[Federal Register Volume 80, Number 3 (Tuesday, January 6, 2015)]
[Notices]
[Pages 561-566]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30890]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73956; File No. SR-C2-2014-029]
Self-Regulatory Organizations; C2 Options Exchange, Incorporated;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Fees for the C2 Book Depth Data Feed and Certain Other C2
Real-Time Data Feeds
December 30, 2014.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 17, 2014, C2 Options Exchange, Incorporated (the
``Exchange'' or ``C2'') 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
Exchange. 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\ 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
C2 Options Exchange, Incorporated (the ``Exchange'' or ``C2'')
proposes to establish fees for the C2 Book Depth Data Feed and amend
fees for certain other C2 real-time data feeds. The text of the
proposed rule change is available on the Exchange's Web site (http://www.c2exchange.com/Legal/), at the Exchange's Office of the Secretary,
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 Exchange 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 these 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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to: (1) Establish fees
for the C2 Book Depth Data Feed; (2) amend fees for the C2 Complex
Order Book (``COB'') Data Feed; and (3) establish fees for distribution
of C2 data via a ``Display Only Service'' (as defined below). These
data feeds are made available by C2's affiliate Market Data Express,
LLC (``MDX'').
BBO, Book Depth and COB Data Feeds
BBO Data Feed: The BBO Data Feed is a real-time, low latency data
feed that includes the following content: (i) Outstanding quotes and
standing orders at the best available price level on each side of the
market, with aggregate size (``BBO data''), and last sale data \3\;
(ii) totals of customer versus non-customer contracts at the BBO, (iii)
All-or-None contingency orders priced better than or equal to the BBO,
(iv) BBO and last sale data for complex strategies (e.g., spreads,
straddles, buy-writes, etc.); (v) expected opening price (``EOP'') and
expected opening size (``EOS'') information that is disseminated prior
to the opening of the market and during trading rotations, (vi) end-of-
day (``EOD'') summary messages that are disseminated after the close of
a trading session that include summary information about trading in C2
listed options (i.e., product name, opening price, high and low price
during the trading session and last sale price), (vii) ``recap
messages'' that are disseminated during a trading session any time
there is a change in the open, high, low or last sale price of a C2
listed option, as well as product name and total volume
[[Page 562]]
traded in the product during the trading session; and (viii) product
IDs and codes for all C2 listed options contracts. The data in the BBO
Data Feed is refreshed periodically during the trading session. The BBO
and last sale data contained in the BBO Data Feed is identical to the
data sent to the Options Price Reporting Authority (``OPRA'') for
redistribution to the public.\4\
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\3\ ``Best bid and offer'' or ``BBO'' data is sometimes referred
to as ``top-of-book'' data. Data with respect to executed trades is
referred to as ``last sale'' data.
\4\ MDX makes available to Customers the BBO data and last sale
data that is included in the BBO Data Feed no earlier than the time
at which the Exchange sends that data to OPRA.
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Book Depth Data Feed: The Book Depth Data Feed is a real-time, low
latency data feed that includes all outstanding quotes and standing
orders up to the first five price levels on each side of the market,
with aggregate size (``Book Depth''). The Book Depth Data Feed includes
all of the other data contained in the BBO Data Feed (as described
above), including last sale, BBO and Book Depth data for complex
strategies.\5\
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\5\ See Securities Exchange Act Release No. 71773 (March 24,
2014), 79 FR 17611 (March 28, 2014).
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COB Data Feed: The COB Data Feed is a subset of the Book Depth Data
Feed. It is a real-time data feed that includes data regarding the
Exchange's Complex Order Book and related complex order information.
The COB Data Feed includes BBO, Book Depth and last sale data for all
C2-traded complex order strategies and identifies customer orders and
trades.
Fees
BBO Data Feed Fees: MDX currently charges a ``Data Fee'', payable
by a Customer, of $1,000 per month for internal use and external
redistribution of the BBO Data Feed.\6\ The Data Fee entitles a
Customer to provide the BBO Data Feed to an unlimited number of
internal users and Devices \7\ within the Customer. A Customer
receiving the BBO Data Feed from another Customer is assessed the Data
Fee by MDX pursuant to its own market data agreement with MDX, and is
entitled to use the Data internally and/or distribute it externally.\8\
All Customers have the same rights to utilize the data internally and/
or distribute it externally as long as the Customer has entered into a
written agreement with MDX for the data and pays the Data Fee.
