------------------------------------------------
The Exchange believes that lowering the professional and non-
professional user fees for NYSE MKT BBO and lowering the professional
user fee for NYSE MKT Trades is reasonable because it will make the
products more affordable and result in their greater availability to
professional and non-professional users. The Exchange believes that
introducing a non-professional fee for NYSE MKT Trades is reasonable
because it provides an additional method for retail investors to access
NYSE MKT last sale data and provides the same last sale data that is
available to professional users, an option heretofore unavailable.\17\
The Exchange believes it is reasonable to eliminate the per quote
option for non-professional users of NYSE MKT BBO because non-
professional users have not elected this option.
---------------------------------------------------------------------------
\17\ See supra n.8.
---------------------------------------------------------------------------
In addition, the Exchange believes that the proposed fees are
reasonable when compared to fees for comparable products offered by at
least one other exchange and under the CTA and CQ Plans. Specifically,
The NASDAQ Stock Market LLC (``NASDAQ'') offers NASDAQ Basic, which
includes best bid and offer and last sale data, for a monthly fee of
$10 per professional subscriber and $0.50 per non-professional
subscriber; alternatively, a broker-dealer may purchase an enterprise
license at a rate of $100,000 per month for distribution to an
unlimited number of non-professional subscribers only.\18\ Under the
current CTA Plan, Tape B market data includes NYSE MKT and certain
other exchanges' data. Monthly fees for professional users range from
$13.60-$14.60 for consolidated last sale data and $13.65-$15.60 for
bid-ask data; the monthly fee for each non-professional subscriber is
$1.00 for both last sale and bid-ask data.\19\ A monthly enterprise fee
of $500,000 is available under which a
[[Page 51777]]
U.S. registered broker-dealer may distribute data to an unlimited
number of its own employees and its nonprofessional subscriber
brokerage account customers. Participants in the CTA and CQ Plans
recently submitted an immediately effective filing with rate changes
that are expected to be implemented September 1, 2013.\20\ The Exchange
is proposing professional and non-professional user fees and enterprise
fees that are substantially less than the fees currently charged by
NASDAQ and currently charged and proposed for the CTA and CQ Plans. In
contrast to NASDAQ and the CTA and CQ Plans, the Exchange also will
permit enterprise distribution by a non-broker-dealer.
---------------------------------------------------------------------------
\18\ See NASDAQ Rule 7047.
\19\ See CTA Plan dated July 25, 2012 and CQ Plan dated August
23, 2010, available at https://cta.nyxdata.com/CTA.
\20\ See Securities Exchange Act Release No. Release No. 70010
(July 19, 2013) (File No. SR-CTA/CQ-2013-04). Monthly fees will be
$24 for professional subscribers and $1 for non-professional
subscribers for Tape B last sale and bid-ask data, and the monthly
enterprise fee described above will be increased to $520,000.
---------------------------------------------------------------------------
The proposed enterprise fees for NYSE MKT BBO and NYSE MKT Trades
also are reasonable because they could result in a fee reduction for
vendors with a large number of professional and non-professional users,
as described in the example above. If a vendor has a smaller number of
professional users of NYSE MKT BBO and/or NYSE MKT Trades, then it may
continue using the per user structure and benefit from the per user fee
reductions. By reducing prices for vendors with a large number of
professional and non-professional users, the Exchange believes that
more vendors may choose to offer NYSE MKT BBO and NYSE MKT Trades,
thereby expanding the distribution of this market data for the benefit
of investors. The Exchange also believes that offering an enterprise
fee will expand the range of options for offering NYSE MKT BBO and NYSE
MKT Trades and will allow vendors greater choice in selecting the most
appropriate level of data and fees for the professional and non-
professional users they are servicing.
The Exchange further believes that the proposed enterprise fees are
reasonable because they will simplify billing for certain recipients
that have large numbers of professional and non-professional users.