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\6\ A BBO Data Feed ``Customer'' is currently defined as any
entity that receives the BBO Data Feed either directly from MDX's
system or through a connection to MDX provided by an approved
redistributor (i.e., a market data vendor or an extranet service
provider) and distributes it externally or uses it internally. The
MDX fee schedule for CBOE data is located at https://www.cboe.org/MDX/CSM/OBOOKMain.aspx.
\7\ A ``Device'' means any computer, workstation or other item
of equipment, fixed or portable, that receives, accesses and/or
displays data in visual, audible or other form.
\8\ A Customer may choose to receive the data from another
Customer rather than directly from MDX's system because it does not
want to or is not equipped to manage the technology necessary to
establish a direct connection to MDX.
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The Exchange is not proposing to amend the Data Fee. The Exchange
proposes to establish a ``User Fee'', payable by a Customer, of $50 per
month per Device or user ID for use of data in the BBO Data Feed by
``Display Only Service'' users. A ``Display Only Service'' would allow
a natural person end-user to view and manipulate data using a
Customer's computerized service, but not to save, copy, export or
transfer the data or any results of the manipulation to any other
computer hardware, software or media, except for printing it to paper
or other non-magnetic media. User fees would be payable only for
``external'' Display Only Service users (Devices or user IDs of users
who are not employees or natural person independent contractors of the
Customer, the Customer's affiliates or an authorized service
facilitator).
The Exchange proposes to amend the definition of a ``Customer'' to
make it uniformly applicable to the BBO Data Feed and the other C2
real-time data feeds described above. The term ``Customer'' would mean
any person, company or other entity that, pursuant to a market data
agreement with MDX, is entitled to receive data, either directly from
MDX or through an authorized redistributor (i.e., a Customer or an
extranet service provider), whether that data is distributed externally
or used internally. An entity or person that receives BBO data from a
Customer through a Display Only Service is not a ``Customer'' unless it
has a market data agreement in place with MDX.
Book Depth Data Feed Fees: The Exchange proposes to amend the MDX
fee schedule to establish fees for the Book Depth Data Feed. MDX would
charge a ``Data Fee'', payable by a Customer (as defined above), of
$1,000 per month for internal use and external redistribution of the
Book Depth Data Feed. The Data Fee for the Book Depth Data Feed would
entitle a Customer to provide the Book Depth Data Feed to an unlimited
number of internal users and Devices within the Customer. A Customer
receiving the Book Depth Data Feed from another Customer would be
assessed the Data Fee by MDX pursuant to its own market data agreement
with MDX, and would be entitled to use the Data internally and/or
distribute it externally. All Customers would have the same rights to
utilize the Book Depth data internally and/or distribute it externally
as long as the Customer has entered into a written agreement with MDX
for the data and pays the Data Fee. BBO Data Feed Customers could
upgrade to become Book Depth Data Feed Customers without paying any
additional Data Fee.\9\
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\9\ Such Customers would still be subject to Display Only
Service User Fees as described below.
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MDX would also charge a Book Depth Data Feed Customer a User Fee of
$50 per month per Device or user ID for use of the data in the Book
Depth Data Feed by Display Only Service users (as defined above). User
Fees would be payable only for ``external'' Display Only Service Users
(as defined above). An entity or person that receives Book Depth data
from a Customer through a Display Only Service is not a ``Customer''
unless it has a market data agreement in place with MDX.
COB Data Feed Fees: MDX currently charges Customers of the COB Data
Feed a Data Fee of $500 per month plus applicable User Fees.\10\ The
Data Fee for the COB Data Feed is waived for Customers of the BBO Data
Feed.\11\
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\10\ A COB Data Feed Customer is currently defined as any entity
that receives the COB Data Feed, either directly from MDX's system
or through a connection to MDX provided by an approved redistributor
(i.e., a market data vendor or an extranet service provider), and
distributes it externally or uses it internally, except that an
entity or person that receives the COB Data Feed from a Customer and
only uses it internally is not a ``Customer'' if it receives the COB
Data Feed from a Customer subject to a form of ``Subscriber
Agreement'' that has been approved by MDX.
\11\ Such COB Data Feed Customers are still subject to User Fees
as described below.
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MDX currently charges a Customer User Fees of $25 per month per
Device or user ID for receipt of the data by ``Professional Users''
\12\ and $1 per month for receipt of the data by ``Non-Professional
Users.'' \13\ User Fees are
[[Page 563]]
subject to a cap of $500 per month (i.e., a Customer pays no more than
$500 in User Fees for a given month).
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\12\ A ``Professional User'' is any natural person recipient of
Data who is not a Non-Professional User. User Fees for Professional
Users are payable for both ``internal'' Professional Users (Devices
or user IDs of employees of a Customer) and ``external''
Professional Users (Devices or user IDs of Professional Users who
receive the Data from a Customer and are not employed by the
Customer). (Non-Professional Users must be external since a person
who uses the COB Data Feed for a commercial purpose cannot be a Non-
Professional User.)
\13\ A ``Non-Professional User'' is a natural person who uses
the COB Data Feed only for personal purposes and not for any
commercial purpose and who, if he or she works in the United States,
is not: (i) Registered or qualified in any capacity with the
Securities and Exchange Commission, the Commodities Futures Trading
Commission, any state securities agency, any securities exchange or
association, or any commodities or futures contract market or
association; (ii) engaged as an ``investment adviser'' as that term
is defined in Section 201(11) of the Investment Advisors Act of 1940
(whether or not registered or qualified under that Act); or (iii)
employed by a bank or other organization exempt from registration
under federal or state securities laws to perform functions that
would require registration or qualification if such functions were
performed for an organization not so exempt; or, if he or she works
outside of the United States, does not perform the same functions as
someone who would qualify as a Non-Professional User if he or she
worked in the United States.
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The Exchange proposes to reduce the Data Fee from $500 per month to
$100 per month. The Data Fee would be waived for Customers of the Book
Depth Data Feed. The Exchange proposes to reduce the User Fee for Non-
Professional Users from $1 per month to zero.\14\ For the purpose of
consistency, the Exchange proposes to amend the definition of a COB
Data Feed Customer so that it is the same definition that is applicable
to the BBO and Book Depth Data Feeds.
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\14\ The Exchange proposes to amend the definition of ``Non-
Professional User'' so that it is consistent with the definition of
``Non-Professional User'' used by OPRA. See OPRA Addendum for
Nonprofessionals, which is part of Attachments B-1 and B-2 to OPRA's
Vendor Agreement. A ``Non-Professional User'' would mean a natural
person or qualifying trust that uses Data only for personal purposes
and not for any commercial purpose and, for a natural person who
works in the United States, is not: (i) Registered or qualified in
any capacity with the Securities and Exchange Commission, the
Commodities Futures Trading Commission, any state securities agency,
any securities exchange or association, or any commodities or
futures contract market or association; (ii) engaged as an
``investment adviser'' as that term is defined in Section 201(11) of
the Investment Advisors Act of 1940 (whether or not registered or
qualified under that Act); or (iii) employed by a bank or other
organization exempt from registration under federal or state
securities laws to perform functions that would require registration
or qualification if such functions were performed for an
organization not so exempt; or, for a natural person who works
outside of the United States, does not perform the same functions as
would disqualify such person as a Non-Professional User if he or she
worked in the United States.
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Systems Fees: MDX currently charges a Port Fee of $500 per data
port per month for receipt of a data feed through a connection to MDX.
The Exchange proposes to amend the MDX Fee Schedule to clarify how the
Port Fee is assessed. First, the Exchange proposes to clarify that the
Port Fee applies to the receipt of any data feed through a connection
to MDX, not only for the receipt of the BBO Data Feed. Second, the
Exchange proposes to amend the description of the fee to clarify that
it is payable by any Customer that receives data through a direct
connection to MDX or through a connection to MDX provided by an
extranet service provider. Lastly, the Exchange proposes to clarify
that the port fee applies to receipt of any data feed but is only
assessed once per data port. For example, if a Customer receives two
data feeds over the same port, the Port Fee is only assessed once for
that port.