Firms that pay the proposed enterprise fees will not have to report the
number of users on a monthly basis as they currently do, but rather
will only have to count natural person users every six months; this is
a significant reduction in administrative burdens and is a significant
value. The Exchange believes that it is reasonable to charge a single
enterprise fee for clients receiving both NYSE MKT BBO and NYSE MKT
Trades because the Exchange has charged a single access fee for both
products since 2010,\21\ and the products will continue to be offered
separately for vendors and users that so choose.
---------------------------------------------------------------------------
\21\ See SR-NYSEAmex-2010-35, supra n.6.
---------------------------------------------------------------------------
The Exchange believes that the proposed fees are equitable and not
unfairly discriminatory because they will be charged uniformly to
vendors and users that select these products. The Exchange notes that
the fee structure of differentiated professional and non-professional
fees has long been used by the Exchange for other products, by other
exchanges for their products, and by the CTA and CQ Plans in order to
reduce the price of data to retail investors and make it more broadly
available.\22\ The Exchange further believes that offering NYSE MKT
Trades to non-professional users with the same data available to
professional users results in greater equity among data recipients. The
Exchange believes that eliminating the per quote non-professional user
fee for NYSE MKT BBO is equitable and not unfairly discriminatory
because non-professional users have not elected this option and the
Exchange will continue offering other methods by which non-professional
users can access this data. Finally, the Exchange believes that it is
equitable and not unfairly discriminatory to establish an enterprise
fee because it reduces the Exchange's costs and administrative burdens
in tracking and auditing large numbers of users.
---------------------------------------------------------------------------
\22\ See, e.g., Securities Exchange Act Release No. 20002, File
No. S7-433 (July 22, 1983) (establishing nonprofessional fees for
CTA data); NASDAQ Rules 7023(b), 7047.
---------------------------------------------------------------------------
The proposed technical corrections to the fee schedule will benefit
vendors and users by making the fee schedule clearer and easier to
understand.
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
In accordance with Section 6(b)(8) of the Act,\23\ 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) the inherent contestability of
the market for proprietary data and actual competition for the sale of
such data, (2) the joint product nature of exchange platforms, and (3)
the existence of alternatives to proprietary data.
---------------------------------------------------------------------------
\23\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
The Existence of Actual Competition. The market for proprietary
data products is currently competitive and inherently contestable
because there is fierce competition for the inputs necessary to the
creation of proprietary data and strict pricing discipline for the
proprietary products themselves. Numerous exchanges compete with each
other for listings and order flow and sales of market data itself,
providing virtually limitless opportunities for entrepreneurs who wish
to compete in any or all of those areas, including producing and
distributing their own market data. Proprietary data products are
produced and distributed by each individual exchange, as well as other
entities, in a vigorously competitive market.
Competitive markets for listings, order flow, executions, and
transaction reports provide pricing discipline for the inputs of
proprietary data products and therefore constrain markets from
overpricing proprietary market data. The U.S. Department of Justice
also has acknowledged the aggressive competition among exchanges,
including for the sale of proprietary market data itself. In announcing
that the bid for NYSE Euronext by NASDAQ OMX Group Inc. and
IntercontinentalExchange Inc. had been abandoned, Assistant Attorney
General Christine Varney stated that exchanges ``compete head to head
to offer real-time equity data products. These data products include
the best bid and offer of every exchange and information on each equity
trade, including the last sale.'' \24\
---------------------------------------------------------------------------
\24\ 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.
---------------------------------------------------------------------------
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
[[Page 51778]]
market participants with varying trading needs.'' \25\
---------------------------------------------------------------------------
\25\ 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.
---------------------------------------------------------------------------
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 offer NYSE MKT BBO or
NYSE MKT Trades unless those products will help them maintain current
users or attract new ones. For example, a broker-dealer will not choose
to offer NYSE MKT BBO or NYSE MKT Trades to its retail customers unless
the broker-dealer believes that the retail customers will use and value
the data and the provision of such data will help the broker-dealer
maintain the customer relationship, which allows the broker-dealer to
generate profits for itself. Professional users will not request NYSE
MKT BBO or NYSE MKT Trades from market data vendors unless they can use
the data for profit-generating purposes in their businesses. All of
these operate as constraints on pricing proprietary data products.