The Exchange also proposes to delete from the MDX Fee Schedule the
statements that MDX will not charge fees for any of the data feeds (or
the port fee) for any calendar month in which Customer commences
receipt of the data after the 15th day of the month (or in the case of
the port fee, establishes the connection after the 15th day of the
month) or discontinues receipt of the data before the 15th day of the
month (or in the case of the port fee, disconnects before the 15th day
of the month). The Exchange believes it would be more appropriate for
billing policies to be located within MDX's written agreement with
Customers.
All of the proposed fee changes would be effective on January 1,
2015.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of Section 6(b) of the Act.\15\ Specifically, the
Exchange believes the proposed rule change is consistent with Section
6(b)(4) of the Act,\16\ which requires that Exchange rules provide for
the equitable allocation of reasonable dues, fees, and other charges
among its Trading Permit Holders and other persons using its
facilities. The Exchange also believes the proposed rule change is
consistent with the Section 6(b)(5) \17\ requirement that the rules of
an exchange not be designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
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\15\ 15 U.S.C. 78f(b).
\16\ 15 U.S.C. 78f(b)(4).
\17\ Id.
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BBO Data Fees
The Exchange believes the proposed Display Only Service User Fee
for the BBO Data Feed is equitable and not unfairly discriminatory
because it would apply equally to all Customers that distribute data
via a Display Only Service. The Exchange believes the proposed User Fee
is reasonable because it compares favorably to usage fees that other
markets charge for similar products. For example, NASDAQ OMX PHLX
charges a $40 per month Professional Subscriber Fee for use of its
market data products by each of internal and external users. The
International Securities Exchange charges a $20 per month Controlled
Device Fee for use of its Top Quote Feed and a separate $25 per month
Controlled Device Fee for use of its Spread Feed. NYSE charges a $50
per month Professional User Fee for use of each of its NYSE ArcaBook
for Amex Options and NYSE ArcaBook for Arca Options market data
products that include top-of-book and last sale data similar to the
data in the BBO Data Feed.
The Exchange believes it is equitable and not unfairly
discriminatory to charge a lower fee for use of BBO data via a Display
Only Service because such use would be limited to display use only. The
Display Only Service would only allow a natural person end-user to view
and manipulate data using the Customer's computerized service, but not
to save, copy, export or transfer the data or any results of the
manipulation to any other computer hardware, software or media, except
for printing it to paper or other non-magnetic media. The Exchange
notes other exchanges charge fees for market data products based on
distinctions between ``display'' and ``non-display'' usage.\18\
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\18\ See e.g., Securities Exchange Act Release No. 69554 (May
10, 2013), 78 FR 28917 (May 16, 2013), (SR-NYSEArca-2013-47);
Securities Exchange Act Release No. 69553 (May 10, 2013), 78 FR
28926 (May 16, 2013), (SR-NYSEMKT-2013-40); Securities Exchange Act
Release No. 68576 (January 3, 2013), 78 FR 1886 (January 9, 2013),
(SR-PHLX-2012-145); and Securities Exchange Act Release No. 64652
(June 13, 2011), 76 FR 35498 (June 17, 2011), (SR-NASDAQ-2011-45).
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Book Depth Data Fees
The Exchange believes the proposed Data Fee for the Book Depth Data
Feed is equitable and not unfairly discriminatory because it would
apply equally to all Customers. All Customers would have the same
rights to utilize the data (i.e., use the data internally and/or
distribute it externally) as long as the Customer has entered into a
market data agreement with MDX for the data and pays the Data Fee.
The Exchange believes the proposed Data Fee is reasonable because
it compares favorably to fees that other markets charge for similar
products. For example, BATS BZX Exchange charges a $1,000 per month
Internal Use Access Fee and a $5,000 per month External Distribution
Access Fee for Multicast PITCH, which is its depth of market and last
sale feed. NASDAQ OMX PHLX charges Internal Distributors a monthly fee
of $4,000 and External Distributors a monthly fee of a $4,500 for its
Depth of Market data feed that includes full depth of quotes and orders
and last sale data for options listed on PHLX. NYSE charges a $3,000
per month Access Fee and $2,000 per month External Redistribution fee
for each of its NYSE ArcaBook for Amex Options and NYSE
[[Page 564]]
ArcaBook for Arca Options market data products that include top-of-
book, last sale and depth of quote data.
The Exchange believes the proposal to allow BBO Data Feed Customers
to upgrade to become Book Depth Data Feed Customers without any
additional Data Fee is equitable and not unfairly discriminatory
because it would apply equally to all BBO Data Feed Customers. BBO Data
Feed Customers currently pay MDX $1,000 per month for the right to use
and redistribute the data in the BBO Data Feed. The Book Depth Data
Feed includes all of the data in the BBO Data Feed. The proposed fee
arrangement would allow a Book Depth Data Feed Customer who has
upgraded from a BBO Data Feed to use and redistribute Book Depth data
for no additional charge, thereby incentivizing further redistribution
of the data in the Book Depth Data Feed. The Exchange notes other
exchanges offer similar fee arrangements.\19\
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\19\ For example, the Exchange believes the NASDAQ Options
Market charges only one distributor fee to allow a subscriber access
to its ``NASDAQ ITCH-to-Trade Options'' (ITTO) and ``Best of NASDAQ
Options'' (BONO) products. The Exchange believes NASDAQ OMX BX
charges only one distributor fee to allow a subscriber access to its
``BX Options Depth of Market'' (BX Depth) and ``BX Options Top of
Market'' (BX Top) products. In addition, the Exchange believes the
International Securities Exchange charges no additional fee to
subscribers of its ``Depth of Market'' Feed that also access its Top
Quote Feed.
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The Exchange believes the proposed Display Only Service User Fee
for the Book Depth Data Feed is equitable and not unfairly
discriminatory because it would apply equally to all Customers that
distribute data via a Display Only Service. The Exchange believes the
proposed User Fee is reasonable because it compares favorably to usage
fees that other markets charge for similar products. For example,
NASDAQ OMX PHLX charges a $40 per month Professional Subscriber Fee for
use of its market data products by each of internal and external users.
The International Securities Exchange charges a $50 per month
Controlled Device Fee for use of its Depth of Market Feed. NYSE charges
a $50 per month Professional User Fee for use of each of its NYSE
ArcaBook for Amex Options and NYSE ArcaBook for Arca Options market
data products.
The Exchange believes it is equitable and not unfairly
discriminatory to charge a lower fee for use of Book Depth data via a
Display Only Service because such use would be limited to display use
only. The Display Only Service would only allow a natural person end-
user to view and manipulate data using the Customer's computerized
service, but not to save, copy, export or transfer the data or any
results of the manipulation to any other computer hardware, software or
media, except for printing it to paper or other non-magnetic media. As
noted above, other exchanges charge fees for market data products based
on distinctions between ``display'' and ``non-display'' usage.\20\
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\20\ Supra footnote 18.
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COB Data Fees: The Exchange believes the proposed reductions of the
Data Fee and Non-professional User Fee for the COB Data Feed are
equitable and not unfairly discriminatory because they would apply
equally to all Customers of the COB Data Feed. The Exchange believes
the proposed Data Fee is reasonable because it compares favorably to
fees that other markets charge for similar products. For example, as
noted above, the International Securities Exchange charges distributors
of its Spread Feed a base monthly fee of $3,000. The proposed lower
Data Fee may permit wider distribution of the COB Data Feed at a lower
cost to Customers, and the reduced User Fee may make it less costly for
Customers to distribute data to Non-professional Users, thereby
benefitting both Customers and Non-professional Users, including public
investors.
The Exchange believes the proposal to allow Book Depth Data Feed
Customers to become COB Data Feed Customers without any additional Data
Fee is equitable and not unfairly discriminatory because it would apply
equally to all Book Depth Data Feed Customers. Book Depth Data Feed
Customers would pay MDX $1,000 per month for the right to use and
redistribute the data in the Book Depth Data Feed. The COB Data Feed is
a subset of the Book Depth Data Feed. The proposed fee arrangement
would allow a Book Depth Data Feed Customer to use and redistribute the
COB Data Feed for no additional charge, thereby incentivizing further
redistribution of the data in the COB Data Feed. The Exchange notes
other exchanges offer similar fee arrangements.\21\
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\21\ Supra footnote 19.