Joint Product Nature of Exchange Platform. Transaction execution
and proprietary data products are complementary in that market data is
both an input and a byproduct of the execution service. In fact, market
data and trade executions are a paradigmatic example of joint products
with joint costs. The decision whether and on which platform to post an
order will depend on the attributes of the platforms where the order
can be posted, including the execution fees, data quality, and price
and distribution of their data products. The more trade executions a
platform does, the more valuable its market data products become.
The costs of producing market data include not only the costs of
the data distribution infrastructure, but also the costs of designing,
maintaining, and operating the exchange's transaction execution
platform and the cost of regulating the exchange to ensure its fair
operation and maintain investor confidence. The total return that a
trading platform earns reflects the revenues it receives from both
products and the joint costs it incurs. Moreover, an exchange's broker-
dealer customers view the costs of transaction executions and market
data as a unified cost of doing business with the exchange.
Other market participants have noted that the liquidity provided by
the order book, trade execution, core market data, and non-core market
data are joint products of a joint platform and have common costs.\26\
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.\27\
---------------------------------------------------------------------------
\26\ 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.
\27\ 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.'').
---------------------------------------------------------------------------
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
[[Page 51779]]
many currently do or have announced plans to do so, including but not
limited to the Exchange, NYSE, NYSE Arca, NASDAQ OMX, BATS, and Direct
Edge.
The fact that proprietary data from ATSs, BDs, and vendors can
bypass SROs is significant in two respects. First, non-SROs can compete
directly with SROs for the production and sale of proprietary data
products. Second, because a single order or transaction report can
appear in an SRO proprietary product, a non-SRO proprietary product, or
both, the amount of data available via proprietary products is greater
in size than the actual number of orders and transaction reports that
exist in the marketplace. Because market data users can thus find
suitable substitutes for most proprietary market data products, 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 $0.50-$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 that is simply a subset of the consolidated data (such
as NYSE MKT Trades and NYSE MKT BBO). 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 pressures imposed by available alternatives are
clearly evident in the Exchange's proposed pricing. As noted above, the
Exchange's proposed user and enterprise fees are substantially less
than the fees charged by both NASDAQ and the CTA and CQ Plans, and the
Exchange's enterprise fee also permits distribution by a non-broker-
dealer.\28\
---------------------------------------------------------------------------
\28\ See supra nn.18-20.
---------------------------------------------------------------------------
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.\29\
---------------------------------------------------------------------------
\29\ 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.
---------------------------------------------------------------------------
Further, data products are valuable to professional users only if
they can be used for profit-generating purposes in their businesses and
valuable to non-professional users only insofar as they provide
information that such users expect will assist them in tracking prices
and market trends and making order routing and trading decisions.\30\
The Exchange believes that the proposed lower user fees and the
enterprise fees, which may permit wider distribution of last sale and
quote information at a lower cost to vendors with a large number of
professional and non-professional users, may encourage more users to
demand and more vendors to choose to offer NYSE MKT BBO and NYSE MKT
Trades, thereby benefitting professional and non-professional users,
including public investors. The Exchange also believes that offering
NYSE MKT Trades for non-professional users on a per user basis and
providing the same information as is provided to professional users
will create more choices for vendors that will allow them to offer
products with the appropriate level of information at a range of
prices, thereby encouraging wider distribution of the data.
---------------------------------------------------------------------------
\30\ Rule 603(c) of Regulation NMS requires vendors to make the
consolidated core data feeds available to customers when trading and
order-routing decisions can be implemented. See 17 CFR 242.603(c).
---------------------------------------------------------------------------
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) \31\ of the Act and subparagraph (f)(2) of Rule
19b-4 \32\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78s(b)(3)(A).
\32\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------
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) \33\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml ); or
Send an email to [email protected]. Please include
File Number SR-NYSEMKT-2013-69 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.
[[Page 51780]]
All submissions should refer to File Number SR-NYSEMKT-2013-69. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Room, 100 F Street NE., Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEMKT-2013-69 and should
be submitted on or before September 11, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
---------------------------------------------------------------------------
\34\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20339 Filed 8-20-13; 8:45 am]
BILLING CODE 8011-01-P