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Systems Fees and Billing Policy: The Exchange believes the proposed
changes to the description of the Port Fee are equitable, reasonable
and not unfairly discriminatory because they would benefit all
Customers by clarifying how the Port Fee is assessed. The Exchange
believes removing the billing policy from the MDX Fee Schedule is
equitable, reasonable and not unfairly discriminatory because MDX
believes it would be more appropriate for billing policies to be
located within MDX's written agreement with Customers along with other
policies related to MDX's market data services.
For the reasons cited above, the Exchange believes the proposed
fees for the BBO, Book Depth and COB Data Feeds are equitable,
reasonable and not unfairly discriminatory. In addition, the Exchange
believes that no substantial countervailing basis exists to support a
finding that the proposed fees for the BBO, Book Depth and COB Data
Feeds fail to meet the requirements of the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
C2 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 existence of 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.
The Existence of Actual Competition. The Exchange believes
competition provides an effective constraint on the market data fees
that the Exchange, through MDX, has the ability and the incentive to
charge. C2 has a compelling need to attract order flow from market
participants in order to maintain its share of trading volume. This
compelling need to attract order flow imposes significant pressure on
C2 to act reasonably in setting its fees for market data, particularly
given that the market participants that will pay such fees often will
be the same market participants from whom C2 must attract order flow.
These market participants include broker-dealers that control the
handling of a large volume of customer and proprietary order flow.
Given the portability of order flow from one exchange to another, any
exchange that sought to charge unreasonably high data fees would risk
alienating many of the same customers on whose orders it depends for
competitive survival. C2 currently competes with eleven options
exchanges (including C2's affiliate, Chicago Board Options Exchange)
for order flow.\22\
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\22\ The Commission has previously made a finding that the
options industry is subject to significant competitive forces. See
e.g., Securities Exchange Act Release No. 59949 (May 20, 2009), 74
FR 25593 (May 28, 2009) (SR-ISE-2009-97) (order approving ISE's
proposal to establish fees for a real-time depth of market data
offering).
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In addition, in the case of products that are distributed through
market data vendors, the market data vendors
[[Page 565]]
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, Customers will not
offer the BBO, Book Depth or COB Data Feeds unless these products will
help them maintain current users or attract new ones. For example, a
broker-dealer will not choose to offer the BBO, Book Depth or COB Data
Feeds 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 any of these feeds from
Customers 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.
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 options 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.
The Existence of Alternatives. C2 is constrained in pricing the
BBO, Book Depth and COB Data Feeds by the availability to market
participants of alternatives to purchasing these products. C2 must
consider the extent to which market participants would choose one or
more alternatives instead of purchasing the exchange's data. Other
options exchanges can and have produced their own top-of-book, book
depth and complex strategies market data products, and thus are sources
of potential competition for MDX. For example, as noted above, BATS,
ISE, NASDAQ OMX PHLX and NYSE offer market data products that compete
with the BBO, Book Depth and COB Data Feeds. 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. In
addition, the OPRA data feed is a significant competitive alternative
to the BBO and last sale data included in the BBO and Book Depth Data
Feeds.
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 trading decisions.
The existence of numerous alternatives to the Exchange's products,
including proprietary data from other sources, ensures that the
Exchange cannot set unreasonable fees, or fees that are unreasonably
discriminatory, when vendors and subscribers can elect these
alternatives or choose not to purchase a specific proprietary data
product if its cost to purchase is not justified by the returns any
particular vendor or subscriber would achieve through the purchase.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \23\ and paragraph (f) of Rule 19b-4 \24\
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such
[[Page 566]]
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 will
institute proceedings to determine whether the proposed rule change
should be approved or disapproved.
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(f).
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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-C2-2014-029 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-C2-2014-029. 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-C2-2014-029 and should be
submitted on or before January 27, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30890 Filed 1-5-15; 8:45 am]
BILLING CODE 8011-01-P